The federal government's announcement Thursday that it is cancelling the Milwaukee-to-Madison high-speed rail project and transferring almost all of the $810 million in federal funds for the project to high-speed rail projects in other states means that Spanish train manufacturer Talgo Inc. will have to end its Milwaukee manufacturing operation in 2012, according to a company spokeswoman.

The federal government is withdrawing the funding for Wisconsin because of Governor-elect Scott Walker's opposition to the Madison-to-Milwaukee project. The funds that had been allocated for Wisconsin will be diverted to other states that are embracing high-speed rail, including California, New York and Illinois.

Talgo plans to maintain a maintenance facility in Milwaukee to service the trains it is building for the state, which will be used on the Milwaukee to Chicago Hiawatha Amtrak line.

Wisconsin purchased two trains sets from Talgo and Oregon purchased two trains sets from the company, which are being manufactured at Talgo's Milwaukee plant at the former A.O. Smith and Tower Automotive complex at 3533 N. 27th St. in the central city.

Talgo was counting on Wisconsin to order an additional two train sets to serve the Milwaukee-to-Madison line. Now that the project has been cancelled, Talgo has no choice but to end its production in Milwaukee once its work on the four train sets for Wisconsin and Oregon is complete in 2012, Talgo spokeswoman Nora Friend said.

"We will not be able to continue our production in Milwaukee after 2012," she said.

Talgo had hoped to build trains for other states at the Milwaukee plant, Friend said. However, since the Milwaukee-to-Madison project has been cancelled, there will be a major production gap for the company that will force it to end production in Milwaukee, she said.

"We can't run a manufacturing operation if we don't have anything to build," she said. "But, our commitment with vendors and our employees for the existing production of the four train sets being built in Milwaukee at this time will continue uninterrupted through spring of 2012."

In the meantime Talgo is ramping up production and hiring more workers in Milwaukee. The company currently has about 40 employees in Milwaukee, and the company's employment here will peak at about 125, Friend said.

"It's heartbreaking to us to be ramping up only to know that we will have to wind it down in 2012," she said.

The company had hoped its Milwaukee operation was just the beginning of a major manufacturing operation to build high-speed trains for the entire United States, Friend said. The cancellation of the Milwaukee-to-Madison high-speed rail project is a lost opportunity for major expansion of the Talgo Milwaukee operation and will hurt vendors in the area that are supplying the plant, she said.

"What Wisconsin is losing is the growth of an industry," Friend said. "It's huge. It's a big loss."

About 60 employees will work at the maintenance facility, probably including some who are working at the manufacturing plant. A location has not been selected for the maintenance operation, but it will most likely be at Talgo's current location at the former Tower Automotive complex, Friend said.