KiwiRail is to cut 158 jobs in its infrastructure and engineering divisions by next month.
It says it needs to shave $200 mllion off its spending in the next three years.
The state-owned company plans to reduce its number of infrastructure and engineering staff from 714 to 556 by the end of October.
Infrastructure general manager Rick van Barneveld says the company has worked closely with staff and more than 70 have already taken up an offer of voluntary redundancy.
The biggest job losses are in the central region, with 58 positions cut. The northern region loses 42 jobs and 40 will go in the southern region. Eighteen jobs are being cut in track maintenance.
Mr van Barneveld says the cuts are necessary if the company is to pay its own way in a struggling economy.
"We're not immune from a sluggish and variable economy. We hadn't expected an earthquake in Christchurch and we hadn't expected passenger volumes to fall as well."
He says the company's revenue stream took a big blow from the Christchurch quake in particular.
"The main impact for us of the Christchurch earthquake has just been a reduction in passenger volumes on our long distance passenger trains, including the time it's taken for the Tranz-Alpine to recover and, in addition, just the inter-island ferry volume's significantly lower than we thought.
"So it's not actually an infrastructure issue, it's just that some of our revenue isn't quite as sharp as we would have liked it to be."
He says the cull was not a Government decision. "It's not a Government intervention. It's our company and our company's board of directors make governance calls."
Mr van Barneveld says the number of compulsory redundancies sits at 29 but that could change after managers discuss options with staff this week. Staff will be asked to re-apply for their jobs.
He says the company is still investing, though, with $750 million to be spent on repairing and upgrading the rail network over the next three years.
Mistake losing skills - union
Rail and Maritime Transport Union general secretary Wayne Butson says the Government is making a mistake in letting go skilled KiwiRail employees, who will be snapped up overseas.
A union member told him he had 20 job offers within three hours of putting his CV on an Australian railway website.
"That just goes to show how much in demand these railway skills are at the moment," Mr Butson says. "Every other country in the world is actually heavily investing in rail."
He says rail is a more sustainable mode of transport than roads, on which the Government has spent billions of dollars in recent years.
Mr Butson says KiwiRail is missing the opportunity to build a world-class transport system.
No sense in approach - Labour
The Labour Party says KiwiRail's decision stems from short-sighted Government policies.
Transport spokesperson Phil Twyford says the Government is setting up the state-owned company to fail with impossible financial goals.
"KiwiRail is expected miraculously to find $3.75 billion out of its own balance sheet to invest in capital expenditure. So they are avoiding doing capital expenditure in order to save money for capital expenditure. It makes no sense whatsoever."
Mr Twyford says New Zealand will lose many skilled rail workers to Australia, where they are in demand.