In this paper a transfer line balancing problem is considered. The main difference from the standard simple assembly line balancing problem is the fact that the operations are grouped into blocks. All of the operations in the same block are carried out simultaneously by one piece of equipment (spindle head) and all the blocks at the same workstation are executed sequentially. The set of all available spindle heads (possible blocks of operation) is given beforehand. The constraints on compatibility of operations and blocks at the same workstations are taken into account. The problem how to obtain the optimal choice and assignments of blocks to workstations to provides a minimal estimated line cost (via the sum of the blocks and workstations costs). In addition, the precedence, cycle time and compatibility constraints must be satisfied as well. The objective of the paper is to aid manufactures in reducing both space and costs. A new lower bound based on solving a special set partitioning problem is developped and a branch-and-bound algorithm is designed. The exelellent quality of the lower bound allows to obtain very promising results.