Mergers who would survive; who would not

[Anonymous]

QUOTE: Originally posted by oltmannd

QUOTE: Originally posted by nanaimo73

The NYC was far ahead of the PRR when the Penn Central merger took place. They had been making a lot of progress under Perlman. It's too bad we will never know if he was fast enough to adapt to the changing times.

Passenger losses and the lack of ability to shed unneeded mileage would have killed the NYC. Perlman knew what the RR needed to look like to serve the market, but the NYC was consuming huge amounts of capital to modernize without being able to generated the revenue to pay the debt.

Throwing good money after bad rarely produces much good,, A shame and a scandal, but the truth. Unfortunatly for Mr. Perlman and his ilk that had so much of their professional lives caught up in the surviving of those proud names.

[oltmannd]

QUOTE: Originally posted by nanaimo73

The NYC was far ahead of the PRR when the Penn Central merger took place. They had been making a lot of progress under Perlman. It's too bad we will never know if he was fast enough to adapt to the changing times.

Passenger losses and the lack of ability to shed unneeded mileage would have killed the NYC. Perlman knew what the RR needed to look like to serve the market, but the NYC was consuming huge amounts of capital to modernize without being able to generated the revenue to pay the debt.

[kevarc]

Yeah, it was in really rough shape. I'll have to look it up tonight, I have the numbers somewhere at home, but it was not cheap to repair the line.

Part of it was the PRR/NYC merger, but the PRR was looking for some fast cash at the time. I'll pull that info tonight also.

[Junctionfan]

Ontario Northland for sure doesn't need to merge. The forestry industry and carshop facilities are enough to keep them going for quite some time.

BC Rail; I don't know too much on them but I suspect they could have survived without merging into a class 1. I would suspect that BC Rail could have made a greater competitve market for BC if it merged with the SRY of Rail Link.

[nanaimo73]

Kevarc;
I think it is safe to say the PRR would have prefered to keep the Wabash, but "pushed it on the N&W" only to win approval from the ICC of the PRR+NYC merger. Was the Columbus-Sandusky line a streak of rust in 1964? In 1956 the PRR was using 12 of the ATSFs incredible 2-10-4s to haul coal trains on that line. What a show that must have been!

[nanaimo73]

What I think is funny is that the CRI&P was purchased by Union Pacific. They got all the trackage they wanted of the Rock by taking M.P.,S.P.,C&NW. and Katy. UP runs 2,000 miles of Rock trackage from St. Paul to Fort Worth and out to Santa Rosa. They have substitute lines to Galveston, Memphis, St. Louis, Chicago and Denver.

[kevarc]

A couple of things.

Both the B&O and the L&N were in serious trouble. They both had the same problems. Lack of cars and motive power. there are many documented cases where the B&O delivered cars that were rejected by the shipper. Ditto the L&N. The C&O was strong, they had more coal than the B&O and gave the N&W a good run for the money out of the coal fields. When the Chessie happened they moved a lot of engines and cars to the B&O to keep it running. The B&O was seriously hurt by the collapse in the Northeast. They were a major owner of both the Reading and the CNJ. without the C&O they would have gone under.

The L&N was controlled by the SCL. They had been a ward of the ACL for a long time. There were ICC orders requiring the SCL to send motive power and cars to the L&N to move coal. The mines were screaming because they could not ship because of a car shortage and then when they had cars, they could not get them moved to the reciever.

As for the N&W/PRR/Wabash, this was a different horse. The PRR was a major holder of N&W stock and had a controlling interest in the Wabash. NOTE: The N&W remained very independant from the PRR. IN fact the dividends from the N&W stock was the only thing keeping the PRR afloat. Also remember that the N&W did not connect with either the NKP or the Wabash at the time of their merger. This was done by buying the old PRR line, which in reality was a streak of rust. The PRR actually pushed the Wabash onto the NKP/N&W merger.

In another corridor - the MKT/MP/SSW(RI) - you had essentially 3 RR's that started at the same place and ended at the same place. Someone was going to go under. Funny how all 3 are not in the UP camp.

[nanaimo73]

The NYC was far ahead of the PRR when the Penn Central merger took place. They had been making a lot of progress under Perlman. It's too bad we will never know if he was fast enough to adapt to the changing times.

[oltmannd]

QUOTE: Originally posted by nanaimo73

Would the PRR have survived? If they merged the Wabash (which they owned) in 1960 instead of letting the N&W take it they would have reached Kansas City, Des Moines and Omaha. That would have given them a lot of auto traffic out of Detroit as well.
Pelver probably could have run the RR a lot better than Saunders, who should have stayed with the N&W. They would have to follow the lead of the NYC as well, replacing multiple track with CTC, dropping branchlines,passenger service (SORRY!) and getting young enthusiastic people in marketing.

Wabash & PRR would have been a big blow to the NYC and probably would have given PRR a fighting chance (in post Amtrak and post dereg environment).

I think that the NYC might have had a decent chance if Amtrak and dereg had occurred in 1960 instead of 10-20 years later. Great routes and markets are a winning combination. Three of the four "arms" of Conrail's "Big X" were ex-NYC (and the fourth was modernized by Conrail to look like the NYC!)

[bobwilcox]

I think the basic rationale behind the special laws regarding railroad bankruptcies are like the westward Shasta Daylight at 8:56 AM - long gone.
I think Congress should repeal the special treatment for railroads under the bankruptcy laws.

During the Great Depression many, many railroads went into bankrupcy because they could not meet their obligations to debtors. It became government policy that the primary purpose of a railroad bankruptcy was to maintain rail service as opposed to a normal bankruptcy where the primary purpose was to protect creditors. Since railroads in the 1930s were public utilities this policy made sense in light of the national interest in having a functioning transportation system.

During the last 75 years things have changed. With railroads taking in only 15% on the inter city frieght transportation dollar they are no longer a public utility. In addition, the bankrupcy process could open up a lot of options providing all types of stakeholders access to the railroads assets as the trustee sought to maximize cash for the railroad's creditors.

[Anonymous]

Interesting to note that if C&O/B&O had merged with NYC, and PRR with N&W ( WAB, NKP) as was once a possibility in the 60's, we'd have essentially what we have today in the Northeast, without the PC Fiasco or the formation of Conrail as we knew it. EL, LV, RDG etc. might have found other means of survival
UP and SP splitting Rock Island might have changed things in the Midwest too.

Jimmy

[MP173]

Gabe:

I think this is an excellent discussion and timely.

We can explore which carriers would have made it and come up with some factors that must be addressed for the future.

With your question, are you asking if the railroads would have made it "as is", in other words pre Staggers, or post? Pre - Staggers would have been tough. The productivity levels have dramatically increased in the last 25 years. Branch lines are gone. Four man crews are gone. Towers and train order stations are gone.

The railroads would have been very dependent on their connections. Today's traffic moves on a fraction of the routes as before. Those routes are pretty good lines today, but many are reaching their maximum. Then what?

Chicago - New York traffic is pretty much restricted to CSX or NS right now.

Thirty years ago you had NYC, PRR, EL, NW/LV, B&O/JC, and probably several others.

How many of those routes still exist?

I dont see capital moving into railroads...instead during the last 30 year, it moved away from the industry in the form of liquidation. We now have some great biking/hiking trails and very concentrated mainlines.

Where will we be in another 10 years?

ed

[nanaimo73]

Would the PRR have survived? If they merged the Wabash (which they owned) in 1960 instead of letting the N&W take it they would have reached Kansas City, Des Moines and Omaha. That would have given them a lot of auto traffic out of Detroit as well.
Pelver probably could have run the RR a lot better than Saunders, who should have stayed with the N&W. They would have to follow the lead of the NYC as well, replacing multiple track with CTC, dropping branchlines,passenger service (SORRY!) and getting young enthusiastic people in marketing.

[CP5415]

I can't comment on most of the US roads, but the SOO was partly owned by the CPR for a long time before being totally bought out a few years ago.
Could it have survived, sure it could but with the other mergers going on in the US, a merger with the CPR was the best thing for it.
Too bad management couldn't see the potential of WC before they sold off the track.
If CPR management was on their toes, they could have been minority shareholders in WC instead of letting it go to CN.
Oh well, ce la vie!

Gordon

[Anonymous]

I think that the Southern and the N&W would survive. Santa Fe to me had to merger. It was forced by the big UP and the BN roads. PRR would had survive if the money nuts of ran it did not spend the company money on land investments

[gabe]

QUOTE: Originally posted by Limitedclear

Gabe -

I'm not going to prognosticate on all of it, but perhaps if you are going to assume the STB regime happened early enough to affect the others, such as B&O, C&O, N&W, Southern, L&N, etc perhaps you also need to re-examine Conrail, not as a whole but as the sum of its parts. If deregulation (Staggers Act or similar) had happened twenty years earlier (Staggers was effective in 1980 so if you take 1960 instead) there might not have been a formation of Conrail by the government at all. The strong might simply have absorbed the weak or at least those routes worth keeping and abandoned the rest. In 1960 it was still NYC, PRR, NY,NH &H, EL (just merged in 1960), LV, CNJ and L&HR operating independently. Also the D&H, B&M, MEC, NYS&W and CN/CV need to be considered as all were involved in the big show that was the northeast.

This survival question, particularly where Conrail and the pervasive government legislative scheme created to transform it into a strong new Conrail were not born yet and might never have been if the free market were allowed into the RR business sooner. It certainly makes your question a LOT more interesting.

LC

No argument here, LC.

[gabe]

Jchntfd,

Thanks for the kind words about my topic.

I really think it is a relevant question. If CSX or UP goes belly up or something along those lines--the current paradigm to solve the problem will be how can we merge our way out of this?

I think it is at least worth asking might we be better off letting bankruptcy run its course?

Mark is the man, and I am not challenging him about ahistorical debate. But, as a trained historian, my instinct to answer future questions is to look at past scenarios and how could have we done things differently. I think questioning what the rail map would look like if roads like the SP were liquidated rather than merged provide valuable insight into future railroads.

Gabe

[jchnhtfd]

This is one of the best for quite a while -- and it pried Mark out of the woodwork, to boot!

I think Gabe has an interesting post in the one just previous -- if we redefine the question as relating to who picks up the pieces in a liquidation sale. The examples to look at there are the Rock Island and the Milwaukee. In both cases, a lot of track got pulled up (not enough originating traffic -- check Mark's post) but some other lines got picked up by more healthy companies to provide better routes (best example I can think of off hand is the old RI line across eastern New Mexico).

Another post a way's back mentioned the pre-deregulation, pre-Conrail situation, indeed pre-Penn Central situation. I'd have to do some research, but I kind of wonder if either PRR or NYC would have managed alone -- and I'm quite sure that the New Haven would not have.

A not wholly unrelated question is: what form should railroads really take? A few major Class I's, and a bunch of regionals feeding them? More localized regionals with a lot of interchanges?

I don't see CP in the list -- but both it and CN would have survived, IMHO. As it is, both are a good bit healthier than they would otherwise have been (both have done some really intelligent acquisitions -- I wouldn't call them mergers -- in the last decade or two, in my humble).

[gabe]

QUOTE: Originally posted by Mark_W._Hemphill

OK, I guess I have to be sucked into this one.

I like Don's answers, for what that's worth.

My answer: None of them would have survived. The mergers didn't happen because CEO's and boards "felt like it" or "were grasping" or "wanted to get stinkin' rich." The mergers happened because they needed to happen for investor-owned railroading to survive. If you deny something that is essential for survival, what do you get? Death.

It is an interesting hypothetical -- "If no mergers occurred after the BN merger of 1970 (presumably because the government changed the law and forbid mergers), what would the rail picture look like today?" We'd be discussing (1) the poor performance of the nationalized railway system, or (2) what it was like to watch trains back when we still had something more than six or seven coal corridors.

Realistically, I'm doubtful even BN and UP could have survived without mergers. Without mergers, the weak railroads would have simply keeled over and died, and the traffic flow they created for the strong roads (both originating and terminating) would have evaporated. Without that traffic flow, the revenue stream of the strong roads would have been severely crimped, and they would have had to undergo a harsh retrenchment. UP needed MoPac and WP as much as they needed UP; BN needed Frisco for its cash and credit to pay off the debt it incurred for the PRB expansion. Without those mergers -- and with the subsequent inevitable failure and abandonment of WP, Frisco (yes, it was headed downhill fast), Katy, Soo, SAL, ICG, etc., UP and BN would have cut back to a few key corridors for coal, and darn little else.

Feel free to disagree, but since this is an ahistorical thread, I'm not going to lose sleep over it. In general, I disfavor arguments that are counter to the way history worked out, because these arguments imagine that one condition can be changed without the rest of the world reacting or changing, too. I have some academic friends that like to use ahistorical (aka counter-factual) arguments as learning exercises, but I can't see they have any value other than to prove to naive and ernest students that the world isn't a series of random, disconnected events.

I agree that my exercise is for naught when viewed in the specific framework in which I have put it. However, though my rail understanding is unquestionably amateurish, I am not sure my question doesn't serve a deeper purpose.

In the sister post to this thread, I explore the question of would it be feasible to consolidate rail through bankruptcy rather than merger. My basic thesis is that the problem with the merger paradigm of rail consolidation is that the conglomerated railroad is left with an incredibly large system of lines, which are difficult to manage because (1) the sheer volume of the system (2) the fact that some of the lines don't fit well with the philosophy/cohesion of the conglomerated railroad (3) and some of the lines more properly belong on a regional or short line system.

I think, if there were no mergers but surviving railroads could buy lines via bankruptcy liquidation, the industry would nonetheless consolidate. But, because the surviving lines could pick and chose more effectively as to what fits within their system, the conglomerated railroads would be more efficient because (1) they are only getting lines that fit within their particular philosophy/system cohesion and (2) the surviving railroads don't have to pay for parts of a system that doesn't really fit—thus, the purchasing money can, instead, go to infrastructure. It might also be argued that it is cheaper to purchase through liquidation.

Thus, my "who would survive" question really means "who would be doing the liquidated purchasing."

I don't doubt that there are problems with my theory and there are 333,000 people who know more about this stuff than I and can dismiss it as amateurish. But, I don't think it is simply an ahistorical academic exercise. If another Class 1 goes under or is heading that way, maybe we should consider other ways of saving the routes. Given UP's performance with the SP, it is far from obvious that the merger paradigm is not without flaws.

Bankruptcy, by definition, is designed to work with market forces.

I am not saying I am right or that my paradigm is the only way of viewing the problem; I just want to know why I am wrong.

Gabe

[CSSHEGEWISCH]

I agree with MWH when it comes to ahistorical arguments, an excellent learning exercise but of little use beyond that. I've been taken to task for this point of view in the thread regarding the hypothetical survival of the Milwaukee Road where I equated that thread with the argument that steam was scrapped unnecessarily: nice debates that can't change what already happened.

A lot of excellent points have been made in this thread, and they provide a useful basis for considering what happens next regarding merger, consolidation, regional and shortline spinoffs and abandonment.

[oltmannd]

Conrail may have been a more "iffy" proposition than many people would guess. Yes, the turnaround from the depths of PC was drastic and real, but CR, like many other RRs, was still "eating it's foot" to stay alive. Even in the mid to late 90s, budgets were so tight that it was hard to justify needed capital spending. For example, locomotive overhauls were continually deferred beyond what Mechanical thought prudent because the money wasn't there to do all of them. The "business group" model that CR was organized around did extremely well for the auto, coal and intermodal groups, but the Core group, which had 50% of the traffic, was still a bit of a mess. The seasonal variability of traffic was also a problem for Conrail moreso than for other roads (why it was worse on CR, I don't really know - anybody care to hazard a guess?) so that operating by plan year-round was an elusive goal.

However, the intermodal growth alone might have been able to keep the boat afloat.

Now, if CR had been able to land the Cotton Belt, that would have given them a very lucrative second franchise - Texas Chemical Coast to NJ Chemical Coast traffic.

In order to do the alternative history stuff right, we need to consult with Hari Seldon.

[nanaimo73]

Good forum Gabe.
I think the NP would have built the proposed Tongue River Railroad from Miles City to the mines around Decker and Sheridan and would have been fine.
The Santa Fe would have taken over the ST.L.S.F. or merged with the MP to get into St.Louis, and Memphis.
Can we let Katy come in and play ? She had the best route from KC to Texas.

[passengerfan]

Gabe I think on youe BN components you were wrong on NP why take a look at MRL. How many short lines do you know buying new power

[LarrySmith]

As I am trying to model the SP and am interested in the railroad, where can I find out what happened to it? Also, the analysis and discussion of business practices and operations for all these mergered and failed RR's might provide great case studies for business management and could help surviving roads operate more profitably.

[mudchicken]

QUOTE: Originally posted by espeefoamer

SP by itself probably could not survive. With D&RGW it might have had a chance.

The combined railroad was hemorraging cash before UP bought it and the SP operating mindset was killing it as well.....doomed to fail.

[oltmannd]

QUOTE: Originally posted by gabe

Dan,

(1) I hope Mark does come in and kick me around on this one. I am kind of missing those sorts of beatings--they are very educational.

(2) I don't see how Conrail would have died. Wasn't it doing fairly well before the buyout? It certainly has an attractive core.

(3) When I say don't make it I mean liquidated in bankruptcy. So that would probably affect the survivors, who would probable be doing the buying.

Thanks for responding.

Gabe

I think you're safe. As I recall, MWH doesn't do "what ifs"

[espeefoamer]

SP by itself probably could not survive. With D&RGW it might have had a chance.

[mudchicken]

Solid: SR, N&W,CR, WC, UP, MP,ATSF

Shaky: L&N, SBD, B&O,BN (In spite of PRB), ICG,DRGW

Dog meat: C&O, WP,SP,CNW,SOO

[Anonymous]

Gabe -

I'm not going to prognosticate on all of it, but perhaps if you are going to assume the STB regime happened early enough to affect the others, such as B&O, C&O, N&W, Southern, L&N, etc perhaps you also need to re-examine Conrail, not as a whole but as the sum of its parts. If deregulation (Staggers Act or similar) had happened twenty years earlier (Staggers was effective in 1980 so if you take 1960 instead) there might not have been a formation of Conrail by the government at all. The strong might simply have absorbed the weak or at least those routes worth keeping and abandoned the rest. In 1960 it was still NYC, PRR, NY,NH &H, EL (just merged in 1960), LV, CNJ and L&HR operating independently. Also the D&H, B&M, MEC, NYS&W and CN/CV need to be considered as all were involved in the big show that was the northeast.

This survival question, particularly where Conrail and the pervasive government legislative scheme created to transform it into a strong new Conrail were not born yet and might never have been if the free market were allowed into the RR business sooner. It certainly makes your question a LOT more interesting.

LC