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What is Avoidable Cost?
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<p>Without access to Amtrak's books, it is impossible to know how much depreciation is worn by the three product lines, i.e. NEC, State Supported and Other Short Distance Trains, and Long Distance Trains. This is why I have asked for it as opposed to speculate about it.</p> <p>If the FRA, as per its December 2013 document cited previously, does not have Amtrak's avoidable costs by train route, I don't have any reason to believe that Amtrak would make the information available to me or anyone else. In any case, projecting avoidable costs is a dicey exercise as made clear above. </p> <p>Amtrak depreciates it rolling stock over a period ranging up to 42 years. It does not tell us how long it depreciates the long distance equipment. If it is 42 years, then depreciation is still running on most of the long distance equipment. Again, without access to the depreciation schedules, one does not know how much depreciation is worn by the long distance trains.</p> <p>The differentiation between short term avoidable costs and long term avoidable costs is artificial. It is an arbitrary line drawn in the sand. All or most costs, as noted in the opening post, are avoidable in the long run.</p> <p>Depreciation is a non-cash item. If the long distance trains were to be discontinued, the equipment that could not be sold or re-positioned would be junked. I doubt that there is a market for it. It would be taken off the books. Since Amtrak leases most if not all of its rolling stock, the on-going capital costs associated with the equipment would run for the remainder of the lease terms. Most leases have an early termination clause, with an accompanying penalty. If Amtrak was on top of its game when it negotiated the leases, disposal of the equipment would include a one time charge to earnings for the lease buyout charges. </p> <p>If a company is dropping a product line, replacement costs are not a factor. It is not going to replace anything associated with that product line. The biggest challenge with regard to avoidable costs is to determine how the remaining shared costs would be redistributed. Without access to Amtrak's books, the redistribution is pure speculation.</p> <p>In FY13 Amtrak had capital expenditures of $1,050,527,000. Of this amount, $363.8 million may have been associated with the rebuilding or upgrading of long distance equipment. Most of these expenditures would have been capitalized, and the depreciation schedules would have been adjusted to reflect the changes in the expected service life of the equipment. Without access of Amtrak's depreciation schedules, one does not know how much of the aforesaid amount was spent on the long distance equipment or the impact it had on the long distance depreciation schedules.</p> <p>Even if only half of the costs associated with the long distance trains is avoidable, which probably understates the realizable amounts, the FY13 costs would, if invested in the Treasury 10 Year Note, at today's quoted interest rate, would generate a return of $773.9 million. For each subsequent year of avoidable losses on the long distance trains, the savings increases dramatically.</p> <p>Only those who have no concept of business or don't care would argue that Amtrak should continue running long distance trains because discontinuance of them would only produce avoidable costs of approximately 50 per cent of the published costs. If the long distance trains are a must for social reasons, lets call them for what they are: a welfare program!</p>
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