OIG - Amtrak not planning acquisitions properly ?

[oltmannd]

Overmod

My chief problem with this, I think, is that to everyone not privy to (perhaps-cooked) operational economics, buying all those nonrevenue cars instead of new sleepers and coaches makes no sense -- and not only does it appear that Amtrak management hasn't conducted reasonable PR activities to explain it, there's been a certain perceived arrogance regarding much of Amtrak's interaction with the public when it's 'less than expected'.  I won't go into that any further here -- just noting that it would have been comparatively simple to explain the new-build choices in plainer language.  While we might, and probably would, continue the disputations, we would at least see the facts as Amtrak sees them and be able to argue in a better context.

I hear you, but having been on the inside of a couple large railroads, including a stint in Mechanical, I have a feel for how these decisions actually get made.  The tail often wags the dog.  

The audit just shows that tail wagged the dog properly.

[blue streak 1]

SAM1 has stated the goals very well.  However a personal experience had auditors agreeing with management's ill advised changes that contribbuted to the company's demise by Chapter 7.  Often suspected changes by company came from management that did not know what they were doing and was not caught by auitors.   

[Anonymous]

I spent nearly 40 years working for several large corporations.  Of that time 28 years was with a large investor owned electric and gas utility.  I was the Audit Director for the company’s mining and natural gas pipeline subsidiaries for four years, IT Audit Director for nine years, and chief auditor of the company’s Australian subsidiary for five years.  The other years were spent in management roles in accounting and finance. 

 

Most audit reports contain recommendations for improvement.  I never encountered anyone who liked to be told by the auditors that they can improve the internal controls associated with their business.  They tend to push back on them, i.e. you don’t understand our business, your methodology is flawed, etc.  I always liked the one about methodology.  When pressed to say what was wrong with the methodology, I cannot remember anyone ever coming up with a legitimate response.

 

To help defuse the push back associated with audit findings and recommendations, auditors write their reports in the passive voice as opposed to the active voice.  It is softer.  And it tends to go down easier.  But it is wordy. 

 

Audit reports are read by senior and executive management, external auditors, audit committee members, and board members.  They are also read by regulators, creditors, investors, etc.  And in Amtrak’s case they are read by all sorts of politicians or their staffs.  For this reason the reports usually contain more detail and/or explanatory language than would be the case if they were being written for a narrower audience.

 

I don’t know who was on the Amtrak IG audit team.  Amtrak does not tell us.  However, if the Amtrak team is typical of the teams in most large companies, it would include subject matter experts and internal control experts.  In our company, a team that was auditing a mining company activity, for example, would include a mining engineer, a maintenance engineer, an IT professional, a financial guru, and several general auditors.  Moreover, if required, we would engage outside experts to help with the audit.

 

We had subject matter experts, i.e. engineers, purchasing specialists, etc., on staff.  They came from throughout the company.  They usually spent two to three years in Internal Audit.  If they performed well – almost all of them did because we were highly selective - they were usually promoted upon leaving IA.  Their perspectives were broadened by their audit experiences, and the company placed great value on it when considering them for promotion.  Of the people who worked on my teams, one is an IT Director, another is a Controller, and a third is a Vice President of Regulatory Affairs.

 

I have skimmed the report.  I plan to read it in depth and may have some additional thoughts about the subject matter.  But for now I wanted to correct what I believe is a misunderstanding of the audit processes, audit reporting, and the personnel composition of most large audit groups. 

[Alan F]

CMStPnP

I think buying new Baggage Cars frees up subsidy that would otherwise go to repair and replacement of existing baggage cars some of which are still from the 1940's and 1950's.   

 

ALL of the Heritage baggage cars and the single level diner cars were built from 1948 to 1956, so the youngest Heritage car is 58 years old. That is what drove the Viewliner II order: replace the Heritage equipment to reduce maintenance and parts costs, increase reliability, and increase capacity. The new diner cars should be more efficient than the overhauled many times 1950s models and, if all goes to plan, trim food and beverage service costs. 

[Alan F]

schlimm

All I am saying is it does not require a very sophisticated analysis to answer their own question, "How should I invest the capital?  Which equipment gives me the most revenue?"

1. Sleepers generate far more revenue than diners or baggage cars. [They bought fewer]

2. Coaches generate far more revenue than diners or baggage cars. [They bought none]

The primary purpose of the 130 Viewliner II car order is to replace ancient baggage and diner cars that are over or pushing 60 years old with a lot of mileage on them. Some of the cars are in bad shape. They are also getting 25 sleeper cars to get the single level fleet to a decent capacity for sleeper cars.

Replacing the 33-34 year old 145 Amfleet II coach and diner cars will be a separate order which will have to wait until Amtrak can somehow finance or fund it. Amtrak did not get an appropriation from Congress for the 130 Viewliner II order from CAF, but has been paying for it out of annual capital and surplus subsidy appropriations. Amtrak made the decision with the ACS-64 locomotive and the Viewliner II orders to address their most critical equipment needs to replace aging and unreliable equipment because they could not wait many more years.

We have been discussing the OIG report at length on another forum and I say many people have found it shortsighted, lacking in understanding of LD operations, and too full of MBA speak terminology. Still, has useful info bits on Amtrak plans.

[schlimm]

While what you say in the first three sentences has some importance too, it is not what the purpose of the OIG study was and the maagnitude of enhanced revenue from the Amtrak purchasing choice are far less than a different allocation mix could have obtained.  BTW: Without offering some proof, the suggestion the operational economics could be cooked is skating on unsupported thin ice.

The stated purpose of the OIG study: "In October 2013, the company established a long-distance business line to improve the financial performance of these trains and to help support the company’s strategic goal of being profitable on an operating basis, with revenues exceeding operating costs. Optimizing the utilization of equipment assets could help the company capture a portion of up to approximately $25 million in additional revenue each year."

Amtrak's total purchase of 155 cars, allocated as:

Baggage 55

Combination Car (Baggage and one crew dormitory space) 25

Sleeping 25

Dining 25

Perhaps to gain more revenue, the mix should have been

Sleeping 40

Coaches 50

Dining Cars 25

Combination 40 [As Don Oltmann and others have observed, the baggage space is often only partially used]

[Overmod]

schlimm

All I am saying is it does not require a very sophisticated analysis to answer their own question, "How should I invest the capital?  Which equipment gives me the most revenue?"

That makes sense, of course, but there is another way to look at it: 'which equipment lets me replace older equipment that is a bottleneck on my operations or maintenance'?

"Heritage" bags are an oft-noted plague spot.  A question beyond this is how important higher peak speeds (or elimination of problems with running gear that cause delays) might be for "LD" services.

Bag-dorms *might* be an extension of this philosophy to maximize the salable space on existing sleepers while providing a 'suitable' amount of baggage capacity where a whole-car increment doesn't make sense.

My chief problem with this, I think, is that to everyone not privy to (perhaps-cooked) operational economics, buying all those nonrevenue cars instead of new sleepers and coaches makes no sense -- and not only does it appear that Amtrak management hasn't conducted reasonable PR activities to explain it, there's been a certain perceived arrogance regarding much of Amtrak's interaction with the public when it's 'less than expected'.  I won't go into that any further here -- just noting that it would have been comparatively simple to explain the new-build choices in plainer language.  While we might, and probably would, continue the disputations, we would at least see the facts as Amtrak sees them and be able to argue in a better context.

[schlimm]

All I am saying is it does not require a very sophisticated analysis to answer their own question, "How should I invest the capital?  Which equipment gives me the most revenue?"

1. Sleepers generate far more revenue than diners or baggage cars. [They bought fewer]

2. Coaches generate far more revenue than diners or baggage cars. [They bought none]

3. This is not a "nice to have" question.

[oltmannd]

CMStPnP

 

 

schlimm

The order was for 80 baggage and baggage dormitory cars, the latter which generate a little revenue by freeing up crew-used sleepers, along with 25 diners, which lose money.  Only 25 sleepers were ordered, which do generate revenue but zero coaches.

 

 

I think buying new Baggage Cars frees up subsidy that would otherwise go to repair and replacement of existing baggage cars some of which are still from the 1940's and 1950's.   Baggage cars do generate revenue as you can see via the bike racks.     Also via small package express.    I don't think you can retrofit a coach very easily into a diner due to food service and fire laws and thats probably why they bought the diners to replace old single level diners that are well past retirement.   Baggage-Dorm Cars.....I think I would have just bought sleepers period there.

 

Sample size of one:

I rode the Crescent in Sept this year. Had a clear view of the contents of the 85' baggage car on the train - about a dozen suitcases in the rear of the car.  Nothing else except the congressionally mandated gun safe on bolted to the side wall.  That's it.  

Does Amtrak really need full baggage cars anywhere?  

 

[CMStPnP]

schlimm

The order was for 80 baggage and baggage dormitory cars, the latter which generate a little revenue by freeing up crew-used sleepers, along with 25 diners, which lose money.  Only 25 sleepers were ordered, which do generate revenue but zero coaches.

I think buying new Baggage Cars frees up subsidy that would otherwise go to repair and replacement of existing baggage cars some of which are still from the 1940's and 1950's.   Baggage cars do generate revenue as you can see via the bike racks.     Also via small package express.    I don't think you can retrofit a coach very easily into a diner due to food service and fire laws and thats probably why they bought the diners to replace old single level diners that are well past retirement.   Baggage-Dorm Cars.....I think I would have just bought sleepers period there.

[schlimm]

The order was for 80 baggage and baggage dormitory cars, the latter which generate a little revenue by freeing up crew-used sleepers, along with 25 diners, which lose money.  Only 25 sleepers were ordered, which do generate revenue but zero coaches.

[blue streak 1]

Several poiints already posted.

1.  The OIG has quite a budget of $21.4M for the FY  table  A1.4 Monthly report.  should be at least 21 full time staff employees ?

2.  Very very wordy and ambigious in places.   The phrase "sound business proactices" overused

3. One has to wonder if any of the OIG staff has any transportation experience much less RR passenger ? some transportation metrics are much different.

4.  Incremental costs appear to be overstated and incremental revenue understated ?  Is it possible that overhead is being allocated to additional passengers.  Only a few agents and maintenance persons needed ?

5.  The idea of parking new equipment and keeping same type older equipment in service is ludicurious. Older equipment kept as standby at certain locations might be a wise idea therby keepping higher % of new equipment in service.

6.  Report confirms that Amtrak is planning to restore sleepers on 66 & 67  (  night owl ).

7.  Not considered is the effect that if the original desire to order 100 sleepers had been completed what the traffic in sleepers would have been ?

8.  Not addressed is the maintenance problems at some terminals especially CHI would do to increase availability ?  The locomotive availability is atrocious.

More comments later.

[dakotafred]

schlimm

The report seems excessively wordy and loaded with jargon.  The analysis never deals with some fundamental questions, such as how would so many new, non-revenue cars be a positive contributor?

 

Well said. The report is repetitious blah-blah-blah, really saying nothing substantive. This is what we need inspector generals for?

[Paul Milenkovic]

Maybe there is a misunderstanding the Amtrak "is the Government" or that the Office of the Inspector General "is part of Amtrak"?

Amtrak is its own entity, a corporation, if I understand correctly, that has a charter to operate passenger trains and has been granted a monopoly on intercity passenger trains.  It receives, what, maybe 40% of its budget from the Federal Government and maybe an additional 10% from states -- someone can correct these figures, but I am offering these highly approximate numbers to move the discussion forward.

Amtrak is not studying anything to death, Amtrak is making a decision, and new cars and locomotives are either being delivered or are being manufactured as I write.  Owing to Amtrak receiving a large amount of government support, everybody and his brother is critiquing Amtrak's decision, studying this decision to death, and generally offering their two cents and second guesses.  This includes the government, including Members of Congress in their service on the relevant appropriations committees along with the Office of the Inspector General, a government agency charged with oversight of government or things paid with government money.

These oversight functions, whether in Congress or in the Executive, come in for resentment for those who favor passenger trains -- no one likes the scoldings that come with oversight.  But if you accept the gummint dime, you have to accept the "strings" that comes with it, and even "favored" objects of Federal spending receiving many times more money than Amtrak are at the receiving end of oversight and critique.  Just because "we are small potatoes" does not exempt passenger train funding.

Amtrak has indeed made a decision -- to ask for "seconds" on the Viewliner fleet.  Some of us Chairborne rail tycoons have given Amtrak a good scolding about that decision, but a person cannot say that Amtrak did not make a decision -- it simply isn't the case.

Furthermore, a consortium of States working with Amtrak has asked for "seconds" on the "California Car" bi-level for the (somewhat higher speed -- up to 110 MPH) corridor trains. 

[northeaster]

It sounds like no one at Amtrak wants to take responsiblity for making a decision, so just keep studying it to death. Meanwhile, still no new cars.

[schlimm]

1.  I don't think offering your own comments is "poisoning the well."   It is the basis of critiques.

2.  Surface impressions: The report seems excessively wordy and loaded with jargon.  The analysis never deals with some fundamental questions, such as how would so many new, non-revenue cars be a positive contributor?

[blue streak 1]

Inspector general's office faults Amtrak new equipment procurement.  Have own opinions about report  but do not want to poison the well.  Some of our posters please give opinions.

 

http://amtrakoig.gov/sites/default/files/reports/oig-e-2015-001.pdf