What happen to Milwaukee Road?

[MP173]

It is pretty simple. The PCE was essentially a branch line, a very long branch line, but an undermaintained asset that was allowed to deteriorate. Ten trains a day should not drive a well built, well maintained asset into the state it was in.

Obviously the "cash flow" numbers thrown around were based on little or no re-investment in the line. Too bad so many people were relying on a management that just didnt understand.


Enron of the 70's perhaps?

ed

[Anonymous]

Yes they were averaging 1 Derailment a day in the mid 70's due to poor Matiance, the Management Team had no vision they essentally ignored the BN Deal and focused on CNW.

[solzrules]

QUOTE: Originally posted by greyhounds

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by MP173

So, the issues for it to have been viable in todays market would have been to have increased the siding lengths, convert to CTC, and have enough power to handle the freight.

Well, the PCE had greater capacity in 1970 than the former GN, now BNSF, line has in 2006. Not sure what "viability" means in that context.

Best regards, Michael Sol

Give him a sentence to respond to and he'll write for a week. He's just got to show everybody how much he thinks he knows.

IF the PCE had a positive cash flow, which in and of itself doesn't mean squat in terms of an ongoing business, it was because they were "cashing it out". When a business is failing, such as the Milwaukee Road was, the managers try to "cash it out". Get as much cash out of the business as possible before the bankruptcy court takes over.

In the case of the MILW PCE this meant doing as little maintenance as was absolutely neccesary to run trains. If you don't replace ties and surface the track, you'll generate cash flow by eliminating maitenance expense. If you sell the copper wire you'll generate cash, and the diesels you replace those no resale value electric locomotives with can easily be returned to their lessor or sold off for cash (unlike the electrics, which at best, had scrap value).

The MILW as a corporate entity, and the PCE as a rail line, had absolutely no future.
The reasonable, skillful, managers saw this - and they "cashed out".

Not sure where he gets the idea that the MILW had more capacity than the BNSF does today, but one thing's for sure: You don't get paid for your capacity, you get paid for the freight you haul. And the old MILW didn't have enough of that, and it never would have enouth freight with the BN to the North and the UP to the South. It was the 3rd railroad into the Pacific Northwest, and 3rd place doesn't pay well.

Greyhounds - I must respectfully disagree. I think the Milwaukee had an incredible future, but without management to identify this you are pretty much done for. After the BN merger in 1970 the Milwuakee opened up 11 or 12 new gateways out west - potential traffic generating gateways. The PCE was one of the few areas of the railroad that was making any money. But without maintenance (here your cashing out idea may be a worthy argument) the track fell apart and the service began to suffer. It is really hard to be competitive if you can't deliver the service. Management, however, was beholden to the idea of a merger to someone, first the CNW and then BN. Never for once did they consider the idea of the Milwaukee being a railroad that had market power (via the transcon). In the regulated 60's and 70's the BN and its predecessors were largely able to marginalize the PCE. If the Milwaukee had a competent and ambitious management team (they didn't) and a little forsight that company could still be around today. In fact, maybe THEY would be the railroad abosrbing other railroads like UP is now. They could have competed with the BNSF and the UP for all transcon traffic. But you may be right. Management saw differently back then, and since their hearts were set on merger they probably figured that if they could get in with BN then they could abandon the PCE anyway. It would have been pretty expensive to fix compared to just selling off the scrap and running the trains over the old Great Northern.

[Randy Stahl]

Cashing out ??? Yes , the officers of the company did very well for themselves. I recall layoffs at Christmastime followed by news of BIG bonuses for the bigshots ! Lets hear it for the MILW directors and officers!

[Anonymous]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by cornmaze

The railroad was obviously broke.

"Obviously."

Hillman told Railway Age that "the Milwaukee is a relatively wealthy company." Railway Age, "MR: Assets set at $832 Million", January 8, 1979, p. 11.

Best regards, Michael Sol

It went bankrupt. Yes, "obviously" it was broke. By definition it was broke.

Mr Hillman was looking at the liquidation value (assets = $832 M). That's different from having no cash.

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
The MILW as a corporate entity ... had absolutely no future.

"Absolutely"

It became a fabulously profitable real estate investment company and although it has changed its name, exists today. It had a pretty good future, actually, as a "corporate entity."

Another astute hitting of the mark.

Michael, please read what I wrote. I wrote "the MILW". MILW was the reporting mark for the railroad and that's what anyone with common sense would know I was writing about.

As I said, they were "cashing out", running it into the ground to get the money out. It's a perfectly valid, honest, and proper business plan when management realized that their enterprise has absolutely no posibility of achieving ongoing prosperity, as was the case with the MILW.

[rrandb]

Its bright future no longer had any room for an ongoing unprofitable railroad. As is the responsibility of all corperate enititys you make the changes required to continue to exist. [2c] As always ENJOY

[MichaelSol]

QUOTE: Originally posted by greyhounds
The MILW as a corporate entity ... had absolutely no future.

"Absolutely"

It became a fabulously profitable real estate investment company and although it has changed its name, exists today. It had a pretty good future, actually, as a "corporate entity."

Another astute hitting of the mark.

[MichaelSol]

QUOTE: Originally posted by cornmaze

The railroad was obviously broke.

"Obviously."

Hillman told Railway Age that "the Milwaukee is a relatively wealthy company." Railway Age, "MR: Assets set at $832 Million", January 8, 1979, p. 11.

Best regards, Michael Sol

[jgreen]

The Courtyard by Marriott at the Depot in downtown Minneapolis has posters and other memorabilia from the Milwaukee Road displayed in its lobby. The Residence Inn at the Deport adjoins the Courtyard, it may also, but I haven't looked.

[Anonymous]

QUOTE: Originally posted by greyhounds

The MILW as a corporate entity, and the PCE as a rail line, had absolutely no future.
The reasonable, skillful, managers saw this - and they "cashed out".

Not sure where he gets the idea that the MILW had more capacity than the BNSF does today, but one thing's for sure: You don't get paid for your capacity, you get paid for the freight you haul. And the old MILW didn't have enough of that, and it never would have enouth freight with the BN to the North and the UP to the South. It was the 3rd railroad into the Pacific Northwest, and 3rd place doesn't pay well.

That's what I like about you greyhounds, you'll fly lock stock and barrel into the face of reason and insider information. And continue to procur statements that indicate a lack of perusing skills on your part.

History is ripe with examples of superior entities being brought down by managerial fiascos, the Milwaukee being one of them. Why is this so hard for you to grasp?

[Anonymous]

The railroad was obviously broke. They obviously didn't have money to fix anything. Even if they'd wanted to, how could they turn it around. In a regulated environment you're not free to do as you please.

You can look at before and after scenarios (before the bankruptcy reorg, after the bankruptcy reorg) and then try draw conclusions. But those comparisons of before and after are only useful if all other factors remained equal. Economists use the phrase, "ceteres parabis", or "all else being equal", before they present economic conclusions. I did learn something in micro econ 210 all those years ago. Well did all else remain equal before and after the bankruptcy reorg? Seems to me, no, they did not. You had nationwide recession, and you had railroad deregulation under Staggers. Two collosal hits to the industry right at that moment. It's such a complicated mess that I don't think we'll figure it out here on Trains.com at this late date. The people there made the decisions they had to and the ones that seemed right at the time. I'll give them the benefit of the doubt and let the thing rest in peace.

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by MP173

So, the issues for it to have been viable in todays market would have been to have increased the siding lengths, convert to CTC, and have enough power to handle the freight.

Well, the PCE had greater capacity in 1970 than the former GN, now BNSF, line has in 2006. Not sure what "viability" means in that context.

Best regards, Michael Sol

Give him a sentence to respond to and he'll write for a week. He's just got to show everybody how much he thinks he knows.

IF the PCE had a positive cash flow, which in and of itself doesn't mean squat in terms of an ongoing business, it was because they were "cashing it out". When a business is failing, such as the Milwaukee Road was, the managers try to "cash it out". Get as much cash out of the business as possible before the bankruptcy court takes over.

In the case of the MILW PCE this meant doing as little maintenance as was absolutely neccesary to run trains. If you don't replace ties and surface the track, you'll generate cash flow by eliminating maitenance expense. If you sell the copper wire you'll generate cash, and the diesels you replace those no resale value electric locomotives with can easily be returned to their lessor or sold off for cash (unlike the electrics, which at best, had scrap value).

The MILW as a corporate entity, and the PCE as a rail line, had absolutely no future.
The reasonable, skillful, managers saw this - and they "cashed out".

Not sure where he gets the idea that the MILW had more capacity than the BNSF does today, but one thing's for sure: You don't get paid for your capacity, you get paid for the freight you haul. And the old MILW didn't have enough of that, and it never would have enouth freight with the BN to the North and the UP to the South. It was the 3rd railroad into the Pacific Northwest, and 3rd place doesn't pay well.

[MichaelSol]

QUOTE: Originally posted by MP173

So, the issues for it to have been viable in todays market would have been to have increased the siding lengths, convert to CTC, and have enough power to handle the freight.

Well, the PCE had greater capacity in 1970 than the former GN, now BNSF, line has in 2006. Not sure what "viability" means in that context.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds

QUOTE: Originally posted by futuremodal

QUOTE: Originally posted by solzrules

Why then, and I realize that this may have been discussed before, did the Milwaukee abandon its electric power?

If I may venture an abstract guess, Milwaukee jettisoned it's electric power (and eventually it's whole PCE) for the same reason(s) Montana Power Co. jettisoned all it's power plants and became (gag!) TouchAmerica - sometimes management just does stupid things.

And sometimes they do the right things that some unfortunate people just won't accept as the right things.

Well, if that is supposed to be an example, somebody is screwed up royally.

Montana Power Company offered a 7% dividend for years. Then it decided it could make more money on Touch America (get out of regulated utilities, into telecommmunications). Sold off the dams, Colstrip plants and transmission system (including the Milwaukee Road transmission lines). Sunk it all into TouchAmerica.

Three years later: all the money was gone.

TouchAmerica? Bankrupt.

Assets? Sold off at pennies on the dollar.

Yup, "sometimes they do the right things that some unfortunate people just won't accept as the right things."

Another astute hitting of the mark.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by solzrules

Michael, that's very interesting stuff. I take it you must have worked for the railroad?

Grew up on it (company house), worked for it. My Grandfather helped build it. It's the reason I am here and not in Holland.

Best regards, Michael Sol

[solzrules]

Michael, that's very interesting stuff. I take it you must have worked for the railroad?

[MichaelSol]

QUOTE: Originally posted by MP173
I dont quite see how 10 freights a day would sink a railroad, but I guess it could happen if the slow orders kept coming and nothing was re-invested into the physical plant.

The losses were occuring on Lines East. Ten freights of very long haul a day didn't sink the railroad.

Best regards, Michael Sol

[MP173]

So, the issues for it to have been viable in todays market would have been to have increased the siding lengths, convert to CTC, and have enough power to handle the freight.

I dont quite see how 10 freights a day would sink a railroad, but I guess it could happen if the slow orders kept coming and nothing was re-invested into the physical plant.

How would the line handled 15,000 ton coal or grain trains? How many helper grades were there to handle such trains? My memory of the line's profile was there a number of grades which approached 2% or more. I would think those would have an effect on the heavy grain trains.

ed

[MichaelSol]

QUOTE: Originally posted by MP173

Michael (and others):

What was the physical capacity of the PCE? I assume from photos I have seen it was mainly single track. I assume it was train orders (single track). What were average lengths of sidings? and how far apart were the sidings spaced?

Photos I have seen have indicated a pretty severe operating environment with lots of trestles, fills, canyons, etc. How would the PCE "projected" as a current day operation? How many trains could the line handled per day?

I know this is all hypothetical, but still...it is interesting to know and fun to speculate.

The Milwaukee PCE was considered the best engineered of the transcontinentals. All those fills, trestles and tunnels were meant to overcome the obstacles in the best fashion possible. They were representative of a well-designed railroad, not evidence of poor design.

You would have to recall, this was William Rockefeller's personal pet project, and he was worth more than James J. Hill, E.H. Harriman and Cornelius Vanderbilt put together. The financial wherewithal to build this line was greater than that for any other transcontinental project in history.

Generally, the track permitted Milwaukee faster running times than Great Northern, Northern Pacific, or Union Pacific into Seattle and Tacoma. What grades there were were judged as superior to competitor's because they were short. It was the only transcontinental designed entirely with compensated curvature and grades. The longest stretch of perfectly flat track anywhere on the system was, for instance on the PCE in Idaho, not Lines East.

Sidings were located at approximately ten mile intervals and varied from 4,000 to 8,000 feet in length. All train order ABS. I would guess about a 34-40 trains per day capacity. It was fast track with little general curvature. Hence the bridges, tunnels and fills. Yes, there was curvature in the mountains, but this was not a "water grade" railroad that followed every meander of every river.

It was the shortest route, Twin Cities to Seattle. Train #261 was scheduled Chicago to Seattle, 2175 miles, in 55.5 hours, but could do it in 50. That's an average train speed of just about 40 mph, and included a complete reblocking of the train at Aberdeen, South Dakota. The Northern Lines promised an 86 hour schedule as a BN merger "benefit."

Milwaukee had 76% of Port of Seattle traffic, 60% of Port of Tacoma, and 23% of overall Washington State traffic compared to Union Pacific's 15%. Milwaukee's Kansas City blocking from the Pacific Northwest got to Kansas City faster than BN's, even though BN had the shorter route to Kansas City.

People have spoken of its deteriorated condition. The 55 hour schedule time speaks to that. However, by 1973, traffic was up to ten trains of high revenue freight per day, and no additional funds were being provided. As Bill Brodsky put it, "the railroad fell out from under the traffic."

However, crushed rock was being used for the first time. Rail grinders appeared. Lines West GM Bing Torpin told me during a business car trip over the line in October 1973 that the Milwaukee was planning to reballast the entire PCE with 5" of new crushed rock the following year. But, they couldn't keep up with the traffic demands. A grain boom ensued which prompted increasing derailments with the flawed design of Milwaukee's PS-2 100 ton grain car fleet. The system fell apart under enormous demand for services. Lengthened car cycle times resulted in an equipment shortage. Milwaukee had $64 million in unfilled orders in 1978. That was the year in which Stanley Hillman signed an Application to Abandon that showed a $55 million net positive cash flow from Lines West.

Even at that, the engineering estimates done in 1978-1979 showed that approximately $51 million was necessary to bring the 1700 miles of PCE back up to Class IV standards. That's an 80 mile an hour passenger train standard. That included fifty tunnels, miles of bridge superstructure, and millions of tons of fill. As any railway engineer will tell you, $51 million was pocket change and spoke to both the quality of the orignal construction and the overexagerations concerning the condition of the track. BN spent $120 million just rehabbing a short stretch of track with only one significant tunnel at Stampede Pass, just to handle 6-8 trains per day.

That amount was less than one year's operating income from the PCE. By contrast, $600 million was sunk into Milwaukee II before the sale to the Soo Line, and it never earned a nickel. [Yes, I am well aware that a small profit was declared finally in 1984, but that was more of an accounting artifact than a real profit, as Soo Line soon learned to its chagrin].

Best regards, Michael Sol

[solzrules]

Also, could it be a good competitor today? Would a lot of track adjustments have to made like curvatures and so on for today's railcars?

[MP173]

Michael (and others):

What was the physical capacity of the PCE? I assume from photos I have seen it was mainly single track. I assume it was train orders (single track). What were average lengths of sidings? and how far apart were the sidings spaced?

Photos I have seen have indicated a pretty severe operating environment with lots of trestles, fills, canyons, etc. How would the PCE "projected" as a current day operation? How many trains could the line handled per day?

I know this is all hypothetical, but still...it is interesting to know and fun to speculate.

thanks,

ed

[MP173]

This has been a pretty fascinating post. I am still amazed when I think of the major screw up made in the decision process. Hillman must have really had a very narrow view of the situation. It seems to me that it does not take a lot of work to determine where your cash is coming from in a business. I do it everyday with my customer base and make decisions accordingly.

There must have been an extremely strong political divide between the Midwest folks and the Lines West people.

ed

[MichaelSol]

QUOTE: Originally posted by Kevin C. Smith
Would it have been economically possible to increase clearences when double stacks came into widespread use? Or would the electrification, if it had survived the 70's, become the PCE's drawback in the 80's?

I am quoting myself here:

"The Milwaukee lowered the floors of its Chicago-Seattle mainline tunnels during the summer of 1961, in order to achieve clearances for the tri-level autorack cars then coming into service. The project required lowering the track under an overpass in LaCrosse and in Minneapolis as well. The tunnel floors were lowered in 31 of the 46 tunnels west of Ringling, Montana, and the trolley raised in 36 of the tunnels. All together, a total of 7.54 miles of mainline were lowered between 6 inches and two feet.

"The Milwaukee leased a Swiss-Made Matisa ballast cleaner and undercutter which utilized a digging chain that operated at high speed under the ties and at a right angle to the track center, automatically loading the waste onto conveyor belts carrying the materials back to standard side dump air dump cars. It was quite an operation. The whole project started in May and ended October 1, costing a little over $800,000 total. Freight schedules were adjusted to run trains through during 12 hours of each 24 hour period. Over 25,350 cubic yards of new ballast were applied, and 28,100 feet of new drain pipe were installed in the affected tunnels.

"Trilevel autoracks are 19 feet 4 inches, and a high cube double stack is just about 20' exactly. My understanding was that Milwaukee was attempting to achieve a minimum of two feet of clearance over the autoracks below the catenary, with two feet or more remaining for catenary and clearance." I didn't pay that much attention when I was around it, so I don't recall for certain.

Best regards, Michael Sol

[solzrules]

After reading every scrap of info I could find on this in books, magazines, and elsewhere, it sounds like the Milwaukee was a victim of itself as much as it was of outside influences like the BN. Just think if the MRL today was operating on the PCE track. You would have a major competitor to BNSF.

[MichaelSol]

QUOTE: Originally posted by ValorStorm

The rumor was that before there was an MRL, Bill Brodsky drew up a business plan to take over the PCE before it was to be pulled up, and run it in direct competition to BN's former NP, not just thru Montana, but along its entire length. This MAY have been a factor in BN's acquiescing to the release of the NP line in the first place. In one of the aforementioned "heated discussions" in a (hopefully) locked thread, I made this insipid point and caught all-fired hades for it. Montana was a hot topic back then.

Speaking of Montana Power Co., ....

Small world.

Bill Brodsky became one of the founders of SORE -- Save Our Railroad Employment.

SORE proposed a specific plan for the PCE west of Miles City, just as you suggest. I have a copy of it. Hillman opposed SORE, even though it involved the part of the railroad he said he wanted to get rid of. But, given an opportunity to get rid of it, he resisted notwithstanding it would have been a traffic feeder to Hillman's reorganized Milwaukee II. However, it was clear, Hillman didn't want to get rid of the PCE, he wanted to destroy it.

Brodsky then formed NewMil, which proposed a wholly reorganized Milwaukee Road built around its Transcon, Louisville to Portland. It had the support of Milwaukee Road's principal creditors, Milwaukee Road's own bankers, and private investment brokers who were willing to finance the new company.

Stanley Hillman's plan was opposed by the Milwaukee Road's principal creditors, as well as Milwaukee's own bankers who did not see it as a viable proposal.

The Chairman of the Board of NewMil was Paul Schmechel, President of the Montana Power Company, which was one of the big shippers behind NewMil, along with Chrysler, Cargill, Port of Seattle, Port of Tacoma and Port of Portland.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by Kevin C. Smith
The decision to scrap the electrification was made in what year? '71 or '72? I'm sure it was not long before the 1973 oil embargo but when did the wires start coming down?

What, in your opinion, would have been tha latest date MR could've "stayed the execution" and reactivated the electric service before it would've been too expensive to do so?

The decision to terminate was announced February 20, 1973.

The original termination date was October 1, 1973, but the Milwaukee's heavy traffic didn't permit that, and a stay of execution lasted until June 16, 1974. Line crews began taking down trolley the following Monday, and substation operators were directed to begin dismantling the high voltage switchboards.

September, 1974, was probably the last point at which it could have been put back together. Diesel fuel had escalated from 8 cents to about 40 cents by then.

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by greyhounds

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
And sometimes they do the right things that some unfortunate people just won't accept as the right things.

Yes, when the losses doubled as soon as the PCE was shut down, that sure proved the point in an emphatic way, if nothing else would.

Of course, for some, that meant it was the right thing to do .... because that's how they learned math.

Correlation is not, in any way, causality. We've been over this before - some still don't understand it.

You've made it clear you don't understand this.

The Company planner making financial projections, however, saw this exactly. Free cash flow from the PCE was about $55-60 million after operating expenses. Assistant Vice President -- Planning Fred Simpson went to his boss, Pete White, and pointed out, "we can't shut this down. We will avoid some expenses, but there is no way we can substitute for that cash flow. This is the only part of the railroad that is generating any money. If we shut it down, this will kill us."

White and Simpson went to Trustee Stanley Hillman. Hillman offered the first of his prolonged and baffled silences. And he was not a man to offer prolonged and baffled silences. But this was the opposite of what he had been told. Finally, he managed "better men than you have looked at this." That really didn't address the problem, only avoided it.

Simpson felt so strongly about it, he walked out the door, quit the Milwaukee Road, and went on to be a co-founder of NewMil, to save the PCE. They found private financing for their proposal, something Stanley Hillman had been unable to do to support the ongoing reorganization of the Milwaukee as a whole.

Then the Consulting Study came back: there was no configuration of the Milwaukee Road that could make money without the PCE.

Hillman resigned.

The PCE shut down. It was a small consolation to Fred Simpson that the Milwaukee's losses escalated almost exactly as he had predicted.

Best regards, Michael Sol

[greyhounds]

QUOTE: Originally posted by MichaelSol

QUOTE: Originally posted by greyhounds
And sometimes they do the right things that some unfortunate people just won't accept as the right things.

Yes, when the losses doubled as soon as the PCE was shut down, that sure proved the point in an emphatic way, if nothing else would.

Of course, for some, that meant it was the right thing to do .... because that's how they learned math.

Correlation is not, in any way, causality. We've been over this before - some still don't understand it.

[Kevin C. Smith]

Michael, a few questions to aid this failing memory of mine...

Where are my car keys? (No-wait. Let's stick to the ones I have about this thread.)

The decision to scrap the electrification was made in what year? '71 or '72? I'm sure it was not long before the 1973 oil embargo but when did the wires start coming down?

What, in your opinion, would have been tha latest date MR could've "stayed the execution" and reactivated the electric service before it would've been too expensive to do so?

Had the various electrification rebuilding proposals of the 1960's(?)-'70's (you've cited recently but I can't find the exact threads now) been accepted by MR, what was the timeline to completion?

I read an article that the main problem with the PCE was poor track, specifically bad ties (though the catenary poles were nearing the end of their useful life) but that the locomotives and (again as you've pointed out) the catenary were sound for many more years as was. Any other major problems that needed to be addressed?

Would it have been economically possible to increase clearences when double stacks came into widespread use? Or would the electrification, if it had survived the 70's, become the PCE's drawback in the 80's?