What If The PC Merger Had Been Called Off?

Discussion relating to the Penn Central, up until its 1976 inclusion in Conrail. Visit the Penn Central Railroad Historical Society for more information.

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Re: What If The PC Merger Had Been Called Off?

Postby wdburt1 » Mon May 16, 2011 5:10 pm

Or blame it on the factors that made even a well-run outfit like NYC a wallflower:

Interstate highway construction and its severe impact of rail traffic
Regulation that tied almost every initiative in knots
Rapacious property taxes
Blow after blow from federally-awarded wage increases and hikes in employment taxes, roughly 1956-on
The passenger obligation
Union intransigence and "In the long run we are all dead" mindset
Unimaginative, herd-mentality management on some RRs (see under "consequences of regulatory environment")
On the larger eastern RR's, a massive inheritance of debt that desperately needed to be restructured (see under "stupid, purblind creditors")
The secular decline of many traditional rail-user industries, and the flight of such industries to the South for many of the same reasons the eastern RRs failed

To name a few.

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Re: What If The PC Merger Had Been Called Off?

Postby Tommy Meehan » Sun May 22, 2011 11:02 pm

Btw, one other thing to consider is the inclusion of the New Haven in PC in 1969. In bankruptcy since 1961, the NH trustees had failed to come up with an income-based reorganization plan. They said given the reality of the situation, an income-based reorganization was not possible. Merger into another system was their lone hope.There was no other alternative on the ole' drawing board.

In fact in a 1/1/69 NY Times news article I reread recently, the NH trustees said, had there been any last minute glitch or delay preventing their merger into PC, they were fully prepared to petition the federal bankruptcy court to allow them to shutdown operations effective immediately. There was just no money left.

One other point, going back a ways in the thread, regarding an NYC+P&LE merger. The Pittsburgh & Lake Erie was a subsidiary of New York Central's going back many decades. P&LE locomotives were even lettered "New York Central System."

The P&LE, though, was a funny operation. If you look at their financial reports from the post-WWII years on, they actually lost money operating the railroad. Not surprising since they were really just a big switching road with a short (Connellsville PA- Youngstown OH) main line.

P&LE was profitable only because of their huge car hire surplus. While they lost $5 or 6 million annually on operations they earned $10-12 million in per diem payments from other railroads. Thanks to a huge car fleet that apparently spent most of its time on someone else's track.

In this regard I think P&LE was unique.
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Re: What If The PC Merger Had Been Called Off?

Postby D.Carleton » Mon May 23, 2011 3:57 am

At this year’s Norfolk Southern stockholders’ meeting a gentleman from New England approached the microphone when the time came for public comment. He reminisced to the days when it seemed all that would be left of railroading would be "Chessie and N&W hauling coal to tidewater and everything else would be Interstate." Once upon a time that is what a lot of us, even the true believers, thought would become of railroading in America.

That said, what if the Penn Central merger had not happened? One author, perhaps Richard Saunders, described a “firewall” running between Albany, New York and Harrisburg, Pennsylvania which no solvent railroad would cross. N&W and Chessie made it quite clear they would have nothing to do with the PRR and NYC. Simply put they were quarantined.

Without the merger the railroad situation would continue to deteriorate for all the reason already mentioned. Instead of the sudden failure of the Penn Central there would have been a “wave” of failures. The first likely candidate would have been the New Haven by 1970. This possibly would have led to a turnover of operations to separate railroads: EL operating from Maybrook to Cedar Hill, PRR from Bay Ridge to Cedar Hill, maybe B&M from Cedar Hill to Boston.

Then it would be a race; the collapse of the PRR or Hurricane Agnes and the EL in 1972. Either way with the mighty PRR going down it would drag the rest of the Northeast railroads with it, including the NYC, just as the Penn Central did in 1970. And the wave would continue west with the failure of the Rock Island and then the Milwaukee Road. You would now have bankrupt railroads from sea to shining sea.

How would the Federal Government have reacted to a steady wave of failures? Would there have been an Amtrak? Possibly but it would have come later, say 1974-76 timeframe. By the early 1970’s states had already begun their financial involvement in commuter rail operations so that would probably look the same as what we see today.

Would there have been a ConRail? Likely there would have been two or more ConRails without the previous PC merger to build upon. ATSF had shown an interest in EL and without a move for universal consolidation perhaps this could have happened. Otherwise the map would probably look very similar to what we see today… with one big caveat: deregulation.

The most important question: would there have been a Stagger’s Act without the fantastic failure of PC? Without Stagger’s the ConRail that did happen would never have succeeded and today’s railroading would never have seen its renaissance. If it took the failure of PC to bring about the deregulation of railroading then it was worth the pain.
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Re: What If The PC Merger Had Been Called Off?

Postby Tommy Meehan » Mon May 23, 2011 9:59 am

If Penn Central could've been called off I think you have to go back to 1962 when New York Central's attempts to engineer an NYC+C&O+B&O merger were rebuffed. Given the reality of the situation I think Penn Central being created became inevitable at that point. Though NYC was well-run it was not financially healthy. They were profitable yes, but they did not earn anywhere near an adequate return on investment which a business needs to keep itself going. Without that adequate return Central could not attract long term investment and remained capital-starved like so many other railroads in that era.

Back in that era mergers were seen as a way to reduce costs which, as William Burt mentioned, a series of wage hikes had greatly increased. The merger movement was to the 60s what dieselization had been to the 50s. A way to sharply reduce costs.

The inclusion of the New Haven in PC was inevitable too I believe. Back in about 1961 there was a study of an all-New England merger. NH+B&M+MEC+BAR+CV. Alfred Perlman was all for it and offered to cut loose the B&A so it could be included as well. But the study did not result in any formal merger plan. One stumbling block was the New Haven. Its problems were seen as too big too pervasive to be solved by a regional merger. PC was its only chance.

If Penn Central could've been called off for some reason I guess the NYNH&H would've been the first to undergo radical surgery. Perhaps separating the NH freight service from the passenger service. I think that was mentioned back then. Because for all its financial ills, the NH was too important to New England to simply shut down. They were no NYO&W.

Maybe a multi-state agency to fund the passenger and commuter service. With a scaled down carrier operating the freight service with special tax breaks and public support. What alternative could there have been?

Next to become insolvent probably would've been the PRR because it had a much more expensive physical plant to maintain than NYC. Probably in the early 1970s, done in not by Tropical Storm Agnes but the flat economy and high price inflation of those years.

I doubt New York Central would've survived the economic travails of the mid-70s. When by 1976 the Erie Lackawanna was even seeking federal assistance just to make payroll.

Again it was a double whammy of sharply rising fuel costs sending the economy into a downturn. The period from 1969 to 1976 was a very bad economic period for business in the US. It was just one economic crisis after another. It gave birth to the term "stagnation" to describe an economic condition that had never been seen before. High inflation in a stagnant economy. None of the big Northeastern carriers survived it and none could've I don't think.
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Re: What If The PC Merger Had Been Called Off?

Postby lvrr325 » Mon May 23, 2011 8:27 pm

It should be noted that the EL was in trouble solely because of Hurricane Agnes, in fact had enough money put aside that it was planning to modernize the Marion (OH) yard prior to the hurricane damage. While not the fastest, they were relatively reliable and had a decent traffic base.


With no merger, everyone would have fallen apart in about the same way, but it's possible as the companies shed assets to pay off debt the best pieces would have been picked up either by existing railroads or new companies. What rather surprises me is that the C&O and N&W refused to take the LV in 1963 - at least it didn't have any passenger service to have to support. Yet the C&O helped the CNJ into the 70s (as did the N&W to a lesser extent with a few locomotives). Perhaps at a fire sale price after bankruptcy it would have been more attractive.
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Re: What If The PC Merger Had Been Called Off?

Postby Engineer Spike » Mon May 23, 2011 10:01 pm

Saunders made too many concessions to get the merger allowed. I think that they needed to consolidate terminals and lines, where two both the red and green both served the same area.

One other point is the video clip that was posted on this forum about the PC's financial problems, and want of public funding. Most of the bad facilities were on the red side. The modernized ones were on the green side. PRR really needed to do like the NYC, and modernize. Noel has well pointed this out thoroughly . Pennsy should have merged with N&W, and Wabash. If the NKP, and LV were merged too, all the better. They could have invaded the NYC territory pretty well.

New Haven was shot. I think that the best they could have done was to be what the P&W is + the Hartford line, and the New York division freight. This is assuming that ConnDOT/MTA, MBTA, and Amtrak took over the immense passenger services. B&M was able to restructure because of the vital bridge service to Maine. NH didn't go anywhere, which still had substantial industry. Southern New England is a consumer economy now, but New Haven didn't even have much or a linehaul. The wire height, and other low clearances would have made intermodal shipping prohibitive.

Central's need to merge was somewhat overblown, in my opinion. Even if the PRR and kin had invaded it's territory, they still had the best line. They still serve many large cities. Their best move would be to continue to streamline, like the FEC (but hopefully in a more labor friendly manor). If they had, then Chessie may have been more receptive to merge. This would have been more likely after the passenger burden had been removed.

I can't say what would have happened to the other Conrail inductees, such as RDG, and CNJ. The best freight routes of these may have been taken into the Chessie system, to invade PRR territory, like I said the Wabash, LV, and NKP would have done to the Central.

As I finish typing the last paragraph, it hit me that there were still too many redundant lines. I still can't think of EL's roll in all of this. I don't know if they would have had the muscle to compete. They were weaker than the other major players would have been. They may have become a regional Jersey-Buffalo. Perhaps someone like the D&H might have wanted it.
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Re: What If The PC Merger Had Been Called Off?

Postby Tommy Meehan » Mon May 23, 2011 10:36 pm

lvrr325 wrote:It should be noted that the EL was in trouble solely because of Hurricane Agnes...


Consider this. Did CSX collapse after Katrina?

I have nothing against EL, in fact I've been a member of the EL Historical Society for twenty years. But let's face it, Erie Lackawanna had some serious financial problems well before 1972. Like the rest of Eastern railroading, even when they made money it wasn't enough. Sadly, they never got close to earning an adequate return on investment. A private business has to do that or they're walking a financial tightrope.

If they had been secure financially an event like Tropical Storm Agnes -- despite the damage, disruption and loss of revenue -- wouldn't have put them in bankruptcy. A financially sound carrier would've taken it in stride. They would've rebuilt and gone on like CSX and NS did after Katrina. In fact, like Erie and Lackawanna did after the hurricanes of the mid-50s.
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Re: What If The PC Merger Had Been Called Off?

Postby wdburt1 » Fri May 27, 2011 5:41 pm

N&W's John Fishwick put it succinctly: "Shame about EL. It could have been a valuable property, but for the debt." Or words to that effect. (Roger Grant's book)

EL's predecessors were in deep trouble before the 1960 merger and it only got worse after that. William White and Greg Maxwell lifted the gloom temporarily but as Tommy Meehan states it was nowhere near enough. An important detail is that that EL was holding bills for delayed payment for about a year before Agnes. See Grant.
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Re: What If The PC Merger Had Been Called Off?

Postby Matt Langworthy » Wed Jun 01, 2011 6:28 am

wdburt1 wrote:Or blame it on the factors that made even a well-run outfit like NYC a wallflower:

Interstate highway construction and its severe impact of rail traffic
Regulation that tied almost every initiative in knots
Rapacious property taxes
Blow after blow from federally-awarded wage increases and hikes in employment taxes, roughly 1956-on
The passenger obligation
Union intransigence and "In the long run we are all dead" mindset
Unimaginative, herd-mentality management on some RRs (see under "consequences of regulatory environment")
On the larger eastern RR's, a massive inheritance of debt that desperately needed to be restructured (see under "stupid, purblind creditors")
The secular decline of many traditional rail-user industries, and the flight of such industries to the South for many of the same reasons the eastern RRs failed

To name a few.

WDB


To this list, I would also add the following:

1. Gov't investment in airports
2. Gov't investment in the St. Lawrence Seaway and other waterways
3. New technology that reduced the amount of production in manufacutring (BR&P had a really good example of this on the Hojack line in another discussion).
4. For some RRs (like the Pennsy), investing revenue in non-rail ventrues, rather than improving the physical plant.
5. Lack of a trade policy to deal with lower pricing from foreign manufacturers. Grant's book makes a reference to "foreign steel- it's a job robbing deal" circa 1970.

Knowing these things, I sometimes wonder that we still have any rail infrastructure at all.
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Re: What If The PC Merger Had Been Called Off?

Postby Matt Langworthy » Wed Jun 01, 2011 7:02 am

lvrr325 wrote:With no merger, everyone would have fallen apart in about the same way, but it's possible as the companies shed assets to pay off debt the best pieces would have been picked up either by existing railroads or new companies. What rather surprises me is that the C&O and N&W refused to take the LV in 1963 - at least it didn't have any passenger service to have to support. Yet the C&O helped the CNJ into the 70s (as did the N&W to a lesser extent with a few locomotives). Perhaps at a fire sale price after bankruptcy it would have been more attractive.


It doesn't surprise me that neither the N&W nor the C&O wound up with LV. Pennsy controlled 97% of LV's stock by 1962, so why would Pennsy (and later PC) want to create a seamless competing route? Also, I never knew that N&W and C&O outright rejected LV.
Last edited by Matt Langworthy on Wed Jun 01, 2011 11:14 am, edited 1 time in total.
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Re: What If The PC Merger Had Been Called Off?

Postby Jeff Smith » Wed Jun 01, 2011 9:56 am

Always thought this was a great topic, having ridden the NH line from Mamaroneck as a boy pre-merger. I've linked the topic on our Facebook page: https://www.facebook.com/RailroadNet

The developer is shooting for 1,000 "likes", so to get updates on interesting and current topics through social media, make sure you "like" and "share" us!

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Re: What If The PC Merger Had Been Called Off?

Postby Tommy Meehan » Wed Jun 01, 2011 11:34 am

There is information out there -- from back in the day -- to explain some of this stuff.

IIRC, the thinking was, that LV was not in excellent physical shape, it did not have a lot of on-line business, it was not a money-earner and, probably most important, there was too much capacity between northern NJ and Buffalo in the 1960s.

If you read old industry news archives or the book Men Who Loved Trains, neither NW or Chessie wanted anything to do with the NY-NJ port district. So adding a Buffalo-NY/NJ route was not attractive to them.

It was only after Conrail and the rebirth of the port as an intermodal center that (by then) NS and CSX began to get interested.
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Re: What If The PC Merger Had Been Called Off?

Postby lakeshoredave » Sun Jul 31, 2011 11:25 am

awesome discussion. what a thread!
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Re: What If The PC Merger Had Been Called Off?

Postby CPF363 » Mon Apr 08, 2013 8:20 pm

Say the PC merger was in fact called off. With respect to the Pennsylvania, in the late 1960s, did they ever consider a merger with one of the railroads in the south to create more of an end-to-end railroad verses merging with the parallel NYC? The PRR had three direct connections with the Southern Railway, two with the L&N, and an additional connection with the Atlantic Coast Line via the RF&P (in 1902, the ACL had control of the L&N). They could have also looked at merging with the Seaboard Air Line, once again via the RF&P. Would one of these types of systems produce a successful railroad? If it did happen, by the 1980s, could it have been possible to have three comparable railroads in the east?
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Re: What If The PC Merger Had Been Called Off?

Postby Tommy Meehan » Mon Apr 08, 2013 11:07 pm

CPF363 wrote:With respect to the Pennsylvania, in the late 1960s, did they ever consider a merger with one of the railroads in the south to create more of an end-to-end railroad verses merging with the parallel NYC?


To my knowledge they never did. Absolutely not in the late 1960s. For one thing, the Penn Central merger was actually approved by the ICC in 1966. Implementation was delayed because of a lawsuit by Erie Lackawanna. The EL wanted either inclusion in PC or with the Norfolk & Western.

Btw, interesting to me is the book, "No Way To Run a Railroad," by Stephen Salsbury, which I have been rereading. This book was written in cooperation with David Bevan, the very talented and skillful Vice President of Finance for PRR and the PC's Chief Financial Officer.

In the book, Bevan tells the author that he, Bevan, recommended that the merger proceed slowly. That at first the top managements should've been merged but not the railroads. That Central and Pennsy should've continued to operate separately. Once the top managements were working together efficiently, once the accounting and computer conflicts between NYC and PRR were solved, then the coordinated management could have begun to integrate the two railroads (plus the New Haven).

Bevan cited as an example the way C&O handled the Baltimore & Ohio. C&O did not immediately merge with B&O. It maintained the separate operations for many years while the two carriers gradually coordinated operations and equipment fleets. Thus C&O was able to avoid the problems PC encountered from Day One. The lost cars, the confusion over interchanges, the friction between operating forces in the field, etc.

He makes a pretty good case. However, Bevans said, he was overruled by Perlman and Saunders who wanted to "get on with it." Saunders especially was convinced, the merger would immediately begin producing enormous savings. We need those savings right now, Saunders told Bevans. Of course, there never were any savings as the two roads cost more to operate together than they had cost to operate separately.

It's a great book.
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