Conrail: on the track to recovery
When (Conrail was) spending the government's money, there was no consideration for the bottom line. All of a sudden, (Uncle) Sam says: ''Ain't gonna be no money. You guys gotta row your own boat.'' Then you change your whole perception about the way you do things.Skip to next paragraph
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- L. Stanley Crane L. Stanley Crane may be sitting atop one of the great turnaround stories of this century.
Mr. Crane is chairman and chief executive officer of Conrail, the government-owned freight system patched together from six bankrupt Northeastern railroads in 1976.
Once the 17,000-mile system began rolling, however, it was not long before matters went from bad to worse. Conrail soaked up $3.3 billion in federal subsidies in five years and still posted regular operating losses - $244 million in 1980 alone. It was saddled with outmoded equipment, onerous labor contracts, unprofitable routes, and declining business.
As recently as last year the Reagan administration was ready to practically give it away in disgust.
Today, however, Mr. Crane and other interested parties appear convinced that the system will prove itself profitable, and thus qualify for sale intact to the highest bidder. Or, as he hopes, it will reorganize as a corporation and sell stock to the public.
Since Mr. Crane came aboard in January 1981, after retiring as chairman of the Southern Railway, Conrail has:
* Turned its financial picture around to the point where there is more than $ 400 million in cash assets on hand - the most in company history. Since last June, not one dollar of it has come from federal funds. Moreover, the company continues to pay the interest on its massive debt to the government.
* Come within a year of meeting congressionally mandated deadlines that it be self-supporting. Otherwise, the secretary of transportation could, if he chose, sell off the system in pieces for whatever prices they could fetch - provided the buyers agreed to maintain service for a specified time. But in the process unwanted sections of the system could stand to lose service, and thousands of additional employees could lose their jobs.
* Earned the respect of financial analysts, shippers, and fellow railroaders alike.
''I like the cliche that a chain is as strong as its weakest link,'' says Dick Fischer, a rail analyst for Merrill Lynch & Company, the investment firm. ''Conrail now seems to be a stronger link in the (rail freight) chain. But there's a lot more still to be done.''
''Conrail is doing well,'' adds a spokeswoman for the National Industrial Traffic League in Washington. ''Service has improved. Whether Conrail will make it or not is like asking whether any major corporation will.''
Because of the sluggish economy, Conrail posted a $25.7 million loss in the first quarter of 1982. Car loadings were off by 22 percent for the period, especially in the commodities Conrail relies on most - steel, coal, autos, and chemicals. In fact, the company this week laid off 2,200 workers and closed five equipment repair shops for the summer because business has been so bad.
Trucking and the mergers of other railroads, such as the Southern/Norfolk & Western and the Seaboard/Chessie, also have eaten into revenues.
But says Mr. Crane: ''We're going to have a profit during the second quarter. And if the third quarter goes down, we're going to try to keep in the black one way or the other. I think I can say without qualification that, should there be an upturn - and it really doesn't have to be big, as demonstrated by our second-quarter performance - we'll be able to meet those profitability requirements without any difficulty.''
His optimism is based on such factors as vastly upgraded rolling stock, continuing abandonment of unprofitable routes, better labor relations, aggressive but flexible marketing strategies, and the enthusiastic support of Transportation Secretary Drew Lewis. Without Mr. Lewis and his threat to dismember the system, Crane says, the unions with which Conrail must deal might not have agreed to wage and other crucial concessions. From a base of 100,000 employees in 1976, meanwhile, Conrail has trimmed nearly half.
Nonetheless, Crane says: ''I've got enough locomotives, enough cars, enough people, enough track, enough of everything to take care of 100 percent more business than right now. And I don't think there's going to be 100 percent more business in the next five years.''
Still more optimism stems from the prospect of shedding Conrail's money-losing commuter-rail operations here and in New York. Local transit authorities will assume full responsibility for commuter service next Jan. 1, with Conrail standing to realize an instant saving of $70 million in the process. Daily meetings are being held between Conrail officials and the franchised operators.
Prospective buyers are not yet lining up at Conrail's doorstep, partially because of the economy and partially because any sale almost certainly will depend on the government's willingness to forgive the $3.3 billion debt. But government officials already have hinted that it will be forgiven.
As required by law, the Transportation Department has retained a private investment firm to help expedite the transfer to other ownership. And Conrail employees have hired their own financial adviser to work on a possible purchase proposal.