Railroad unions, private buyers vie for Conrail freight system
Railroad unions and a number of private bidders are competing to purchase Conrail, the Northeast's most important freight hauler, from the federal government.
Jobs and the preservation of the line are major stakes in what could be a brisk bidding war during the next few weeks.
The Consolidated Rail Corporation was formed in April 1976 when Congress consolidated seven bankrupt carriers, including the Penn Central, to prop up a railroad system considered vital to the economy of the Northeast. Five years later, Congress adopted legislation that enabled Conrail to operate more like a private company and, at the same time, set 1984 as a target year for selling the system.
As the deadline nears, interest is running high in taking over Conrail. The system, once deeply in the red, netted $313 million last year and expects profits this year to be more than $350 million. The Alleghany Corporation, the Norfolk Southern Corporation, and a number of others are definitely interested - but not necessarily in operating the railroad in its present 14,200-mile form.
A private buyer would be free to discontinue unprofitable operations and to concentrate on those making money. This would mean freight-service cuts to many communities - and it could mean the loss of thousands of union jobs. That prospect has brought railroad labor into the bidding.
The Railway Labor Executive Association (RLEA), which represents 16 unions that bargain for railroad workers (including Conrail's 38,000 employees), announced in June 1983 that employees would pay about $2 billion for Conrail.
Frank A. Hardin, chairman of RLEA, said that wage and other concessions by workers, including a 12 percent pay cut taken voluntarily, helped make Conrail profitable. Now, Mr. Hardin said, ''Employees feel that they have been part of the downturn for Conrail . . . and would like to share in the upturn.''
Moreover, Hardin said, 50,000 jobs already have been eliminated in the Northeastern rail system, reducing the work force in Conrail to 38,000. A takeover by another railroad would cause further job cuts, perhaps as many as 10 ,000 more layoffs, he said.
For instance, if the Norfolk Southern should buy Conrail, consolidations to eliminate parallel tracks and duplicated services would affect jobs of about one-fourth of Conrail's work force, according to Hardin, who is also president of the United Transportation Union.
The rail unions lack the funds to compete with private bidders on a direct financial basis. Like employee-association unions that have managed to salvage plants and jobs in other industries, however, Conrail unions have proposed to pay $500 million in cash - to be raised by pledging Conrail's assets. Another $ 300 million, on paper, would come from a three-year extension of wage concessions negotiated in 1981. The unions would also forgo tax write-offs of $1 billion or more to cover the remainder of the purchase price.
The United States Transportation Department says a buy-out on such terms involved too little money, too much debt, and too many unknowns. Now the unions, aided by Brian Freeman, financial adviser to the RLEA, are working on a different approach: Workers would own 35 percent of the stocks (they now own about 15 percent of Conrail under an employee stock purchase plan) and would sell the remainder to banks, pension funds, and other institutional investors.
The Alleghany Corporation, meanwhile, has offered to pay $1 billion to the government, would forgo all but $150 million of Conrail's $1 billion in tax write-offs and investment credits, and would pay $700 million from Conrail's coffers for employee-owned stock and for other payments to unions.
Labor, Alleghany, and others interested in Conrail, are not likely to make final bids until just before a June 18 deadline.
Railroad and other potential bidders say a takeover would create a more efficient rail system in the Northeast with lower costs to customers. They question whether a labor management would make cost-cutting decisions necessary to make Conrail a viable system. Labor, in turn, argues that a worker-owned system would be more likely to get cost concessions, if needed, from employees.
The unions have picked up valuable support from L. Stanley Crane, Conrail's board chairman. Mr. Crane recently announced that he sides with labor in its bid because ''people who work so hard to bring this company to viability and who made personal sacrifices should be recognized in any sale.''