Penn Central began the mega-merger movement as we know it today but the
ill-fated railroad also marked a low point in America’s railroading
history. When the PC collapsed in 1970 it began a very rough decade for
the industry and would leave many wondering if railroading was even
still a viable, competitive means of transportation. By the time the
decade ended, PC and the two powerful railroads that comprised
it, the Pennsylvania and New York Central, were gone along with
virtually every other Northeastern carrier, including several others
across the country that began to also disappear into mergers. Despite the resounding failures of the system there were some good
things which came from it. First and foremost the collapse was a
wake-up call to the government that assistance was desperately needed to
not only save Northeastern railroading but also the industry as a
A year following the railroad's bankruptcy, Amtrak was
established as a federally assisted railroad company to take over the
private railroads’ intercity passenger trains and most were quite happy
to rid themselves of the service. Soon realizing that Penn Central’s problems were far too entangled and
complicated for the railroad to stabilize itself as well as recognizing that it
was threatening total shutdown, Conrail was created and began
operations on April 1, 1976 taking over the remnants of the PC and
several Northeastern carriers. Just four years later in 1980, the
Staggers Act (named after Republican Harley O. Staggers of West
Virginia) was created and signed into law, which allowed for enormous
deregulation of the railroads (such as allowing carriers to enter into
contracts with shippers to set prices and services, without ICC
What would eventually lead to the creation of PC began as early as the latter 1950s when the Pennsylvania Railroad began looking for a merger partner to help right a sinking ship. By the 1950s the Pennsylvania was very sick, although few except upper management knew this. As Northeastern traffic dried up from a loss of industry and competition (due mostly to planes and trucks) the handsome profits the Pennsy was used to were no more with passenger losses, particularly dragging down the company. Its savior to offset these massive deficits was its controlling interest in the Norfolk & Western, which was a black diamond specialist hauling coal from the hills of West Virginia and Kentucky to Virginian ports at Norfolk.
Contrast this to the New York Central, which under the
guidance of railroading man Alfred Perlman was not only back in the
black and slashing its operating ratio but also looking for a suitable
partner to increase its marketing position and cut costs even farther (Perlman was an excellent manager who recognized many cost-saving and profit-earning
measures which are still used today, such as high speed COFC service).
This partner certainly did not include the Pennsy and realizing that he
was under pressure by the NYC board to find someone began looking for
the best possible suitors (while once again earning profits, the NYC was still not healthy enough to survive independently for the long-term).
The NYC was particularly interested in the Baltimore & Ohio, which would open up the railroad to new southern markets, particularly the very lucrative coal traffic the B&O held in northern West Virginia and parts of Pennsylvania, Maryland, and southeastern Ohio. While a fight for the B&O ensued between the NYC and Chesapeake & Ohio, the NYC’s bid to secure the B&O failed as the railroad was awarded to the C&O, mostly on the grounds that the investors were distrustful of the NYC and that once it had gained control of the B&O would merge it into its system and completely out of existence (which was partially true).
With the B&O no longer an option, all other southern lines were
either not interested or not appealing and with the board pressuring for
a merger Perlman began to realize the that the Pennsylvania was likely
the only optional partner. Many in the industry and those who
understood it, realized that if such talks were underway at least one of
the railroads was extremely desperate and the likelihood of such a
union being successful was highly doubtful. - Everyone knew that the two
were bitter rivals. How could such a merger be successful?
In the end it was eventually decided that a merger with the PRR was the
only option for the New York Central. Surprisingly the ICC approved the
merger that virtually allowed for a monopoly in the Northeast and the
Penn Central Corporation was born on February 1, 1968. Aside from that fact that the new railroad literally began to
fall apart from the very beginning, other problems resulted as a
condition of the merger. First, the PRR was forced to divest itself
entirely of the lucrative coal earnings
it was siphoning from affiliate, Norfolk & Western. Second, the
new railroad was forced to take on the New York, New Haven &
Hartford, a commuter-heavy operation between New York and Boston that
was in shambles itself and PC was in no condition to take on a bankrupt
With a merger that was not only a terrible fit but also unplanned it comes as no surprise that the situation resulted in bankruptcy. To make matters worse the NYC and PRR could not have had more opposite corporate cultures. The management
of the New York Central System was more laid back, open to new ideas,
and the chain of command was “loose” so to speak (one reason for its
renewed success in the 1950s under Perlman) whereas the PRR was
extremely strict, new ideas were shunned and looked down on (the
railroad was still using practices that had been out-dated since the
19th century!), and orders came down through the chain of command.
Naturally, then, these two management teams did not get along at all and pure hell and pandemonium resulted across the entire system.
The PC was losing over $1 million a day and trains were becoming lost
throughout the system, as dispatchers were not properly trained on how
to dispatch their trains.
To make matters worse as the red ink began to become an unstoppable
flash flood maintenance was deferred and derailments became the norm
with large sections of main line reduced to 10 mph slow orders and
freight snarled to a crawl. After only two years since its creation and
financial assistance completely gone, the destitute Penn Central
officially declared bankruptcy
on June 21, 1970. The result of this was a ripple effect throughout the
entire Northeast, as other railroads, which depended on the PC to ferry
traffic, no longer had a means to move their freight.
It became so bad that the railroad was facing total shutdown if
financial assistance were not located.
Realizing the severity of the situation the federal government
stepped and setup the Consolidated Rail Corporation, which comprised the
skeletons of several bankrupt Northeastern carriers, and began
operations on April 1, 1976. With federal backing Conrail began to
slowly pull out of the red ink (it took many years) and by the late
1980s was a profitable railroad after thousands of miles of access
trackage was abandoned and/or upgraded. While Conrail was able to make a profitable railroad from the
skeletons of several Northeastern carriers, today even it is no longer
with us being split up amongst CSX Transportation and Norfolk Southern
in 1999, with CSX taking much of the NYC while NS got a good chunk of
the Pennsy. In any event many parts of both the New York Central System
and Pennsylvania Railroad continue to serve an important role in moving
goods (and people) from eastern markets to the Midwest and vice versa.
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