The Penn Central Railroad, "High Speed Service"

Penn Central, officially known as the Penn Central Transportation Company, spawned the modern-day mega railroad although the ill-fated system also marked the industry's low point. When the PC collapsed in 1970 it began a long decade of uncertainty, leaving many to wonder if the railroad was an obsolete mode of transportation.  The dark days then, building since the immediate postwar years, proved a turning point.  It was a wake-up call to the government that assistance was desperately needed not only to save the Northeast but also the industry itself.  Passenger trains of all types were no longer a viable business model; if these were to continue the feds or states must subsidize the service.  In addition, suffocating regulations, a plague throughout the 20th century, helped doom Penn Central.  The creation of Conrail also brought about change in this area as deregulation freed companies to set freight rates and more easily abandon or sell unprofitable corridors.  Today, many key Penn Central routes remain in use under Amtrak, CSX Transportation, and Norfolk Southern while numerous branches are operated by short lines.

The Years Leading Up To Penn Central

When I was in college a few professors highlighted the collapse of Penn Central.  The lectures were interesting albeit too brief for someone who enjoyed railroad history.  At the time, Rush Loving, Jr.'s, "The Men Who Loved Trains," had not yet been published.  If so, I am sure it would have been required reading.  Today, many educators, at both the high school and collegiate levels, have likely done this very thing.  Loving's title not only provides an in-depth study of the company's failings but also the intricate politics which pervade large corporations.   It it is an excellent book vividly illustrating how arrogance can destroy even the most powerful companies.  While hubris was a serious problem at Penn Central there were many other factors leading to its downfall.  Its creation can be traced back to the end of World War II.  The industry had experienced a resurgence after the lean years of the 1930s and believed these problems were far behind them following the war.

The mighty Pennsylvania Railroad should have recognized the ominous signs.  It lost money for the first time in its fabled history during 1946 but continued to spend millions on new passenger equipment while carrying out few modernization or cost-cutting initiatives.  The New York Central was somewhat more cautious.  The company had never been as profitable as the PRR but was still regarded as one of the most powerful in the nation.  It was widely recognized by the general public for its glamorous passenger trains, notably the 20th Century Limited, and high quality of service.  By the 1950s the NYC was struggling and nearly broke.  The company's board realized change was needed and brought in Alfred Perlman.  After taking the helm in 1954 he quickly turned around the Central's fortunes by hiring young, innovative new managers; completed dieselization; built classification yards; and introduced creative marketing schemes such as Flexi-Van service (the trains themselves were known as Super Vans).  This latter idea was far ahead of its time, the first successful application of Container-On-Flat-Car service (or COFC).  

While Perlman's work greatly helped its future remained uncertain as an independent carrier.  The merger movement was stirring as systems attempted to cut costs and streamline operations in the face of declining traffic and strict regulations.  It was a PRR subsidiary, the Norfolk & Western, which ironically kicked off the modern merger movement by acquiring rival Virginian in 1959.  It then purchased a handful of other roads during the 1960s including the Wabash, Nickel Plate, and Akron, Canton & Youngstown.  In addition, it held stakes in the Erie Lackawanna and Delaware & Hudson for a time.  The PRR's situation became precarious; despite its outward appearance the company was, essentially, broke.  It launched informal merger talks with the NYC during September of 1957, a moved that surprised many outsiders.  It seemed impossible two of the nation's largest railroads, and fiercest rivals, could merge.  Perlman knew his railroad needed a partner but not the PRR.  While he had no insider information, Central's head man was very suspicious that the so-called "gold-plated" Pennsylvania Railroad was a house of cards ready to collapse.  

He also did not believe the Interstate Commerce Commission (ICC), governing body of the industry, would ever approve a union that would monopolize the Northeast.  Instead, in 1959, he began courting the Chesapeake & Ohio and Baltimore & Ohio regarding a three-way merger.  The Chessie was quite profitable; like the N&W it enjoyed an endless stream of black diamonds originating from mines in southern West Virginia and eastern Kentucky.  As for the historic B&O it was much larger than the C&O but struggled with incessant financial problems.  When talks began the B&O was doing somewhat better although its future remained murky.  As Perlman saw it a union would be of great benefit to everyone; the B&O offered new markets, the C&O contained its lucrative coal traffic, and a continued effort of modernization and downsizing would make for an efficient company.  In addition, a PRR merger with its now-much larger N&W affiliate would provide balanced competition.  On paper, it seemed like the best outcome with the public interest in mind.  Alas, feuding broke out between the leaders of NYC, B&O, and C&O regarding who would head the new company and negotiations fell apart.

The Creation Of Penn Central

With nowhere else to turn, Perlman relaunched talks with the Pennsy in October of 1961 and during the next few years the prospects of merger were hashed out.  The ICC proceedings worked their way towards completion until finally, and surprisingly, the federal agency approved the marriage in January of 1968.  A month later, the Penn Central Transportation Company officially launched on Thursday, February 1, 1968 at 12:01 AM.  The new railroad was a monster.  According to David P. Morgan's article, "NYC + PRR, What Does It Mean?," from the January, 1958 issue of Trains Magazine, Penn Central boasted more than 20,000 route miles, contained assets of more than $5 billion, and offered a projected operating revenue of more than $1.7 billion annually.  On the surface these numbers appeared rosy.  However, there were many warnings PC was headed for disaster.  Its astronomical payroll held more than 180,000 employees, a condition agreed upon by new chairman Stuart Saunders who was brought in from the N&W.

As Loving argues, Saunders was never a good railroader and understood little regarding operations.  However, he was strong in negotiation and appeasement, which wound up working superbly for the unions.  When mergers happen savings are usually derived through the elimination of duplicate routes, terminals, trackage, and redundant positions.  This should have worked to Penn Central's advantage but in an incredible circumstance Saunders gave in to virtually all union demands.  The result was predictable, Penn Central became straddled with a ballooned payroll from which it could not escape; every employee from both companies was retained, huge severance packages were promised to anyone fired, and astoundingly several-thousand employees were rehired for reasons which had nothing to do with the newly merged company.  Then, there was the operating ratio.  This term describes operating expenses as a percentage of revenue.  Anything over 80% is extremely high (today's Class I's try to stay in the 60s) and means that for every dollar a railroad earns, at least 80 cents is being devoured by expenses.

With the both the Central and PRR, they carried operating ratios above 81%.  Finally, the cash reserves on merger day were slim with just $13 million available (the PRR, alone, required more than three times that amount each day) and spoke of the sickness plaguing each system.  For all of the glaring problems chairman Saunders and president Perlman had attempted initiatives of preparation; to improve operational efficiency they tried to construct massive, new automated freight yards at Selkirk and Albany, New York with another located in Columbus, Ohio.  The New York Central had been implementing such infrastructure upgrades but those at the PRR brushed aside these plans.  Then, the two men worked on an idea to launch an early, computerized system for monitoring and tracing freight cars.  Today, this technology is standard and greatly improves efficiency while offering customers the ability to track their product(s).  At the time it was innovative stuff. 

Disaster From Day One

This time the ICC was the problem; the agency was notorious for dragging its feet on mergers (the Rock Island debacle was unfolding at the same time) and had spent more than six years approving the Penn Central deal; unsure of whether the marriage would happen the men could not invest the capital in the program.  With no other choice they decided to merge each railroad's operating departments from day one.  The hope was that over time the situation would work itself out and things would eventually return to normal.  Unfortunately, this decision resulted in immediate pandemonium.  As Loving described it: "...None of the classification clerks had been taught the 5,000 new combinations of routings.  By the thousands, cars began flowing into the wrong yards."  In one famous incident, former New York Central employees did not know the location of Harrisburg, Pennsylvania; even though it was the state capital and an important PRR terminal the city was never served by the NYC.  

So, the car in question was sent to nearby Pittsburgh.  A similar incident devastated the Bangor & Aroostook, a small railroad serving northern Maine.  For the BAR, potatoes had long been a primary source of freight; its entire business was lost forever when Penn Central's horrid service lost an entire season's crop at Selkirk Yard in 1969.  The fallout resulted in many farms shutting down and those which remained discontinued rail service.  The railroad, itself, was nearly forced into bankruptcy.  Things only got worse as incoming "Red Hats" (PRR) and "Green Hats" (NYC) struggled to find common ground.  David Bevan, who came in from the Pennsy, headed Penn Central's financial department.  Despite his arrogance, Bevan proved a viable asset.  As the situation fell apart his many connections throughout financial and business sectors enabled a continual flow of cash and new loans as Penn Central burned through torrents of cash each day.

Penn Central At A Glance

In David P. Morgan's article, "NYC + PRR, What Does It Mean?," mentioned above the legendary author and writer painted a foreboding picture of the merger ten years before it was finalized.  He noted the heavy debt of both railroads, their weak earning power, and excess capacity; all three of these issues were only exemplified through the 1960s.  The numbers Morgan cites below does not include earnings from the Pittsburgh & Lake Erie, an NYC subsidiary.

Figures


Total/Average


Route Miles

Track Miles

Employees

Locomotives

Freight Cars

Passenger Cars

Assets

20,583

46,560

184,074

5,033

287,750

8,551

$5.659 Billion

His efforts were aided by the PRR's many years of success and vaunted status on Wall Street, which had achieved it an impeccable credit rating.  Only those at the very top actually knew how bad the situation was.  As the crisis worsened the railroad missed the lucrative profits of Norfolk & Western; unfortunately, as a condition of the merger PRR had been required to relinquish its ownership in the company.  It seems that whatever could go wrong did.  In a further insult, which spoke of the government's feeling towards the industry, the ICC required Penn Central to take in the destitute New Haven.  This regional served southern New England and was an important transportation artery for thousands of commuters traveling between New York and Boston each day.  Unfortunately, the New Haven had struggled for years and had been stuck in bankruptcy since 1961.  

According to Tom Nelligan's article, "How PC + NH = PC," from the January, 1970 Trains, it added 1,502 additional route miles to PC's network.  The New Haven's issue was not only its bankruptcy, debt, and money-losing passenger services.  As Nelligan points out the road's freight revenues were not even profitable.  It officially joined Penn Central on January 1, 1969.  For Perlman's part he was constantly trying to improve an impossible situation.  Always outspoken, he drew the ire of former PRR brass who never particularly cared for him.  Using Saunders as a pawn, those on the board eventually garnered enough votes to stage a coup d'etat and have Perlman ousted.  On August 29, 1969 the board voted Paul Gorman as the company's new president.  Perlman was handed the lame-duck position of vice chairman.  After this stint he went on to head the struggling Western Pacific.  His abilities as a railroader again shown brightly as he turned around the moribund road before it was purchased by Union Pacific.

The Hammer Falls...

Unfortunately, Gorman had little more success than Perlman in righting the Penn Central's sinking ship.  Bevan tried his best in keeping creditors at bay while acquiring new sources of loans.  In a last ditch effort, Bevan worked his accounting "magic" to prop up worsening numbers through paper profits and other shady practices, otherwise described as "cooking the books."  For the year-end 1969, Penn Central's situation was very grim; the company's railroad arm had lost over $300 million since merger day and was still craving ravenous volumes of cash.  Through the first quarter of 1970 it had lost another $100 million, or more than $1 million a day.  The end finally came in June, 1970.  Bevan reported to Saunders that he had exhausted all monetary means; if federal assistance could not be secured bankruptcy was the only option. The railroad nearly secured a $200 million from the defense department at the last minute.  However, this stop-gap measure was turned down at the last minute.  

Late in the day on June 21, 1970, Penn Central's board voted to seek voluntary relief from creditors under Section 77 of the federal Bankruptcy Act.  The reaction from Wall Street and those in business sectors was shock, no one believed the mighty Pennsylvania Railroad would ever collapse.  It was the largest bankruptcy of its time.  In another sign of the times the general public paid scant attention to this enormous and historic business failure.  Most were too caught up in the ongoing Vietnam War while those who did notice questioned only if the passenger trains would still run (they did).  The result of Penn Central's fall caused a ripple effect throughout the entire Northeast as other railroads struggled to keep their freight moving. Penn Central's fate was left to bankruptcy judge John Fullam while Jervis Langdon, Jr., an experienced railroader with a career in the industry, became the chief trustee.  Interestingly, Bevan escaped prosecution for his accounting actions, Saunders quietly retired to Virginia, and Paul Gorman hastily left the company finding work elsewhere.  After more than three years in receivership, trustees concluded Penn Central problems were too complex for a traditional reorganization.  

Diesel Locomotive Roster

The American Locomotive Company

Model Type Road Number Date Built/Previous Owner Quantity
FA-11300, 1319, 1330-1333Ex-NYC/NYNH&H6
FA-21302-1313, 1345-1399Ex-NYC67
RS322021-2044Ex-NYC24
C4302050-2059Ex-NYC10
RS272400-2414Ex-PRR15
C4242415Ex-PRR1
C4252416-2446, 2450-2459Ex-PRR/NYNH&H41
FB-23323-3372, 3393-3397Ex-NYC/NH55
FB-13368, 3390-3392Ex-NYC/NYNH&H3
RS25207, 5210, 5212, 5215, 5221, 5229, 5401, 5461Ex-NYC/LV8
RS35203, 5205, 5223-5352, 5400-5409, 5411, 5413-5416, 5418-5484, 5500-5555, 5557-5598Ex-NYC/PRR/NYNH&H312
C6286300-6314Ex-PRR15
C6306315-6329Ex-PRR15
C6366330-6344196815
RSD56800-6805Ex-PRR6
RSD76806-6810Ex-PRR5
RSD156811-6816Ex-PRR6
RSD126855-6879Ex-PRR25
RS117600-7608, 7617-7654, 7660-7674Ex-NYC/PRR/NYNH&H60
S19300-9347, 9382-9394, 9405-9406, 9408, 9412-9459, 9461-9470, 9486-9499Ex-NYC/PRR/NYNH&H136
S39348-9380, 9395-9402, 9473-9485Ex-NYC/PRR54
S29600-9661, 9704-9727, 9731-9732, 9778-9787, 9802, 9804-9814, 9816, 9818-9821, 9824-9828, 9836-9842, 9850-9860Ex-NYC/PRR/NYNH&H138
S49663-9703, 9729, 9730, 9733-9765, 9768-9777, 9788-9801, 9803, 9815, 9817, 9822, 9823, 9830-9834Ex-NYC/PRR110
T69844-9849Ex-PRR6
RS19900-9946Ex-NYC/PRR/NYNH&H47
RS3m9950-9984(RS3s Repowered With EMD Prime Movers)35

The Baldwin Locomotive Works/Lima Locomotive Works

Model Type Road Number Date Built/Previous Owner Quantity
AS6166966-6976Ex-PRR11
DS-4-4-6607800-7885Ex-PRR86
DS-4-4-7507886-7893, 7900-7913Ex-PRR22
S87894-7899Ex-PRR6
DRS-4-4-10007914-8046, 8050-8053Ex-PRR137
VO-10008047-8048Ex-NYC2
LS-1000 (Repowered With EMD Prime Mover)8062-8063Ex-NYC2
RS128067-8091Ex-NYC/PRR25
S128092-8199Ex-NYC/PRR108

Electro-Motive Division

Model Type Road Number Date Built/Previous Owner Quantity
F3A1400-1425, 1617-1635Ex-PRR/NYC45
F7A1440-1538, 1636-1873, 1878-1879, 1900-1906Ex-PRR/NYC/D&RGW346
GP382010-2014Ex-PRSL5
GP202100-2112Ex-NYC13
GP302188-2249Ex-NYC/PRR62
GP352250-2351, 2353-2399Ex-PRR/NYC149
GP403000-3274Ex-NYC275
F7B3423-3442, 3478-3479, 3508-3563, 4150-4163Ex-PRR/NYC/D&RGW92
F3B3443-3474, 3500-3507Ex-NYC/PRR40
GP9B3800-3839Ex-PRR40
E7A4000-4035, 4200-4245Ex-NYC/PRR82
E8A4036-4095, 4246-4328Ex-NYC/PRR143
E7B4100-4127Ex-NYC/PRR28
FP74332-4371Ex-PRR40
FL95000-5059Ex-NYNH&H60
GP75600-5712, 5719, 5738-5812, 5818-5827, 5840-5892, 5895-5927, 5950-5959, 7348, 7369, 7380, 7420, 7452, 7519Ex-NYC/PRR/P&LE301
SD356000-6039/td>Ex-PRR40
SD406040-6104 (Ex-PRR), 6240-62841971110
SD456105-6234 (Ex-PRR), 6235-62391968140
SD96900-6924Ex-PRR25
SD386925-6959197035
SD76950-6951Ex-PRR2
GP97000-7269, 7300-7327, 7346-7475, 7500-7518, 7530-7559Ex-PRR/NYC/NYNH&H377
GP387675-79391969-1971265
GP38-27940-81621972-1973223
SW18400-8599Ex-NYC/PRR200
SW88600-8627Ex-NYC28
SW88600-8627Ex-NYC28
SW9008628-8646Ex-NYC19
NW28647-8678, 8683-8704, 8750-8773, 8795-8810Ex-PRR/NYC/IHB92
SW78836-8855, 8872-8874, 8880-8910, 9035-9041, 9045-9049, 9061-9094, 9097-9098Ex-NYC/IHB/PRR112
SW98911-9001, 9042-9044, 9059-9060, 9095-9096, 9113-9133Ex-NYC/PRR119
SW12009009-9034, 9050-9058, 9180-9199Ex-PRR/NYNH&H55
NW2u9075, 9099-9111, 9133, 9150-9152, 9154-9179Ex-PRR NW2s43
SW15009223-9227 (Ex-IHB), 9500-95831971-197389

Fairbanks Morse

Model Type Road Number Date Built/Previous Owner Quantity
H16-445100-5112, 5150-5174Ex-PRR/NYNH&H38
H10-448206-8262Ex-NYC/PRR57
H12-448300-8342Ex-NYC/PRR43

General Electric

Model Type Road Number Date Built/Previous Owner Quantity
U25B2500-2569, 2600-2658, 2660-2685Ex-NYC/PRR/NYNH&H155
U23B2700-27761972-197377
U28B2822-2823Ex-NYC2
U30B2830-2857, 2860-2889Ex-NYC58
U33B2858-2859 (Ex-NYC), 2890-2970196883
U25C6500-6519Ex-PRR20
U28C6520-6534Ex-PRR15
U30C6535-6559Ex-PRR25
U33C6540-6563196824
U23C6700-6718197019
44-Tonner9999Ex-PRR1


The Postscript

In the end, the railroad's failure eventually improved the industry for the better; Amtrak launched on May 1, 1971, largely relieving railroads of their money losing passenger operations, while the creation of Conrail on April 1, 1976 pieced together the bankrupt shells of several Northeastern lines, including Penn Central.  It took several years but Conrail earned its first profit in 1981, netting $39 million that year.  There were several factors which led to this turnaround but one of the most important was the Staggers Rail Act of 1980.  Perhaps Morgan best summed it best up best, all the while articulating the industry's problems:  "The point is why in a thriving U.S. economy the biggest railroads in the nation find it necessary to make public such a drastic panacea.  The answer, all but obscured by inept railroad explanation and a nervous competition, is that railroading has been manacled by archaic regulation drawn up in an era when the objective was to see to it that certain roads did not harm the economy while they were clouting one another over the head in the excesses of a vanished day of laissez-faire.  Thus railroading has been unable to stop the advance of water, road and air competition that has always been backed to the hilt by public money and frequently merchandised by Government.  That is the point."  Incredibly, this was said in 1958, a decade before Penn Central's creation and more than two decades before deregulation. 

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