The Penn Central Transportation Company, commonly abbreviated to Penn Central, was an American class I railroad that operated from 1968 to 1976. Penn Central combined three traditional corporate rivals (the Pennsylvania, New York Central and the New York, New Haven and Hartford railroads), all united by large-scale service into the New York metropolitan area and (to a lesser extent) New England and Chicago. The new company failed barely two years after formation, the largest bankruptcy in U.S. history at the time. The Penn Central's railroad assets were nationalized into Conrail along with the other bankrupt northeastern railroads; its real estate and insurance holdings successfully reorganized into American Premier Underwriters.
"Public Interest Demands Merger" publicity booklet produced by the Penn Central Merger Information Committee in 1962.
Pre-merger
The Penn Central railroad system developed in response to challenges facing northeastern American railroads during the late 1960s. While railroads elsewhere in North America drew revenues from long-distance shipments of commodities such as coal, lumber, paper and iron ore, railroads in the densely-populated northeast traditionally depended on a heterogeneous mix of services, including:
Consumer goods and perishables (produce and dairy products)
These labor-intensive, short-haul services proved vulnerable to competition from automobiles, buses, and trucks, a threat recently invigorated by the new limited-access highways authorized in the Federal-Aid Highway Act of 1956.[1] At the same time, contemporary railroad regulation restricted the extent to which U.S. railroads could react to the new market conditions. Changes to passenger fares and freight shipment rates required approval from the capricious Interstate Commerce Commission (ICC), as did mergers or abandonment of lines.[2]:164–166 Merger, which eliminated duplicative back office employees, seemed an escape.[2][failed verification]
The situation was particularly acute for the Pennsylvania (PRR) and New York Central (NYC) railroads. Both had extensive physical plants dedicated to their passenger custom. As that revenue stream faded following WWII, neither could slim their assets fast enough to earn a substantial profit (although the NYC came much closer).[2]:215,258
In 1957, the two proposed a merger, despite severe organizational and regulatory hurdles.[2]:215 Neither railroad had much respect for its merger partner; the lines had fought bitterly over New York-Chicago custom and ill-will remained in the executive suites.[2]:248,256 Amongst middle management, the company's corporate cultures all but precluded integration: a team of young, flexible managers had begun reshaping the NYC from a traditional railroad into a multimodal express-freight transporter, while the PRR continued to bet on a railroad revival.[2]:248,258 At a technical level, the two companies served independent markets east of Cleveland (running through their namesake states), but virtually identical trackage west of Cleveland meant any merger would have anticompetitive effect.[2]:215
For decades, merger proposals had tried to balance the competitors instead, joining them with lesser partners end-to-end. The unexpected NYC+PRR proposal required all the northeastern railroads to reconsider their corporate strategy, clouding the waters for the ICC. The resulting negotiations took nearly a decade, and when the PRR and NYC merged, they faced three competitors of comparable size: the Erie had merged with the Delaware, Lackawanna & Western to create the Erie Lackawanna Railway (EL) in 1960, the Chesapeake & Ohio Railway (C&O) acquired control of the Baltimore & Ohio (B&O) in 1963, and the Norfolk & Western Railway (N&W) absorbed several railroads, including the Nickel Plate and the Wabash, in 1964.[2]:215
Regulators also required the new company to incorporate the bankrupt New York, New Haven & Hartford Railroad (NH) and New York, Susquehanna & Western Railway (NYS&W);[4] if neither the N&W and C&O would buy the Lehigh Valley Railroad (LV), then that railroad should be incorporated as well. Ultimately, only the New Haven successfully joined the Penn Central; the conglomerate failed before it could incorporate the latter two.[2]:248 The only railroad leaving the Penn Central was the PRR's controlling interest in the N&W, whose dividends had generated much of the PRR's premerger profitability.
Merger begins
The legal merger (formally, an acquisition of the NYC by the PRR) concluded on February 1, 1968. The Pennsylvania Railroad, the nominal survivor of the merger, changed its name to Pennsylvania New York Central Transportation Company, and soon began using "Penn Central" as a trade name. That trade name became official a month later on May 8, 1968.[2]:248 Saunders later commented: "Because of the many years it took to consummate the merger, the morale of both railroads was badly disrupted and they were faced with unmanageable problems which were insurmountable. In addition to overcoming obstacles, the principal problem was too much governmental regulation and a passenger deficit which amounted to more than $100 million a year."[5]
Almost immediately after the transaction cleared, the organizational headwinds presaged during the merger negotiations began to overwhelm the new corporation's management.[6]:233–234 As ex-PRR managers began to secure the plum jobs, the forward-thinking ex-NYC managers departed for greener pastures.[2]:248 Clashing union contracts prevented the company's left hand from talking to its right,[6]:233–234 and incompatible computer systems meant that PC classification clerks regularly lost track of train movements.[2][failed verification]
The February 1970 PC employee newsletter cover shows a sheet metal worker constructing a new boxcar.
Subpar track conditions, the result of years of deferred maintenance, deteriorated further, particularly in the Midwest. Derailments and wrecks occurred regularly; when the trains avoided mishap, they operated far below design speed, resulting in delayed shipments and excessive overtime. Operating costs soared, and shippers soured on the products. In 1969, most of Maine's potato production rotted in the PC's Selkirk Yard, hurting the Bangor & Aroostook Railroad, whose shippers vowed never to ship by rail again.[7] Although both PRR and NYC had been profitable pre-merger,[2]:248 Penn Central was— at one point— losing $1 million per day.[citation needed]
As PC's management struggled to wrestle the company into submission, the structural headwinds facing all northeastern railroads continued unabated. The industrial decline of the Rust Belt consumed shippers through the Northeast and Midwest.[2] Penn Central's executives tried to diversify the troubled firm into real estate and other non-railroad ventures, but in a slow economy these businesses performed little better than the original railroad assets. Worse, these new subsidiaries diverted management attention away from the problems in the core business.
To create the illusion of success, management also insisted on paying dividends to shareholders, desperately borrowing funds to buy time for the business to turn around. Thanks to the dubious accounting strategies of the company's CFO David C. Bevan the railroad had done a good job in '68 and '69 of concealing the company's true state to get the money they needed. For example the losses given for 1969 were only $5 million, while in reality the true figure was around $220 million. The numbers were hidden to such an extent that not even Saunders knew how bad it really was.[8]
All of this financial wrangling was technically legal thanks to the fact that the SEC did not have purview over railroads. That was instead handled by the ICC, which was much more lenient with that sort of thing. Many banks were still wary of how unspecific their reports had become, and it would get progressively harder and harder to get loans as time went on.[8]
U.S. District Judge John P. Fullam was chosen to oversee the reorganization
By 1970 the situation had become dire. Banks had mostly stopped giving loans, while at the same time around $150 million worth of debts were due that year. The railroad had lost over $100 million in the first quarter. Bevan confided in Saunders the true financial picture, and Saunders then got to work trying to get the government to give them a loan guarantee. What they wanted was $750 million from congress, and if that didn't work they could get $200 million directly from the Department of Defense. Penn Central argued that it was technically a defense contractor because of the large amount of freight they carried for the military.[8]
This ended up backfiring for Saunders since one of the demands placed on the railroad to get the loans was to change up the executive suite. Saunders thought this only meant Bevan would be fired, and called a meeting to act on the demand. The board instead fired both of them. They also used to opportunity to fire Perlman which they had wanted to do for a while. Despite the concessions, in the end opposition from southern politicians crushed both plans for loans. With all of their options having dried up Penn Central voted on June 21, 1970 to file for chapter 77 bankruptcy.[8]
At the time of the bankruptcy Penn Central was the nation's sixth-largest corporation and had become its largest bankruptcy.[2][10]:248 (The Enron Corporation's 2001 bankruptcy eclipsed the PC in large measure). George Drury described the bankruptcy as "a cataclysmic event, both to the railroad industry and to the nation's business community,"[2]:250 not least because Penn Central increasingly appeared the proverbial canary in the coal mine. Across the nation, railroads discontinued Penn Central's core business (passenger trains) as fast as regulators would let them. The Rock Island, midway through a decade spent arguing with regulators about a merger, was stumbling towards another stunning bankruptcy, as was the Milwaukee Road, the nation's most technologically advanced transcontinental.
The new president of the railroad, Paul H. Gorman, quickly left after the bankruptcy. The search for a new president was concluded when the Southern Railway's, Graham Claytor offered up William H. "Wild Bill" Moore to head the company. Moore had been a protégé of the previous Southern president, D. William Brosnan who had been known for both cutting costs, and being an all around asshole to everyone he ever worked with. He would summarily fire anyone he didn't like, and one time threw a desk at a person he had fired. For this behavior Brosnan had been ousted from the company, and Claytor did not appreciate Moore's continued presence, which ultimately is why he was chosen.[8]
When he assumed the position Moore had set out to do as he had been taught by Brosnan, and worked to slash budgets; sensibly or otherwise. Plans to invest into new yards that had been made by Perlman were all scrapped, and track maintenance was done as minimally as it could be.[8]
In 1972, the damage from Hurricane Agnes destroyed important Penn Central branches and main lines,[11] and pushed the other northeastern roads into bankruptcy. By the mid-1970s, no major player east of Rochester-Pittsburgh, north of Pittsburgh-Philadelphia, and southwest of the Maine-New Hampshire border remained solvent.
Under the auspices of the U.S. Department of Transportation (U.S. DOT), Penn Central agreed to trial new technologies to revive the flagging passenger services on what would become the Northeast Corridor. PC continued to operate the PRR's Metroliner service between New York City and DC, and introduced a new United AircraftTurboTrain between New York City and Boston. But the new equipment proved useless without high-quality track to run it on, or a railroad capable of releasing schedules to the ticket-seeking public. In response, the Nixon administration developed Amtrak, which relieved any railroad that desired it of the obligation to operate passenger service.[2]:250
By 1974 the railroad's physical plant was in an abysmal state. Deferred maintenance, and damage from Hurricane Agnes had pushed the railroad to where in a single month it suffered 649 derailments. The hump yard in Cleveland, Ohio was averaging 6 derailments every day.[14] It was also around this time when there were reported "standing derailments" where rotted cross ties on the track would break under the weight of an unmoving car. In 1973 the Federal Railroad Administration had done an inspection of PC's mainlines and come to the conclusion that the entire railroad would need to be shut down if the situation was not fixed soon.[8]
Something had to be done, and while that was on the horizon; a short term fix was to just fire Moore. A lot of people at the railroad hated him. This came to a head just before Christmas of 1973 as Moore had been taking a Metroliner from D.C. to Philadelphia, when the train stopped just outside of the tunnel into Baltimore. 20 coal hoppers had derailed in the tunnel, and Moore went to the train telephone to tell the division superintendent he wanted it cleared in an hour. After an hour he went back to the phone, and fired the superintendent on the spot. Following this an engineer in another train phoned in to say "Merry Christmas to you, too, you son of a bitch." Moore then realized he had accidentally routed the call over the P.A. system, and everything had been played over the loudspeaker in every car. The chief trustee, Jervis Langdon Jr. heard about this and was quickly able to get rid of Moore and insert himself as the new president thanks to the fact that Moore had also been using railroad employees to work on his house. Langdon took over January 4, 1974, and the superintendent was rehired the same day.[8]
Facing the continued loss of market share to the trucking industry, the railroad industry and its unions asked the federal government for deregulation. The 1980 Staggers Act, which deregulated the railroad industry, proved to be a key factor in bringing Conrail and the old PC assets back to life.[16] During the 1980s, the deregulated Conrail had the muscle to implement the route reorganization and productivity improvements that the PC had unsuccessfully tried to implement between 1968 and 1970. Hundred of miles of former PRR and NYC trackage were abandoned to adjacent landowners or rail trail use. The stock of the subsequently-profitable Conrail was refloated on Wall Street in 1987, and the company operated as an independent, private-sector railroad from 1987 to 1999.
Corporate survival
PC pre-bankruptcy stock certificate, 1969.PC post-bankruptcy stock certificate, 1974.
The Pennsylvania Railroad absorbed the New York Central Railroad on February 1, 1968, and at the same time changed its name to Pennsylvania New York Central Transportation Company to reflect this. The trade name of "Penn Central" was adopted, and, on May 8, the former Pennsylvania Railroad was officially renamed the Penn Central Company.
The first Penn Central Transportation Company (PCTC) was incorporated on April 1, 1969, and its stock was assigned to a new holding company called Penn Central Holding Company. On October 1, 1969, the Penn Central Company, the former Pennsylvania Railroad, absorbed the first PCTC and was renamed the second Penn Central Transportation Company the next day; the Penn Central Holding Company became the second Penn Central Company. Thus, the company that was formerly the Pennsylvania Railroad became the first Penn Central Company and then became the second PCTC.[2]:248
The old Pennsylvania Company, a holding company chartered in 1870, reincorporated in 1958 and long a subsidiary of the PRR, remained a separate corporate entity throughout the period following the merger.
The former Pennsylvania Railroad, now the second PCTC, gave up its railroad assets to Conrail in 1976 and absorbed its legal owner, the second Penn Central Company, in 1978, and at the same time changed its name to The Penn Central Corporation. In the 1970s and 1980s, the company now called The Penn Central Corporation was a small conglomerate that largely consisted of the diversified sub-firms it had before the crash.
Among the properties the company owned when Conrail was created were the Buckeye Pipeline and a 24 percent stake in Madison Square Garden (which stands above Penn Station) and its prime tenants, the New York Knicks basketball team and New York Rangers hockey team, along with Six Flags Theme Parks. Though the company retained ownership of some rights-of-way and station properties connected with the railroads, it continued to liquidate these and eventually concentrated on one of its subsidiaries in the insurance business.
Main Concourse of Grand Central Terminal. The terminal was owned by Penn Central and its corporate successor until purchased by the MTA in 2018.
Until late 2006, American Financial Group still owned Grand Central Terminal, though all railroad operations were managed by the Metropolitan Transportation Authority (MTA). The U.S. Surface Transportation Board approved the sale of several of American Financial Group's remaining railroad assets to Midtown TDR Ventures LLC, an investment group controlled by Argent Ventures,[18] in December 2006.[19] The current lease with the MTA was negotiated to last through February 28, 2274.[19] The MTA paid $2.4 million annually in rent in 2007 and had an option to buy the station and tracks in 2017, although Argent could extend the date another 15 years to 2032.[18] The assets included the 156 miles (251km) of rail used by the Hudson and Harlem Lines, and Grand Central Terminal, as well as unused development rights above the tracks in Midtown Manhattan. The platforms and yards extend for several blocks north of the terminal building under numerous streets and existing buildings leasing air rights, including the MetLife Building and Waldorf-Astoria Hotel.[18]
In November 2018, the MTA proposed purchasing the Hudson and Harlem Lines as well as the Grand Central Terminal for up to $35.065 million, plus a discount rate of 6.25%. The purchase would include all inventory, operations, improvements, and maintenance associated with each asset, except for the air rights over Grand Central.[20] The MTA's finance committee approved the proposed purchase on November 13, 2018, and the purchase was approved by the full board two days later.[21][22] The deal finally closed in March 2020, with the MTA taking ownership of the terminal and rail lines.[23]
Heritage
Few railroad historians and former employees view the mega-railroad's brief existence favorably, and the company has little presence in the railroad enthusiast press.[2]:250 The preservation group Penn Central Railroad Historical Society was formed in July 2000 to preserve the history of the often-scorned company.[24]
As part of Norfolk Southern Railway's 30th anniversary, the railroad painted 20 new locomotives utilizing former liveries of predecessor railroads. Unit number 1073, a SD70ACe, is painted in a Penn Central Heritage scheme.
As part of the 40th anniversary of the Metro-North Railroad, four locomotives were painted in a different heritage scheme to honor a predecessor railroad. Locomotive 217 was painted in the Penn Central Blue and Yellow scheme.
The Metro-North Commuter Railroad Company, also branded as MTA Metro-North Railroad and commonly called simply Metro-North, is a suburban commuter rail service operated by the Metropolitan Transportation Authority (MTA), a public authority of the U.S. state of New York. Metro-North serves the New York Metropolitan Area, running service between New York City and its northern suburbs in New York and Connecticut, including Port Jervis, Spring Valley, Poughkeepsie, Yonkers, New Rochelle, Mount Vernon, White Plains, Southeast and Wassaic in New York and Stamford, New Canaan, Danbury, Bridgeport, Waterbury, and New Haven in Connecticut. Service in Connecticut is operated under contract with the Connecticut Department of Transportation. Similarly, service on lines west of the Hudson River is operated under contract with NJ Transit. Metro-North also provides local rail service within the New York City boroughs of Manhattan and the Bronx.
The Northeast Corridor (NEC) is an electrified railroad line in the Northeast megalopolis of the United States. Owned primarily by Amtrak, it runs from Boston in the north to Washington, D.C., in the south, with major stops in Providence, New Haven, Stamford, New York City, Newark, Trenton, Philadelphia, Wilmington, and Baltimore. The NEC is roughly paralleled by Interstate 95 for most of its length. Carrying more than 2,200 trains a day, it is the busiest passenger rail line in the United States by ridership and service frequency.
The New York Central Railroad was a railroad primarily operating in the Great Lakes and Mid-Atlantic regions of the United States. The railroad primarily connected greater New York and Boston in the east with Chicago and St. Louis in the Midwest, along with the intermediate cities of Albany, Buffalo, Cleveland, Cincinnati, Detroit, Rochester and Syracuse. The New York Central was headquartered in the New York Central Building, adjacent to its largest station, Grand Central Terminal.
Alleghany Corporation is an American investment holding company originally created by the railroad entrepreneurs Oris and Mantis Van Sweringen as a holding company for their railroad interests. It was incorporated in 1929 and reincorporated in Delaware in 1984. On March 21, 2022, Berkshire Hathaway made an $11.6 billion offer to acquire the company, which completed in October 2022.
The Erie Lackawanna Railway, known as the Erie Lackawanna Railroad until 1968, was formed from the 1960 merger of the Erie Railroad and the Delaware, Lackawanna & Western Railroad. The official motto of the line was "The Friendly Service Route".
The Lehigh Valley Railroad was a railroad in the Northeastern United States built predominantly to haul anthracite coal from the Coal Region in Northeastern Pennsylvania to major consumer markets in Philadelphia, New York City, and elsewhere.
For the purposes of this article, the Jersey City area extends North to Edgewater, South to Bayonne and includes Kearny Junction and Harrison but not Newark. Many routes east of Newark are listed here.
Conrail, formally the Consolidated Rail Corporation, was the primary Class I railroad in the Northeastern United States between 1976 and 1999. The trade name Conrail is a portmanteau based on the company's legal name. It continues to do business as an asset management and network services provider in three Shared Assets Areas that were excluded from the division of its operations during its acquisition by CSX Corporation and the Norfolk Southern Railway.
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Englewood Union Station was a major rail junction and passenger depot in the Englewood neighborhood of Chicago, Illinois. Four railroads served the station in its prime – the Chicago, Rock Island and Pacific Railroad, the New York Central Railroad, the Pennsylvania Railroad, and New York, Chicago and St. Louis Railroad, which operated over the New York Central via trackage rights. The station closed in 1978 when the Rock Island closed intercity rail operations and intermediate stops between LaSalle Street and Gresham. There are presently no plans to reopen the station.
The St. Louis Line Subdivision is a railroad line owned by CSX Transportation in the U.S. states of Indiana and Illinois. The line runs from Indianapolis, Indiana, west-southwesterly to East St. Louis, Illinois, along a former Conrail line, partly former New York Central Railroad trackage and partly former Pennsylvania Railroad trackage.
R.J. Corman Railroad/Pennsylvania Lines is a railroad in the R.J. Corman Railroad Group, operating a number of lines in central Pennsylvania. It primarily carries coal between mines and Norfolk Southern Railway connections at Cresson and Keating. The trackage was acquired from Conrail in 1996, when the latter company sold its "Clearfield Cluster"; Norfolk Southern acquired nearby Conrail lines in 1999. This is the longest R.J. Corman owned line, at over 300 miles in length.
The Philadelphia, Baltimore and Washington Railroad (PB&W) was a railroad that operated in Pennsylvania, Delaware, Maryland, and the District of Columbia in the 20th century, and was a key component of the Pennsylvania Railroad (PRR) system. Its 131-mile (211 km) main line ran between Philadelphia and Washington. The PB&W main line is now part of the Northeast Corridor, owned by Amtrak.
The Indianapolis Union Railway Company, is a terminal railroad operating in Indianapolis, Indiana. It was organized on May 31, 1850, as the Union Track Railway Company by the presidents of the Madison and Indianapolis Railroad (M&I), the Terre Haute and Richmond Railroad (TH&R), and the Indianapolis and Bellefontaine Railroad (I&B) for the purposes of establishing and operating joint terminal facilities in Indiana's capital city. The name of the company was changed to its present one on August 12, 1853. The next month, on September 20, Indianapolis Union Station opened its doors, becoming the first union railroad station in the world. Since 1999, the company has been owned and operated by CSX.
The Vandalia Railroad Company was incorporated January 1, 1905, by a merger of several lines in Indiana and Illinois that formed a 471-mile railroad consisting of lines mostly west of Indianapolis.
The Lehigh Line is a railroad line in Central New Jersey, Northeastern Pennsylvania, and the Lehigh Valley region of eastern Pennsylvania. It is owned and operated by the Norfolk Southern Railway. The line runs west from the vicinity of the Port of New York and New Jersey in Manville, New Jersey via Conrail's Lehigh Line to the southern end of Wyoming Valley's Coal Region in Lehigh Township, Pennsylvania.
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American railroad company Penn Central Transportation Company declared bankruptcy on June 21, 1970, two and a half years after its formation by the merger of the New York Central Railroad and the Pennsylvania Railroad. At the time, this was the largest bankruptcy in American history. Penn Central was responsible for a third of the nation's passenger trains and much of the freight rail in the Northeastern United States, and its failure would have devastating impacts on the Northeast's economy.
References
↑ Geisst, Charles R. (2006). Encyclopedia of American Business History, Volume 2. New York: Infobase Publishing. p.226. ISBN978-0-8160-4350-7.
1 2 3 4 5 6 7 8 Loving, Rush (2011). The men who loved trains: the story of men who battled greed to save an ailing industry. Bloomington: Indiana University Press. ISBN978-0253347572.
1 2 U.S. Surface Transportation Board, "Midtown TDR Ventures LLC-Acquisition Exemption-American Premier Underwriters, Inc., The Owasco River Railway, Inc., and American Financial Group, Inc.," 71 FR71026 (December 7, 2006).
Railroads in italics meet the revenue specifications for Class I status, but are not technically Class I railroads due to being passenger-only railroads with no freight component.
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