(erielack) What shoulda been

[Wdburt1_@_aol.com]

Jim Guthrie asks:
 
"So are you saying the E-L Management was incompetent for demanding to be  
included in the N&W merger? Or in agreeing to the arms-length DERECO"
 
I haven't written or implied that.  But it's an interesting  subject.  John 
Kneiling's Trains column periodically took potshots at  EL, which he 
supplemented in some letters to me.  His point of view was  that EL and the Milwaukee 
had a great opportunity to launch containerized  land-bridge services while 
abandoning local freight service as fast as they  could.  The first time this idea 
was proposed in print, White replied with  a letter to the editor that 
dismissed it as "crackpot" or something  similar.  Afterwards, Kneiling would 
occasionally complain in print that EL  management had no higher objective than to 
find refuge in a  merger.  In our brief correspondence, he tempered this 
somewhat  by saying that they ran a better railroad than some others.
 
William White seems to have been in the habit of brushing off "not  invented 
here" ideas.  In 1965 White returned a paper  which Bill Howes of the B&O had 
written proposing consolidation of  the Eastern railroads' passenger trains 
into an entity that presaged Amtrak,  claiming that he did not have time to read 
and analyze it.  (Fred  Frailey, Twilight of the Great Trains (Kalmbach, 
1998), p.188.)
 
When we consider what regulatory obstacles would have had to be overcome  for 
Kneiling's plan to be implemented, it becomes easier to understand White's  
reaction.  In hindsight, Kneiling was right about the potential for  landbridge 
trains and the necessity to radically cut back or at least reinvent  local 
freight service, but he was too far ahead of his time.  And it  remains an open 
question whether EL could have survived and prospered on  intermodal traffic, 
then or now.
 
With regard to N&W, it seems that EL management played the cards  they were 
dealt.  The national transportation policy had long  presupposed that weak 
railroads should be allowed to burden the strong,  although implementation of this 
principle had been frustrated many times by  railroad manuevering.  The fact 
that it was in conflict with other  elements of the same policy--financial 
health and preservation of essential  service--no one much thought about so long 
as the railroads were making  money.  So there it was at the beginning of the 
Sixties, Joseph  Eastman's old idea, not dead but sleeping, offering Erie 
Lackawanna a  lifeline in the form of an ICC order conditioning approval of 
N&W/NKP/WAB on  what became Dereco. White and Maxwell grabbed it, of course.  
 
Before we judge them, let's not underestimate the force of John Fishwick's  
point: EL was broke, and nothing could make the mountain of debt manageable  
except bankruptcy, unless we assume that N&W shareholders would somehow  
graciously agree to pay it off.
 
Once the application for inclusion was made, Erie Lackawanna's choices were  
even more constrained.  N&W out-manuevered them by persuading the ICC  to 
allow it to keep EL debt off N&W's books while taking its net operating  loss 
carryforwards, but what other choice remained at that point?
 
The Dereco experience raises several interesting questions:
 
1.)  How effectively were joint services marketed?  Was N&W's  dalliance with 
Lehigh Valley going on at the same time, or did that really  kick in only 
after the bankruptcy in 1972?
 
2.)  How much and how effectively was operating management  coordinated?  
(More than some think, I suspect.)
 
3.)  I've heard old D&H people say that Dereco was a takeover  of the D&H by 
EL.  To what extent was that true?  Think about E8s  and U33Cs on D&H, for 
example.
 
4.)  Were N&W people still functioning in EL management after the  1972 
bankruptcy?
 
5.)  Post-1972, the trustees' minutes contain scattered indications of  
friction between N&W and EL--carping over the fact that N&W got the tax  losses; 
struggles over whether EL would be allowed to eliminate LV's  trackage rights 
between Owego and Binghamton, thus frustrating N&W's access  to New England via 
LV; an improved Lake Junction connection affording  access to CNJ without 
relying on LV; EL's court filings urging that LV be  abandoned; and Maxwell's 
stated desire to obtain trackage rights over the Big  Four between Marion and East 
St. Louis so as to avoid dependence on  N&W.  Bankruptcy court is a snakepit, 
with the various interests doing  a lot of posturing, and the zero-sum 
circumstances bring out the worst in  people.  In addition, N&W's strategic interest 
differed from EL's,  leading the parties to take different positions on the 
big question of  whether EL should survive.  Fishwick testified before Congress 
that EL  should be preserved only east of Buffalo and Creston.  The EL 
trustees,  trying to get maximum value for the creditors, essentially urged that the 
whole  thing be absorbed by Conrail.
 
For Erie Lackawanna, Dereco quickly proved to be a bargain with the  devil, 
and I mean the arrangement itself, not N&W, which made at least some  effort to 
build upon the affiliation.  The slide toward bankruptcy began in  1969, when 
$11 million in bonded debt originally incurred to build the River  Line and 
Graham Line came due.  This debt had almost put EL over the cliff  in 1964, but 
was refinanced by William White with the help of an ICC order  compelling the 
bondholders to extend it for five years.  Can you imagine  trying to 
refinance this in 1969, with EL now a subsidiary of Dereco?  I am  not privy to what 
actually occurred, but the situation speaks for itself.   Every bank 
considering a refinancing would have asked for a guarantee from EL's  "rich" parent, and 
backed away when told that no guarantee would be  forthcoming.  Whatever the 
reason, EL was unable to refinance,  and cleaned out most of the cash in the 
till to pay off the bonds.
 
WDB
 
 
 
 
**************Great Deals on Dell Laptops. Starting at $499. 
(http://pr.atwola.com/promoclk/100000075x1217883258x1201191827/aol?redir=http://ad.doubleclick.
net/clk;211531132;33070124;e)


	The Erie Lackawanna Mailing List
	http://EL-List.railfan.net/
	To Unsubscribe: http://Lists.Railfan.net/erielackunsub.html

------------------------------