Penn Central

~ the last words ~

The Pennsylvania Railroad and the New York Central spent most of the 1960s asking the Interstate Commerce Commission for permission to become one company. Both were old and both were losing money on the same northeastern traffic that trucks and the Interstate Highway System were taking away. The commission approved it and the merger closed on 1 February 1968. The Pennsylvania was the surviving corporation on paper, and it renamed itself Penn Central that May.

What came out of it was the largest railroad in the country and the sixth-largest corporation in the United States, with 20,530 miles of track running from New York and Boston out to Chicago and St. Louis. The bankrupt New York, New Haven and Hartford was folded in at the end of 1968 as a condition of the approval, which added commuter operations that had been losing money for years. Penn Central carried the passenger deficit of the entire northeast on its own books, more than $100 million a year.

It lasted twenty eight months. By the spring of 1970 the company was losing about a million dollars a day and its commercial paper could not be rolled over. A federal loan guarantee died in Congress. Stuart Saunders and David Bevan were removed by the board on 8 June 1970, and the petition under Section 77 of the Bankruptcy Act went in on 21 June.

Turkey never had a railroad that could go bankrupt. The lines went up under Ottoman concessions sold to French and German companies, and the republic bought them back and handed them to TCDD in 1927 as a state directorate with a budget line instead of shareholders. A Turkish railway could be starved by a ministry, and plenty were. It could not file for protection from its own bondholders, because it did not have any. That is the whole distance between the two systems, and it is why this story has no Turkish counterpart to sit next to.

~ the record ~

~ two railroads that never merged ~

The two companies were put under one name and never became one railroad. The Pennsylvania ran on seniority districts and a management culture built around hauling coal and steel. The Central had spent the 1960s trying to become a fast merchandise carrier under Alfred Perlman. Saunders came from the Pennsylvania and Perlman from the Central, and the arrangement that put Saunders on top lasted until Perlman was moved sideways to vice chairman in November 1969.

Underneath the executives, the operating systems did not speak. Each railroad had its own freight-tracking computers and its own waybill formats, and merging them was treated as a job for later. Cars went into the wrong yards and sat. Shippers who could not find their freight stopped shipping, which took revenue out of a company already unable to cover its interest. Years afterward the Cleveland hump yard was averaging six derailments a day on track nobody had money to maintain.

~ thirteen days in june 1970 ~

The board met on 8 June 1970 and fired Saunders as chairman and Bevan as chief financial officer. The accounting that had kept the reported numbers presentable was by then visible to the directors, including a diversification into real estate and pipelines that had taken more than $100 million of cash out of a railroad that could not resurface its own roadbed. The administration would not deliver a guaranteed loan and Congress would not legislate one. On Sunday 21 June the company filed, and at that size it was the largest corporate bankruptcy the United States had seen, a record it held until Texaco in 1987.

~ what conrail inherited ~

The passenger trains went first. Congress created Amtrak and it took over intercity passenger service on 1 May 1971, which relieved Penn Central of the loudest single number on its books. The freight railroad stayed in bankruptcy court for another five years while court-appointed trustees ran it and Washington argued about what to do with the northeast's track.

The answer was the Regional Rail Reorganization Act and then Conrail, a federally funded corporation that took the viable lines of Penn Central and six other bankrupt northeastern railroads on 1 April 1976. Conrail spent its first years unprofitable. The Staggers Act in 1980 gave it the pricing freedom the Interstate Commerce Commission had withheld from Penn Central, and it was sold back to the private market in 1987. Norfolk Southern and CSX split it between them in 1999.

The corporation itself did not die in 1976. What was left after the track went to Conrail was real estate and insurance. It reorganized as the Penn Central Corporation and renamed itself American Premier Underwriters in 1994, before Carl Lindner's American Financial Group absorbed it. The name on the register outlasted the railroad by eighteen years.

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