Penn Central Transportation Company

Penn Central Transportation Company
Reporting mark	PC
Locale	Chicago, IL and St.Louis, MO to New York, NY, Boston, MA and Washington, DC
Dates of operation	1968–1976
Predecessor	PRR, NYCRR, NH
Successor	Amtrak (Northeast Corridor only), Conrail
Track gauge	4 ft 8 1⁄2 in (1,435 mm) (standard gauge)
Electrification	12.5kV 25Hz AC Washington, D.C. - New Haven; Philadelphia - Harrisburg; portion of North Jersey Coast Line 700V DC portions of Harlem Line and Hudson Line
Headquarters	Philadelphia, Pennsylvania

The Penn Central Transportation Company, commonly abbreviated to Penn Central, was an American railroad company that operated from 1968 until 1976. It was created by the merger on February 1, 1968, of the Pennsylvania Railroad and the New York Central Railroad. The New York, New Haven and Hartford Railroad was added to the merger at the insistence of the Interstate Commerce Commission (ICC) on January 1, 1969. The headquarters of the merged railroad was in Philadelphia.

Background of the merger

The Penn Central was created as a response to challenges faced by all three railroads in the late 1960s. The northeastern quarter of the United States, these railroads' service area, was the most densely populated region of the U.S. While railroads elsewhere in North America drew a high percentage of their revenues from the long-distance shipment of commodities such as coal, lumber, paper and iron ore, Northeastern railroads traditionally depended on a much more heterogeneous mix of services, including:

• Commuter rail service
• Passenger rail service
• Railway Express Agency freight service
• Break-bulk freight service in boxcars
• Consumer Goods and perishables, such as fruit and dairy products

These labor-intensive, short-haul services were all vulnerable to competition from automobiles and buses (for the first two services) and the trucking industry (for the remaining three), particularly where facilitated by four-lane highways. In 1956, Congress had passed, and President Dwight D. Eisenhower had signed, the Federal-Aid Highway Act of 1956. This law authorized construction of the massive Interstate Highway System, which provided an economic boost to the trucking industry.^[1]

Another significant problem was the inability of the New York Central and Pennsylvania railroads to respond to market conditions. The railroad industry at the time was heavily regulated by the ICC and was unable to change the rates it charged shippers and passengers. Therefore, reducing costs was the only way to become more profitable. Government regulation and agreements with labor unions tightly restricted what cost-cutting could take place. A merger seemed to be a promising way out of a difficult situation.

The merged railroad

Penn Central locomotives #4801 and #4800, both former PRR GG1s, haul freight through North Elizabeth, New Jersey in December 1975.

As it turned out, the merged Penn Central was little better off than its constituent roads were before. A merger implementation plan was drawn up, but not carried out. Attempts to integrate operations, personnel and equipment were not very successful, due to clashing corporate cultures, incompatible computer systems and union contracts.^[2]:233-234 Track conditions deteriorated (some of these conditions were inherited from the three merged railroads) and trains had to be run at reduced speeds. This meant delayed shipments and personnel working a lot of overtime. As a result, operating costs soared. Derailments and wrecks became frequent, particularly in the midwest.^[3]

Penn Central management created a holding company, the Penn Central Company, and 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 railroad assets. In addition, these new subsidiaries diverted management attention away from the problems in the core business. To make matters worse, management insisted on paying dividends to shareholders to create the illusion of success. The company had to borrow more and more to keep operating. The interest on the loans became an unbearable financial burden.

In 1968 most of Maine's potato production rotted in the PC's Selkirk Yards, dooming the Bangor & Aroostook Railroad, whose shippers vowed never to ship by rail again.

Bankruptcy and Conrail merger

The American financial system was shocked when after only two years of operations, the Penn Central Transportation company was put into bankruptcy on June 21, 1970.^[3] It was the largest corporate bankruptcy in American history at that time. Although the Penn Central Transportation Company was put into bankruptcy, its parent Penn Central Company was able to survive.^[4]

The Penn Central's bankruptcy was the final blow to long-haul private-sector passenger train service in the United States. The troubled company filed proposals with the ICC to abandon most of its remaining passenger rail service, causing a chain reaction among its fellow railroads. In 1971 Congress created Amtrak, a government corporation, which began to operate a skeleton passenger service on the tracks of Penn Central and other U.S. railroads.

The Penn Central continued to operate freight service under bankruptcy court protection. After private-sector reorganization efforts failed, Congress nationalized the Penn Central under the terms of the Railroad Revitalization and Regulatory Reform Act of 1976. The new law folded six northeastern railroads, the Penn Central and five smaller, failed lines, into the Consolidated Rail Corporation, commonly known as Conrail. The act took effect on April 1, 1976.^[5]

Facing continued loss of market share to the trucking industry, the railroad industry and its unions were forced to ask 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 Penn Central assets back to life.^[6]

During the 1980s, the deregulated Conrail had the muscle to implement the route reorganization and productivity improvements that the Penn Central had unsuccessfully tried to implement during 1968 to 1970. Many miles of old Pennsylvania and New York Central track 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.

Conrail breakup

In 1999, CSX and the Norfolk Southern Railway jointly purchased Conrail on the open market and split up its track mileage and other assets between them.^[3] Hence the reporting marks for rail cars, locomotives, and related equipment reverted to NYC (as CSX's portion in tribute to the New York Central) and PRR (for the other portion controlled by Norfolk Southern in tribute to the Pennsylvania Railroad).

The small portion of Conrail that represented trackage that was of interest to both CSX and Norfolk Southern was kept as the remaining Conrail system, under the name "Conrail Shared Assets Operations."

Corporate history

The Pennsylvania New York Central Transportation Company was formed February 1, 1968, as an absorption of the New York Central Railroad by the Pennsylvania Railroad. The trade name Penn Central was adopted, and on May 8 the company was officially renamed to the Penn Central Company.

Penn Central Company Pre-Bankruptcy Stock Certificate (1969)

The Penn Central Transportation Company was incorporated April 1, 1969, and its stock was assigned to the new Penn Central Holding Company. On October 1 the PCTC merged into the Penn Central Company. The next day the Penn Central Company was renamed to the Penn Central Transportation Company, and the Penn Central Holding Company became the Penn Central Company.

The old Pennsylvania Company, a holding company chartered in 1870, reincorporated in 1958, and long a subsidiary of the Pennsylvania Railroad, remained a separate corporate entity throughout the period following the merger.

While the Penn Central Transportation Company had been merged into Conrail in 1976, the holding company, the Penn Central Company, continued as a separate firm. In the 1970s and 1980s, the new Penn Central was a small conglomerate that largely consisted of the diversified sub-firms acquired by the old Penn Central before the crash.

Penn Central Company Post-Bankruptcy Stock Certificate (1974)

Among the properties the Penn Central Holding Company owned when Conrail was created were Madison Square Garden (which stands above Penn Station), and its prime tenants, the New York Knickerbockers basketball team and New York Rangers hockey team.

Though the new Penn Central 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. The former Penn Central Corporation changed its name to American Premier Underwriters in March 1994. It became part of the Cincinnati financial empire of Carl Lindner and his American Financial Group. Up until late 2006, American Financial Group, still owned Grand Central Terminal, though all railroad operations were managed by the New York Metropolitan Transportation Authority (MTA) through a lease entered into in 1994. The current lease with the MTA was negotiated to last through February 28, 2274.

On December 6, 2006, the U.S. Surface Transportation Board approved the sale of several of American Financial Group's remaining railroad assets to Midtown TDR Ventures LLC ^[7] for approximately US$ 80 million. The New York Post on July 6, 2007 reported that Midtown TDR was controlled by Penson and Venture. The Post noted that the MTA, would pay $2.24 million in rent in 2007, and has an option to buy the station and tracks in 2017. However, Argent could also opt to extend the date another 15 years to 2032.^[8]

The assets included the 156 miles (251 km) of rail used by the Metro-North Harlem-Hudson Line, and Grand Central Terminal in New York City. The most valuable asset cited by Midtown TDR were the unused "air rights" for additional development above Grand Central's underground boarding platforms and switch yard. The platforms and yards extend for several blocks north of the terminal building under numerous streets and existing buildings leasing air rights, including the famous MetLife Building and Waldorf-Astoria Hotel. The cash value of the Terminal building itself though is limited, as the building is listed for purposes of historic preservation and cannot, under current law, be torn down for redevelopment.^[8]

See also

• Alfred E. Perlman - PC President
• Stuart T. Saunders - PC Chairman & CEO
• David C. Bevan
• History of rail transport in the United States
• Penn Central Transportation Co. v. New York City (1978 Supreme Court case)

References

1. ^ Geisst, Charles R. (2006). Encyclopedia of American Business History, Volume 2. New York: Infobase Publishing. p. 226. ISBN 9780816043507. 
2. ^ Stover, John F. (1997). American Railroads (2nd ed.). Chicago: University of Chicago Press. ISBN 9780226776583. http://books.google.com/books?id=R4vjgmic44QC. 
3. ^ ^{a b c} "American-Rails.com: The Penn Central Railroad". http://www.american-rails.com/penn-central.html. Retrieved 2010-12-16. 
4. ^ Prell, Donald (2003). The Untold Story of the Survival of the Penn Central Company. eBook Edition. Strand Publishing, ISBN 0-9741975-0-5.
5. ^ Railroad Revitalization and Regulatory Reform Act, Pub. L. 94-210, 90 Stat. 31, 45 U.S.C. § 801. 1976-02-05.
6. ^ Staggers Rail Act of 1980, Pub. L. 96-448, 94 Stat. 1895. Approved 1980-10-14.
7. ^ U.S. Surface Transportation Board. Washington, D.C. (2006-12-06). "Midtown TDR Ventures LLC – Acquisition Exemption – American Premier Underwriters, Inc., The Owasco River Railway, Inc., and American Financial Group, Inc." Decision Document no. FD_34953_0.
8. ^ ^{a b} Air Rights Make Deals Fly - New York Post - July 6, 2007

• PRR Chronology (archived 2007-09-27.)
• Daughen, Joseph R. & Peter Binzen (1971). The Wreck of the Penn Central. Boston: Little, Brown. ISBN 1-893122-08-5. 
• Salsbury, Stephen (1982). No Way to Run a Railroad. New York: McGraw-Hill. ISBN 0-07-054483-2. 
• Sobel, Robert (1977). The Fallen Colossus. New York: Weybright and Talley. ISBN 9780679401384. 

• Prell, Donald (2003). The Untold Story of the Survival of the Penn Central Company (eBook 2010 ed.). Palm Springs: Strand Publishing. ISBN 0-9741975-0-5. 

External links

• Penn Central Railroad Historical Society
• Penn Central Maps and Track Diagrams
• Penn Central Information
• Penn Central Document, Timetable and Publication Archive