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PC: RE: Re: Why no money?

Last year, I had the opportunity to talk to a former Penn Central manager.
I asked him what Saunders' business plan was for returning the combined
operation to profitability.  His answer:  "There wasn't any!"  In other
words, the merger was conceived and executed without any clear idea of how
it would move the corporation toward profitability or when it would be

The PRR proudly stated that it never missed a stock dividend from Day One,
and this practice was continued into the PC until bankruptcy.  Since Pennsy
had been losing money for a while and PC never made money, this payout had
to come out of capital (nowadays, this would be called "enhancing
shareholder value").

As for the diversification moves, they would have made sense if the net
revenues were used to help the parent rail operation.  I suspect that any
such revenues instead helped cover the stock dividends (see above).  If the
non-rail investments didn't make money, it only compounds the general view
of PC executives.

All in all, nobody (management, unions, regulators, politicians) had a grip
on reality.  Adding New Haven only accelerated the inevitable.

[By the way, and off-topic, the FRA created a new class of track condition -
"Exempt" - to describe and regulate the derelict former PC track spun off to
short lines in the 1970s.]


-----Original Message-----
From: weldon [mailto:weldon@fastol.com]
Sent: Monday, March 19, 2001 8:29 AM
To: penn-central -AT- smellycat.com
Subject: PC: Re: Why no money?

PC was forced to swallow NH against its will, but remember, it also ate a
lot of poison pills of its own.  I think the biggest problem with the
railroad portion was its total inability to assimilate the two existing
cultures, much less information systems, signalling and radio systems.

I think it is fair to say that PC management sought to diversify because the
regulatory situation on the Railroad made it impossible to guarantee a
profit on steel wheels alone.

Oh yes, and they had no money.

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