Penn Central Transportation Company

Penn Central Transportation Company
Overview
Headquarters	Philadelphia, Pennsylvania
Reporting mark	PC
Locale	Chicago, ILand St.Louis, MO toNew York, NY,Boston, MAandWashington, DC
Dates of operation	1968–1976
Successor	Conrail,Amtrak

ThePenn Central Transportation Company,commonly abbreviated toPenn Central,was anAmerican railroadcompany that operated from 1968 until 1976. It was created by the merger on February 1, 1968, of thePennsylvania Railroadand theNew York Central Railroad.TheNew York, New Haven and Hartford Railroadwas added to the merger at the insistence of theInterstate Commerce Commission(ICC) on January 1, 1969. The headquarters of the merged railroad was inPhiladelphia.

Background of the merger

The Penn Central was created as a response to challenges faced by all three railroads in the late 1960s. Thenortheasternquarter 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 aspaperandiron ore,Northeastern railroads traditionally depended on a much more heterogeneous mix of services, including:

Commuter railservice
Passenger railservice
Railway Express Agencyfreight service
Break-bulk freight service inboxcars

These labor-intensive, short-haul services were all vulnerable to the four-lane highway. In 1956, theU.S. Congresshad passed, and PresidentDwight D. Eisenhowerhad signed, theFederal-Aid Highway Act of 1956.

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 theInterstate Commerce Commissionand 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. Merger seemed to be a promising way out.

The merged railroad

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. Track condition deteriorated (some of the deteriorating track 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 spiraled. Derailments and wrecks became frequent, particularly in the midwest.

Penn Central management created aholding 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.

Bankruptcy and Conrail merger

The American financial system was seriously shocked when after only two years of operations, Penn Central declared bankruptcy on June 21, 1970. It was the largest corporatebankruptcyin American history up until that time.

The Penn Central's bankruptcy was the final blow to long-haul private-sectorpassenger trainservice in the United States. The troubled line filed to abandon most of its remaining passenger rail service, causing a chain reaction among its fellow railroads. The federal government stepped in and, in 1971, createdAmtrak,a virtual government agency, which began to operate a skeleton 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 theRailroad Revitalization and Regulatory Reform Actof 1976. The new law folded six northeastern railroads, the Penn Central and five smaller, failed rails, into the Consolidated Rail Corporation orConrail.The act took effect on April 1, 1976.

Facing continued loss of market share to the trucking industry, the railroad industry and its unions were forced to ask forderegulation.The 1980Staggers Act,which deregulated the railroad industry, proved to be a key factor in bringing Conrail and the old Penn Central back to life.

The deregulated Conrail had the muscle to implement the route reorganization and productivity improvements that the Penn Central had unsuccessfully tried to implement in 1968-1970. Many miles of old Pennsylvania and New York Central track were abandoned to adjacent landowners orrail trailuse. A profitable Conrail was refloated onWall Streetin 1987, and operated as an independent, private-sector railroad from 1987 to 1999.

Conrail breakup

In 1999,CSXand theNorfolk Southern Railwayjointly purchased Conrail on the open market and split up its mileage and other assets between them. Hence the reporting marks for rail cars, locos and related equipment reverted back toNYC(as CSX's portion in tribute to the New York Central) andPRR(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".

Corporate history

ThePennsylvania New York Central Transportation Companywas formedFebruary 1,1968,as an absorption of theNew York Central Railroadby thePennsylvania Railroad.Thetrade namePenn Centralwas adopted, and onMay 8the company was officially renamed to thePenn Central Company.ThePenn Central Transportation Companywas incorporatedApril 1,1969,and its stock was assigned to the newPenn Central Holding Company.OnOctober 1the PCTC merged into the Penn Central Company. The next day the Penn Central Company was renamed to thePenn Central Transportation Company,and the Penn Central Holding Company became thePenn Central Company.

The oldPennsylvania Company,aholding companychartered in 1870 and reincorporated in 1958, remained through the merger.

While the Penn Central Transportation Company had been merged into Conrail 1976, theholding 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. Among the properties the Penn Central Holding Company owned when Conrail was created in 1976 wereMadison Square Garden(which stands above Penn Station), and its prime tenants, theNew York Knickerbockersbasketball team andNew York Rangershockey 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 toAmerican Premier Underwritersin March 1994. It became part of theCincinnatifinancial empire ofCarl Lindnerand hisAmerican Financial Group.OnDecember 6,2006,theUnited States Department of Transportationapproved the transfer of 156 miles (251 km) of theHarlem-Hudson Lineand ofGrand Central TerminalinNew York Cityto Midtown TDR Ventures LLC.^[1].

Although its subsidiary left the railroad business many years ago, American Financial Group, as of 2006, still owns Grand Central Terminal. TheNew York Metropolitan Transportation Authorityis the station's current lessee.

As part of the transaction the lease with the MTA was renegotiated throughFebruary 28,2274.

TheNew York PostonJuly 6,2007reported that Midtown TDR is controlled by Penson and Venture. ThePostnotes that the MTA which will pay $2.24 Million in rent in 2007 has an option to buy the station and tracks in 2017 although Argent could extend the date another 15 years to 2032.^[2]

The cash value of the station is limited, as the building is listed for purposes ofhistoric preservationand cannot, under current law, be torn down for redevelopment. However, there are substantial developmentair rights.

References

PRR Chronology(archived2007-09-27.)
Salsbury, Stephen (1982).No Way to Run a Railroad.New York: McGraw-Hill.ISBN 0-07-054483-2.
Daughen, Joseph R. & Peter Binzen (1971).The Wreck of the Penn Central.Boston: Little, Brown.ISBN 1-893122-08-5.

External sources

Robert SobelpublishedThe Fallen Colossusin 1977.

External links

[1] SURFACE TRANSPORTATION BOARD DECISION DOCUMENT - December 6, 2006

[2] Air Rights Make Deals Fly - New York Post - July 6, 2007

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