A MERGER SCOREBOARD

NO U.S. industry is in quite so big a mess as transportation. The nation's major railroads last year earned less than 2% on invested capital, and the big Eastern roads plunged $96 million into the red. This year times are just as tough. As for the nation's eleven trunk airlines, stuck with too many costly jets and too few passengers, they lost $5.5 million in 1962's first half, have not turned in a cumulative profit since 1960.

On the proven principle that two together can live cheaper than two separately, railroads are trying to figure out new combinations that would both make money and qualify for federal approval. So are the airlines. The proposed railroad mergers now before the Interstate Commerce Commission would enable the roads, they say, to save $200 million a year by scrapping duplicate facilities, paring payrolls, and routing trains over the most direct tracks. Similarly, airlines could save tens of millions by pooling hangars, ticket counters and planes, and reducing the frenetic overscheduling of flights.

Not everyone wants mergers. Competing managements resist them. The unions, fearing a wholesale loss of jobs, are dead set against them. Their objections have deeply influenced policies of the ICC and the Civil Aeronautics Board, which tend to approve mergers only if one of the partners is headed for bankruptcy. Just how vigorous the quarrel between unions and railroad management can be was shown last week, when the railroads proposed to lay off 40,000 firemen who, they say, are unnecessary aboard diesel locomotives. The five railroad brotherhoods countered by threatening to call a paralyzing nationwide strike. At week's end, the showdown was averted when the unions won a court order temporarily enjoining the railroads from firing the firemen.

The featherbeds are unlikely to be shaken out overnight. Also chronic are other rail troubles--the competition of trucks, the shift to air and auto travel. The railroads look to mergers for a way out.

THE CONVERGING RAILROADS

Several proposals now before the ICC would bring together relatively strong lines hoping to protect their health. The natural impulse among the railroads--weak and strong alike--is to create a series of big regional groupings. The lineup:

East. Next week the ICC will begin hearings on a merger that would form the country's largest transportation company, with assets of $4.2 billion. The 9,867-mile PENNSYLVANIA RAILROAD and the 10,264-mile NEW YORK CENTRAL have a compelling plea: each is losing money. But combined, they figure to cut 7,800 jobs and save $75 million a year. The ICC, which moves slower than freight, will take about two years to decide on that application. But two other Eastern mergers are likely to get the ICC's green light within the next year.

One is the bid by the rich and well-run CHESAPEAKE & OHIO for control of the anemic BALTIMORE & OHIO. The other--designed to compete against a possible C & 0 -B & O system-is the proposal of the efficient coal-hauling NORFOLK & WESTERN to take over the NICKEL PLATE and then to lease the WABASH to form a 7,400-mile superfreight line with routes west into Missouri and north into Canada. The N. & W. proposal awaits an examiner's report; the C & O bid has won an examiner's approval. The final word is up to the ICC commissioners.

South. Two strong regional lines are developing in the South. The first: the aggressive, 6,267-mile SOUTHERN RAILWAY has received an ICC examiner's approval to pay $22,655,000 for the 1,745-mile CENTRAL OF GEORGIA. The second system: two healthy, long-haul freight carriers-- the ATLANTIC COAST LINE and the SEABOARD AIR LINE RAILROAD---have petitioned to join their parallel systems to save an estimated $39 million a year.

West. The GREAT NORTHERN and the NORTHERN PACIFIC, which each own 49% of the BURLINGTON, now want to make a three-way merger, forming the nation's longest system (24,728 miles). G.N. and N.P. say that consolidation would save an estimated $40 million a year.

Farther south, the SOUTHERN PACIFIC is dickering with the prosperous ROCK ISLAND, whose Midwestern routes would give the S.P. an entree to Chicago and make it more competitive with the mighty SANTA FE. The Southern Pacific is additionally battling with the Santa Fe for control of the moneymaking WESTERN PACIFIC. Supporters of the Santa Fe's bid, including the Western Pacific management, argue that an S.P. victory would create a rail monopoly in northern California. S.P. President Don Russell contends that S.P. control would "eliminate wasteful duplication of facilities." An ICC examiner's report is due in 1963.

THE TURBULENT AIRLINES

"The railroads got into trouble at 50 m.p.h.," says Eastern Air Lines Chairman Eddie Rickenbacker. "The airlines got there at 500." In the overcrowded skyways of the jet age, loads have dropped to an average 53% of capacity, v. a profitable 64% in pre-jet 1956.

Hardest hit is TRANS WORLD AIRLINES, which had a net loss of $12.5 million in the first half of this year and eagerly seeks a helpful merger partner. TWA's choice depends on the outcome of a legal tangle with eccentric Industrialist Howard Hughes, who was forced by creditors in 1960 to place his 78.2% ownership of the line into a trust. If trustee-appointed President Charles Tillinghast comes out on top, TWA will probably be merged into PAN AMERICAN, whose canny President Juan Trippe, 63, has long desired to make Pan Am the nation's only major international airline. A Hughes victory would lead instead to a TWA merger with smaller NORTHEAST, which Hughes rescued from bankruptcy earlier this year. The two sick lines might help cure one another, Hughes will contend, because Northeast's north-south routes and TWA's east-west ones would balance out each other's seasonal fluctuations.

A more momentous merger is up in the air. AMERICAN, the nation's second largest domestic line (after United), has petitioned the CAB to merge with fourth-ranking Eastern to form the biggest U.S air company. The new line would save a hoped-for $55 million a year. Such a company would be so powerful that it would oblige the remaining U.S. lines to find merger mates in order to compete.

The CAB's thoughtful Chairman Alan S. Boyd, 40, a Kennedy appointee, has often indicated that he favors airline mergers as a way to reduce overcompetition. But two weeks ago, Attorney General Robert Kennedy warned the CAB against approving the American-Eastern merger and made clear that he was speaking for his big brother as well. CAB approval would immunize the merger from later antitrust prosecution, but under a law that requires presidential approval of mergers involving international routes, President Kennedy could simply veto it.

Bobby Kennedy's objecting brief was a hard blow to money-losing Eastern, which last week struggled back into the air after having been laid up for seven weeks by its striking flight engineers. In opposing the merger, the Justice Department said that it wanted to maintain healthy competition. Industry leaders reply that competition can hardly be healthy when nearly half of the nation's airlines are in the red, or close to it. Ultimately, the evolving philosophical argument between efficient mergers and classic antitrust doctrines will have to turn on which does more to promote a vigorous transportation industry.

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