Conrail's 'Final Plan'

For the past 18 months, federal planners have been wrestling with the problem of how to make the bankrupt Northeastern rail system once more efficient and profitable. In February, the U.S. Railway Association--a Government cure seeker created by the Regional Rail Reorganization Act--issued its preliminary plan for a Government-backed corporation that would consolidate about 15,000 miles of the old Penn Central and half a dozen other bankrupt lines. That plan was much criticized by politicians; New York Governor Hugh Carey called it "utterly unacceptable."

Last week the rail planners tried again. They submitted a revised "final plan" to Congress that becomes effective automatically in 60 working days unless lawmakers derail it. That is not likely. Conrail already has the support of rail management and unions, as well as backing from such big shippers as General Motors and Bethlehem Steel. Some Congressmen are still opposed because rail lines in their districts will be dropped. But opposition generally is poorly organized, and Conrail is expected to begin operations on schedule next February.

In their changes from the plan of six months ago, USRA strategists restored some of the lightly used trackage they had proposed to eliminate, while still lopping off about 5,000 miles to improve efficiency. The planners also moved to create competition for Conrail from prosperous roads.

Not Enough. The revised plan offered something, too, to the bankrupt lines' creditors. USRA-backed "certificates of value" will ensure that Conrail's securities, to be issued in exchange for the properties, hold their worth. That was not enough for some Penn Central bondholders. At a meeting last week in New York, they insisted that USRA was vastly understating the value of Penn Central properties and vowed a court fight to get a fair return. As USRA'S offer stands now, the entire Penn Central system, with an estimated market worth of $7.4 billion, would be valued for the takeover at $471 million--or what it would sell for if it were turned into scrap.

Any court battle, though, will not delay Conrail's debut. The consolidated system will stretch westward from the Eastern seaboard through 15 states to St. Louis, hauling more than a third of Northeastern freight. During the next decade, Conrail would spend $1.84 billion in taxpayers' money and another $4.2 billion of its own earnings and funds from private investors for rehabilitation of the badly maintained and accident-prone system; it would lay 540 miles of new track a year and replace 3.4 million ties (in June, derailment of seven cars of an Erie-Lackawanna freight train in Scranton, Pa., which was attributed to the poor condition of the tracks, tied up traffic on the line for the better part of a day). If all goes as USRA plans, Conrail will survive losses of $631 million during its first three years, break Into the black by 1979, and turn a profit of $597 million by 1985. Dividends, however, will be a long time in coming. On preferred stock, none would be paid until 1986. For common stock, the projected year is 2017.

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