Conrail for Sale

Washington is seeking a buyer

When the Federal Government combined the bankrupt Penn Central railroad with five other failed lines to form the Consolidated Rail Corp. or Conrail in 1976, some experts predicted that the new enterprise would be a financial sinkhole. Sure enough, over the next six years Conrail cost the Government about $7 billion. But against heavy odds, Conrail has become profitable. It earned $39.2 million in 1981 and $174.2 million in 1982 on revenues of $3.6 billion. Last week the U.S. Railway Association, a Government agency that oversees Conrail's operations, reported to Congress that the rescue operation has been a success. Says Conrail Chairman L. Stanley Crane: "I can't brag like Iacocca, but the Government is going to get some of its money back."

Last week's stamp of approval makes it even more likely that Conrail can be removed from public stewardship and sold to a private owner. The Government is trying hard to do just that. The investment banking firm of Goldman, Sachs & Co. has been hired to find a buyer. During her speaking appearances, Transportation Secretary Elizabeth Dole frequently asks audiences: "If you know of anyone who wants to buy a railroad, please let me know." Now that Conrail is running steadily in the black, the Government will insist that the railroad be sold intact and not piece by piece. Thus service will be continued along the 15,000 miles of route that Conrail now operates in 15 states.

The new, improved Conrail bears little relation to the moribund operation that the Government took over. The old line was burdened by excess tracks, rickety roadbeds, union featherbedding and weak management. Shippers used to exchange stories about lost cargoes and goods damaged by frequent derailments.

Slowly, however, a transformation has taken place. The Government spent nearly $3 billion to computerize rail yards, upgrade facilities and repair creaky tracks. With the passage of the Northeast Rail Service Act in August 1981, Conrail was permitted to halt traffic on 2,600 miles of uneconomical track, about 15% of its total route network. Some 22,000 freight-service employees, including 5,000 who had job or severance guarantees, were cut from the payroll at a cost of more than $130 million. Last January, Conrail handed its unprofitable commuter service in New York, New Jersey, Connecticut and Pennsylvania over to local and state-run transportation agencies. (Amtrak, the other Government-owned railroad, continues as a long-distance passenger carrier.) In all, Conrail has slashed its work force from about 100,000 in 1976 to just under 40,000.

While it was getting leaner, Conrail was also getting stronger. With deregulation, it has been able to cut prices and grab business from other carriers. Last year, for example, it hauled 875 carloads of water-purification chemicals that used to travel by truck from a Du Pont plant in Delaware. Conrail also snagged a fuel-hauling contract from Lake Ontario barge operators and moved 6,583 carloads of fuel oil for the Niagara Mohawk Power Corp.

Much of the credit for Conrail's resurgence goes to Chairman Crane, 67, who took over the line in 1981 after spending nearly his entire career at the Southern Railway, the last three years as president. A short, wiry expert in operations, Crane charged up employees with a sense of purpose and firmly established company goals.

Thanks to Conrail's impressive recovery, it is expected to show a profit of about $1 billion over the next five years. One interested buyer is a group of the railroad's employees, who say they plan to make a bid by June 14. But whatever price the Government gets for Conrail, it will not match the $7 billion investment. qed This file is automatically generated by a robot program, so viewer discretion is required.