Jeff Smith wrote:I've got a question which we may or may not have posed before: if BSRY sees a potential for profit here (or at least, they see an opportunity for a popular service that might eventually warrant a subsidy), why has P&W thought about running it? After all, the aforementioned FEC sees an opportunity for profit on their own tracks for their own account (and the real estate angle doesn't hurt). As I understand it, P&W has been involved in talks regarding New London - Worcester service (not the knowledge corridor, which I think is operated by a Class III). Why wouldn't P&W just go to RI and MA, and say, hey, want to run a commuter service on this stretch?
P&W is very, very conservatively-managed. They're a Class II at the small end of the scale somewhat above the official Class III/Class II dividing line, and that's a traditionally tough 'tweener size to try to do business at if you're not part of a larger conglomerate. Most railroads of similar ilk would need to reinvest nearly every dollar they made back into the railroad to keep up with SGR cycles and to shore themselves up for natural fluctuations in on-line business...or, take on temporary debt or poached deferred maintenance money to "go big" and move themselves up to a more advantageous part of the scale. It's almost easier to be intentionally smaller as a Class III 'large' shortline or merge oneself further up the Class II chain than it is to persist at that 'tweener size. P&W not only chooses to stay fully independent at the 'tweener size, but manages its stock price at the 'tweener size and has piled up huge cash reserves at the 'tweener size. All while not skimping on the upkeep on its 'tweener size non-NEC infrastructure.
That's almost unheard of in the industry, but there's no great magic trick that they pulled off to get there. P&W is glacially deliberate on its strategic pivots. Their last territorial intrusion was buying up the Middletown Cluster trackage rights package in CT way back in '92. They've been rumored for almost as long to be sniffing around the Maybrook, so that whole discussion sidebar in the Housatonic thread isn't recent idle speculation: they'll literally wait for the heat death of the universe if that's what it takes for Housy to step aside and for them to get precisely the trackage rights terms they want into Danbury. The ports stuff they're taking advantage of at Quonset and Belle Dock was all 20 years in the making. When they do move faster, it's mainly in lockstep with the Class I's like shadowing CSX's and NS's intermodal chess moves on Worcester County and working over NECR for the Canadian Gateway so they have their flanks well-covered while the 4 Class I's that control all lanes in New England get all merger/buyout/hostile-takeover happy with each other. This is how it's been at corporate for 45 years...way before those NEC Shoreline trackage miles got rebuilt under their feet and states of CT and RI started getting generous with freight grants. They want to retain a Ft. Knox's worth of cash reserves without skimping on their self-maint responsibilities or give up control to outsiders, and want those stabilizers to be the bedrock of its stock price. To achieve that damn near every bathroom break gets methodically sketched out 20 years in advance. It's how they've always been. Barring a major change in the makeup of their controlling shareholders it's how they'll always be. Can't say it hasn't worked out pretty well for them and their stock price over the years.
It's pretty far-fetched given how conservatively managed P&W is that they'd have any interest in taking on passenger services in-house. That's a 'loss leader' side business one does as leverage for trading up to something bigger on the freight side. FEC is gambling on it with All Aboard Florida because they're run by a hedge fund that's swinging for the fences. Class III NECR is baiting self-run Central Corridor service to trade up in the world and because as a cog in the vast G&W empire they've got corporate backing to take an outsized risk relative to the size of their reporting mark. P&W is nothing like either of those cases because their backing money is railroader-only, singular railroad -only, and pathologically allergic to flashy risks like that. I couldn't even see them bidding on an MBTA operator's contract given the checkered fiscal results of the last couple firms that did that. The kind of business that P&W has been baiting aggressively from the T is machine shop outsourcing and locomotive testing/repair; they've shown zero interest in operational functions.
The one appeal that engaging BSRY has for them despite the unknowns is that they aren't taking on any risk of their own if it's vaporware. Whatever grade crossing renewals and track work is required is stuff that was on the self-funded cycled SGR calendar anyways, and just involves moving it up or down on that calendar. If the passenger service ends up vaporware there's no risk to them on the capital side. The rest of the logistics are just hashing out agreements, fees, insurance. I'm sure they've got their risk tolerances already sketched out where if BSRY can competently live within those bounds P&W's happy to do business with them, and if BSRY starts testing those bounds or looking dodgy P&W will matter-of-factly wash hands of them. Arguably the biggest risk they're taking is how smoothly co-existence will be
after the schedule is locked-and-loaded for initiation of service. And BSRY has many, many checkpoints to pass with flying colors before it ever gets to carry a train of live passengers on P&W's tracks. If there are cracks in the armor, they'll have fallen apart well before service starts. From P&W's perspective, the real risks mitigate themselves. If I were a BSRY investor I'd be anxious about my stress levels for the next couple years for how much of the risk is riding on their shoulders, but P&W's management is sleeping like a baby.
