N&W and Dereco

Why did the N&W decide to not integrate the D&H and the eastern part of the EL into their own system in the late 1960s and 1970s? All of the EL's long haul freight could have been transferred up to the NKP main line using the Southern Tier verses the EL main. In addition, D&H's New England cars could have added additional freight to the line also. Was the debt both railroads held the real issue for N&W's minimal interest in the two railroads?

After Hurricane Agnes in June 1972, N&W cut the EL free and they entered into bankruptcy. That was the end
of N&W interest in Erie Lackawanna, however I'm not sure about the D&H side of things.

Charlie

From a modern perspective, the combination of the NKP and the Southern Tier Mainline makes perfect sense as a through route for NS. However, there other factors in play during the '60s and '70s that made sense to keep the EL mainline at that time. According to H Roger Grant's Erie Lackawanna: Death Of An American Railroad 1938-1992, the EL main was 2nd only to the NYC's Water Level Route in terms of speed between Chicago and the East Coast. The N&W/LV combo was several hours slower, which I suspect had at least something to do with congestion in Buffalo. Speaking LV, they had partnered with N&W on the Apollo and Mercury trains, so it may also be the N&W didn't want to put all of its eggs into one proverbial basket. And by keeping EL at arm's length in a subsidiary (DERECO), the Norfolk & Western could shield itself from EL's losses.. .which was probably a prudent move to protect N&W 's stock value.

charlie6017 wrote:After Hurricane Agnes in June 1972, N&W cut the EL free and they entered into bankruptcy. That was the end
of N&W interest in Erie Lackawanna, however I'm not sure about the D&H side of things.

Charlie

DERECO continued to exist as a holding company for the D&H and the (now worthless?) Erie Lackawanna common until 1983, when the N&W sold the D&H to Guilford.

While the N&W did have an ownership stake in the D&H post-Agnes, it is a common misconception that DERECO continued as well. http://www.bridge-line.org/blhs/history.html reports that DERECO was dissolved in 1972.

I believe N&W's control of D&H/EL was not exactly something N&W management wanted, and the arm's length transaction protected them. N&W was a money machine at the time and Dereco roads were bleeding. No sense covering that loss any longer than you have to.

Tadman wrote:I believe N&W's control of D&H/EL was not exactly something N&W management wanted, and the arm's length transaction protected them. N&W was a money machine at the time and Dereco roads were bleeding. No sense covering that loss any longer than you have to.

That is correct. H. Roger Grant's Erie Lackawanna: Death Of An American Railroad 1938-1992 details the N&W's concern about EL's debt, which led to the creation of DERECO.

Also, I don't believe it was mentioned yet, but it was April 1, 1968 when the N&W bought the EL at arms length. At this time the Erie Lackawanna Railroad became the Erie Lackawana RailWAY. Dereco, in simple terms, was just a subsidiary Holding company incorporated at the time.

The same thing happened to the D&H. It went from D&H Railroad to D&H Railway.

Another factor was the reluctance on the part of the State of NJ to relieve the E-L of its red ink commuter losses. I recall in the latter years when the C and O and the Santa Fe were nosing around the E-L ,the labor protection agreements and the commuter losses were the deciding factors in walking away from a purchasing deal. I recall the C and O board was wary of informing their stockholders they were now back in the passenger business via an E-L purchase. Like the NW at the time the C and O was a coal hauling money machine.

N&W created DERECO to put a hold on EL and D&H. From 1968 to 1972 this gave the N&W control without too much skin in the game.

EL debt and commuter operations were large negatives. Agnes in 1972 was the knockout punch.

D&H was always in better shape.

No company plays the game as well as N&W, now Norfolk Southern. They let DERECO go bankrupt but ultimately wound up with the prize: their share
of Conrail.

I have to add that since March 2000, when the NASDAQ peaked and Microsoft and Intel were trading at 3 times their current prices, Norfolk Southern
has risen 400%.

N&W may have had another reason, besides the losses to keep EL and D&H separate. There was already a over saturated network in the east. PC was the biggest player. We all love the EL, but it was an also ran compared to PC. Now add LV into the mix. Read the chapter in "The Men Who Loved Trains" about when Jim McClellan was figuring out which lines Conrail needed to keep.

Engineer Spike wrote:N&W may have had another reason, besides the losses to keep EL and D&H separate. There was already a over saturated network in the east. PC was the biggest player. We all love the EL, but it was an also ran compared to PC. Now add LV into the mix. Read the chapter in "The Men Who Loved Trains" about when Jim McClellan was figuring out which lines Conrail needed to keep.

True, PC was the biggest player in the Northeast... but N&W didn't have a stake in it. DERECO allowed the N&W to enter the Northeastern market, albeit indirectly. And let's not forget that as of 1965, the EL mainline was only 1 hour slower than the NYC Water Level Route in the valuable corridor between Chicago and New York City/northern New Jersey. I wouldn't write off EL so quickly.

As for LV, it was useful to the N&W... but neither PC nor the Pennsy before them had any intentions of selling LV to a competitor.

Was there ever an effort put fourth by the Dereco or N&W to form the D&H and the EL into two separate companies of each containing railroad only assets and another that contained other non-railroad assets? For example, the parent Erie Lackawanna Corporation would have consisted of the Erie Lackawanna Railway and the Erie National Company and parent of the Delaware & Hudson Corporation would have consisted of the Delaware and Hudson Railway and Champlain National Corporation. The N&W would purchase only the Erie Lackawanna Railway and the Delaware & Hudson Railway. Moneys to purchase the railways from their parent companies could have then been used to pay off debts in the surviving parent corporations. In the end, the N&W would merge completely both companies into itself and all of the debts in the surviving company would have been significantly reduced or paid off. Does anyone know how much debt the EL and D&H had when they were bankrupted, in the case of the EL and sold in the case of the D&H?

Tadman wrote:I believe N&W's control of D&H/EL was not exactly something N&W management wanted...

I agree. I think the only way N&W would have wanted the Lackawanna is if they had consummated the ICC recommended merger with the NKP in the 1920's and avoided the merger with the Erie. The E-L merger never manifested the economies of scale savings that were reported in the proposal prepared prior to the merger.