The real problem was management. They just couldn't fathom that the "mighty Pennsylvania" was on a downhill path, so they invested in risky real-estate ventures. If somebody like Jervis Langdon Jr. had become the PRR's president instead of Saunders, then we might have seen the PRR make it long enough until deregulation was passed and it reunited with the N&W. Saunders was, to put it bluntly, an imbecile. That may seem harsh, but its true! Whenever he got permission to dump a passenger train from the I.C.C., he'd just make a costly deal with labor. In one instance that I recall, the Pennsy could have saved $3.4 million dollars a year had it discontinued a passenger train (that the I.C.C. approved of), but instead Saunders made an agreement with labor. He had no clue how to run a railroad, and it shows. Sure, he ran the N&W, but that's a novices railroad. You can just sit back and let those black diamonds go downhill to Lambert's Point. Not much talent in getting a goose that lays golden eggs to make money. Bevan was another part of the problem. He was too concerned with real estate to care about the railroads finances. In his mind it didn't matter if the railroad was in good shape and making money, all it mattered was that you used it as a tax haven to buy real-estate to make the Pennsylvania Company look good. SP did the same thing, and if it hadn't been for Anchutz, the railroad would have been in the same boat as the PRR. Infact, the D&RGW and the N&W are comparable in many ways. Both were small, but profitable mountain railroads who hauled coal, nursing a badly managed parent. Bevan threatened to quit if someone from outside the PRR was nominated, and even made a hissyfit about Saunders. If he had quit, then a more competent man could have taken his place, and Saunders could have gotten a job as the chairman of some real-estate firm.
People often will say that the PRR had no chance of making money because of the regulation. But the B&O served the same region, and through smart management, it was able to become a strong railroad again. The B&O and the PRR were in the same boat in the late 1950's. The B&O took a path to revitalize itself, the PRR just convinced itself that everything was fine. The B&O's management made lemonade out of sour lemons (that's why the Chessie System used YELLOW
), while the PRR just drank the lemon-juice straight from the lemon. They were too focused on the past, and not focused enough on the future. They also placed all their bets on the Penn Central merger. Any wise manager knows that you should prepare for the worst case scenario and have a plan-B. Perlman did that. He invested in his railroad and courted the C&O. Did the PRR do that? No. What about the dividends? Norfolk Southern paid consistent dividends since its formation in 1982, but when it stumbled after acquiring Conrail, it decided to slash the dividend because it simply could not pay it without placing a significant dent in its finances. If the PRR had cut the dividend or suspended payment alltogether, they would have lost some prestiege, but they wouldn't have gone down in flames.
When the N&W's stock was sold for a hefty $350 million dollars in 1964, some directors proposed investing it into the railroad. If they had done that, they would have been able to cut costs and improve their operations. The new yard at Columbus would have been built, and who knows, maybe the PRR could have diversified into more ventures like Buckeye Pipeline. Santa Fe Industries, Union Pacific Corporation, Burlington Northern and the Southern Pacific Company all invested in natural resources, and it paid off. Of course, the problem with both SP and the PRR was that they had "fun" with flashy subsidiaries like Sprint and Great Southwest Corp., instead of building up solid investments like Buckeye or Black Mesa. The Dividends from Buckeye actually exceeded those from the N&W's stock ($36 million vs $20 million), and they could have been used to refurbish the company. Not to mention, the $64 million made from selling the LIRR to the NYDOT could have been used to pay for the Metroliners AND the Columbus yard with ease. I read somewhere that the Penn Central had I.C.C. permission to abandon 5,800-miles of unprofitable branchline trackage, but that Bevan refused because the tax losses from those branches could be used for diversification and real-estate deals. According to statistics from Conrail (circa 1977), every 300-miles of excess trackage cost $1 million dollars in maintenance each year. If the PC had gone and abandoned the trackage that the I.C.C. allowed them to abandon, they would have saved $19-Million dollars A YEAR in costs. But Saunders labor agreements would have nullified all savings from that.
That brings me to my next point. If Saunders hadn't made those costly deals with labor, then he could have cut the workforce, much like perlman did. He even had the idiotic notion to rehire former NYC employees (1,000 mail handlers) that had been laid off BEFORE the Penn Central merger and re-imburse them for the wages they had lost, PLUS paying them a fee. Why did he do this? So that he could get labors support. This is asinine! The main hope of the Penn Central merger was to cut costs by reducing labor and facilities. For every 10,000 workers it would let go, the Penn Central would be forced to pay $100 million. And that's not even the worst part. The Penn Central was forced to take the New Haven in, but when the deal was originally written, they wouldn't have had to have paid a dime. But what did Saunders do? He paid the NH trustees $140 MILLION so that connecticut would be ecstatic! Why pay for a turd when you can have it for free. I guess Saunders just thought the political gains would outweigh the losses. He paid for it with his job and his prestige. After the PC debacle, he lived the rest of his life as a recluse in his manor in Virginia.
My point is, if Langdon (for example) had gone to work for the Pennsylvania when it was still solvent (not PENN CENTRAL when it was bankrupt), he could have turned that organization around. Sure, he would have ruffled some feathers, but he did that at the B&O, and wouldn't you know it, the B&O remained in the black from the end of his tenure to the day it became part of the Chessie System in 1973. Some might say Langdon's failure to turn around the Penn Central is evidence that a man like him couldn't have turned the Pennsylvania around. But that was AFTER it had diversified, made costly deals with labor, and had been in bankruptcy for several years. If Howard Butcher III (the man who chose Saunders, because he thought that he would get along better with Perlman) had chosen Langdon (who had just left the B&O) instead of Saunders in 1963, think of what he COULD have done. The money made from the sale of N&W stock could have been poured back into the railroad, and Buckeye Pipeline could have been the only non-rail investment made (for $84 million too!). Then the LIRR sale would have helped to modernize the railroad further. Perhaps Perlman and Langdon would have called the PC merger off when they heard that they would have to take in the New Haven. This would have avoided a major debacle, and while the NYC and PRR would have made meager profits ($7 million and $9 million, respectively), they would have been safe enough to survive. When agnes hits in 1972, the NYC would be unaffected, and the PRR would have Buckeye pipelines $36 million in dividends to spend. Also, this "mechanized" PRR would have had a more aggressive marketing team, Ala. Perlman's NYC or Langdon's B&O, so their revenues would have gone up.
I actually was writing a scenario where Langdon was made chairman of the PRR instead of Saunders, and as a result, Bevan resigned. The PRR modernized and introduced radical changes in marketing (much like what Langdon did at the B&O), and so both the NYC and PRR were just
strong enough to say "no" when the I.C.C. told them "We'll let you merge, IF you take in the New Haven." Because of the Penn Central merger never happening, the Reading wouldn't have lost as much bridge traffic, and other railroads wouldn't be as affected. After Amtrak is formed (It still would have been formed, believe me. Plans were being drafted even BEFORE Penn Central, mainly due to declining service.) When the recession hits in 1975, the weakest of the eight railroads fold (CNJ, L&HR), the Reading is absorbed into the Chessie (no Conrail labor protection, so Chessie is really the only choice) and the PRR and NYC butcher the Erie Lackawanna. Perhaps we would have seen EL locomotives relettered ERIE and DL&W ala. the Conrail split up. When de-regulation is passed (despite what many say, it wasn't a result of Penn Central. It was a result of general industry trends, as well as a move by Carter to deregulate transportation. He did it with Airlines and Trucking, and railroads were always on the agenda. Curious how a "publicly-minded" democrat actually did more good than a "pro-business" republican, (i.e. Nixon) when it came to reform.
With deregulation, the PRR and the NYC would finally be back on track (sorry, couldn't resist the Pun), but they would find that they were still not the giants of railroading that they once were. The NYC would merge with the Chessie System, fufilling Perlman's dream, and the Pennsylvania would re-unite with its old vassal, the N&W. CSX and Norfolk Southern would roll along, and we would have had a very different world. Who knows, maybe we would have seen transcontinental mergers in the 1990's!
Of course, this is all my take on things. Pennsy still could have gone down the crapper, but I still think it all came down to how they handled the situation. The over-regulation just intensified the effects of bad management.