Why did Iron Road and the MM&A fail, while the CMQ succeed?

Hello,

With Canadian Pacific's purchase of the Central Maine & Quebec, it seems that the former Bangor & Aroostook and International of Maine Divison have once again found their place in the North American Rail Network. So I think it is time for some reflection on the events of the past dozen years.

I was recently reading through some of the older posts on this board regarding the MM&A to get some perspective on recent events regarding railroading in New England. (I was not apart of this forum at the time.) It seems that just a few years ago the lines were more likely to end up as a snowmobile trail than an important rail route. When the CMQ took over, there were some who were rightly skeptical of their ability to succeed. (Iron Road and the MM&A both failed on the same route, so why would the CMQ succeed?) Yet, the CMQ did succeed, so well in fact that the very same railroad that left these lines for dead in the mid-90s, came in and bought them once again!

That leads to my question. Why did Iron Road and the MM&A fail, while the CMQ succeed? I would imagine that the railroads had very similar cost structures, operating over the same route and all. All three railroads also handled the same type of traffic. (Products of Forrests, Carload Traffic, etc.) Fortress put 50+ million into the CMQ while Iron Road and the MM&A made very little investments throughout their time. (Somebody correct me if I'm wrong.) The overall state of the economy of Maine and the country as a whole was also much better during the CMQ's time during that of Iron Road and the MM&A. Are those two factors the biggest reason why the CMQ was successful?

Thanks.

I was one who was skeptical of the future of the Moosehead in particular after Megantic.

CM&Q had a number of assets at their disposal that neither predecessor did. Both Iron Road and MM&A lacked capital.

Iron Roads was heavily leveraged to make the purchase, and nearly every asset on the property was leveraged in some way. When you're paying to lease GP7's sitting in the deadlines for a decade it certainly stretches things. They had everything leveraged like that, sale and lease back. It helped them do some things, like getting the 38's rebuilt, and brought in a good chunk of change initially, to help pay down debt on the property itself. But long term thats a tough spot to be in, especially on equipment of little value. Tight margins lead to equipment troubles, and track problems. Put a couple trains on the ground things get more expensive, which tightens your budget more. Look at the industrial environment in northern Maine. Not exactly big new customers opening up, and the downward spiral of traffic available to the railroads dates back decades.

MM&A spent some bucks early on and made some pretty extensive improvements to infrastructure and brought in a fleet of equipment in better shape. But they also closed on the property the same day GNP announced their bankruptcy. The loss of the single largest customer, complicates any business plan. Rail World may have been the parent, but MM&A was the biggest piece of that pie. It's not like they had huge cash reserves to fall back on. So business fell and spending stopped. Naturally retraction was the solution. Cut the crews back, 1 man operations. Cut the miles back, spin off whats now the MNR. Cut back maintenance, track speeds fall and locomotives leave the shop with bondo holding cylinder walls in place. We all know the result.

CM&Q had a couple things going for them. They also started off with the least invested of the 3 operators, having gotten the entirety of the property for less than $16M. Fortress also had capital to move around, which with some grant money allowed them to fix up the property. Maybe not to speeds of the Iron Road era, but solid enough service was reliable and trains stayed on the tracks. CM&Q were able to leverage that reliable service and pick up Pan Am's traffic from NMJ-Brownville. This was certainly a boost in traffic and revenues that wasn't available to either predecessor as Pan Am's mainline had deteriorated to a point an alternative was financially appealing, and the service CM&Q offered good enough to make it worth it. Fortress also invested in Derby, with Katahdin Railcar Services, which brought empty tanks to and from Derby as loads (a plus for the railroad). These are the sort of opportunities that money from a large holding company can open up.

CM&Q ran a profitable show, even if it was tight. Towards the end, understandably, the mother company tightened the financial strings. In 2019 it wasn't uncommon to chat with crews and hear how things had changed, the railroad was on a budget much tighter than the early days. They were stable, and sustainable at least over the next several years. Who knows how the grant money would have looked next time major track was needed. The first round of trackwork also took advantage of things like free rail off sidings they took up. They sold off every ancillary asset they had early on too. The Millinocket sub from BJ-MKT was back down to 10mph at the time of sale, for example, so things were good, but had settled back after the influx of mother company/grant money early on into something more resembling sustainable. The railroad could have stood on its own, but by 2020 it had reached its peak. Not saying a huge fall was around the corner, but CM&Q was showing all it had to offer by the time the CP deal was announced.

Now lets get to the big success of the CM&Q. Their greatest accomplishment was getting traffic flowing E/W and weathering the storm left behind by MM&A. With that uncertainty out of the way, the system becomes more appealing to a big party who doesn't want to deal with local politics.

To think that CP was interested in any more than Saint John and Searsport is foolishness, and I think you could argue Searsport was more of a neat BOGO sort of deal. They didn't care about carload lumber from places like Ashland, or a LP tanks in Hampden. Those are the assets that even greater capital funding can bring you. Port facilities and single-line-haul unit trains. With Irving acting as a, granted very large, terminal operation, direct access to EMRY/NBSR is almost as good as direct access to Saint John itself. The value of that connection has already shown with planned business announcements for autos and intermodal at Saint John, and marketing of port facilities that don't yet exist in Searsport.

Up until the Megantic debacle, MMA didn't feel like a failure. But we had not learned how unsafe they were. Imagine if Megantic had not happened, would MMA have failed later? Certainly their locomotives would have failed.

I would argue that.

The oil traffic may have saved the railroad had it not killed it. But it would have been a short reprieve as that traffic all stopped in 2013/14 as Irving changed their oil buying habits and switched sources to something they ship in, rather than rail in.

The property was only able to turn a profit a couple years under MM&A. Looking at their lax safety policies/enforcement, and sketchy maintenance practices, the end was inevitable. When you start patching up cylinder heads with Bondo you're in trouble. Thats not something you do when cash flow isn't a SERIOUS issue.

Without the oil, it may not have ended as awfully as it did, but how much does it really take to run them out of cash? You have to think even a derailment on the scale of Megantic, minus the big explosion is going to be crippling.

Agreed with ksmitty, it was clear to me by somewhere around 2007-2008 that Burkhardt was going to run the place into the ground physically, financlially, or both. To be fair there were business challenges early on, but there seemed to be a complete lack of interest in trying to be proactive on any count. Don't try to improve service, don't look for more business, just cut cut cut slash and burn. By 2009 I had serious concerns not just in terms of business practice, service quality, and a clear sense of a "pillage, plunder, and leave it when we're done" owner/upper management mentality, but also was very troubled about the (lack of) basic safety of the operation.

As sad as it was, to me it was not a matter of if but when. Of course even with my concerns I didn't expect it to be that tragic on the scale that Megantic turned out to be- I expected a major crash out in the middle of woods or an employee fatality somewhere, that sort of thing- which of course is tragic enough. Unfortunately when the inevitable result of the upper management mentality was finally realized, it came about in the form of the worst possible scenario in one of the worst possible (i.e., middle of a big town) places in a way that impacted the hapless public on a mass scale.

If the problems were obvious, who was sounding the alarm bells & were regulators ignoring them?

To a certain extent, a CMQ vs IR or MMA is an apples and oranges (lemons?) comparison. As has been pointed out, IRR bought the property on the cheap, and it was a much slimmed-down franchise, given that the former B+A northern lines had been sold to MDOT. The Bangor and Aroostook itself was well managed for its day, but was financially marginal. If it wasn't for off-line car-hire, their P&Ls would have been a lot bleaker.

CMQ management performed well, by all accounts, but consider that much of the capital investment was government money. Also, CMQ's success in volume growth is somewhat overrated. Carloadings were relatively flat (2018 underperformed 2016), though the traffic mix became more profitable. 2019 saw loadings jump suddenly and significantly. At the same time, revenue per car fell 25-30%, so my guess is this was PAR haulage being counted in the stats. Nothing wrorng with winning a compensatory haulage deal, but it's not the same as organic growth. Unfortunately, FTAI stopped posting results in its final 9 months of ownership.

The events unfolding in Texas and other parts of the south ring reminders in my mind of the Ice Storm of '98, which to date is one of the worst recorded natural disasters in Maine & Quebec. Here in Maine, there was 3" to 4" of ice coating everything-- trees, wires, poles, and literally anything else. But Quebec got hit even harder, with some places having up to 12" of ice coating.

Not often chronicled (the CN MLWs doing some street running always steal the story) is CDAC's experience, only a few years into their operation they were of course hit pretty hard by this being in both Maine & Quebec primarily. The entire CTC/ABS signals that were remaining from CP days were knocked completely out. Trains ground to a halt (naturally) and infrastructure suffered. Surely this event was a setback they weren't as prepared to bounce back from (compared to CN) in addition to the numerous derailments, deferred maintenance and other subsequent death spiral events.

KSmitty wrote: CM&Q ran a profitable show, even if it was tight. Towards the end, understandably, the mother company tightened the financial strings. In 2019 it wasn't uncommon to chat with crews and hear how things had changed, the railroad was on a budget much tighter than the early days. They were stable, and sustainable at least over the next several years. Who knows how the grant money would have looked next time major track was needed. The first round of trackwork also took advantage of things like free rail off sidings they took up. They sold off every ancillary asset they had early on too. The Millinocket sub from BJ-MKT was back down to 10mph at the time of sale, for example, so things were good, but had settled back after the influx of mother company/grant money early on into something more resembling sustainable. The railroad could have stood on its own, but by 2020 it had reached its peak. Not saying a huge fall was around the corner, but CM&Q was showing all it had to offer by the time the CP deal was announced.

I wouldn't paint CMQ in that light. Fortress had expressed a interest in selling CMQ as early as Q1 of 2019 to reinvest in other companies, which they thought would earn more than CMQ would in the same timeframe. So it is no surprise that they cut down on how much funding CMQ was receiving from Fortress, if they intended on selling it anyway. The Millinocket sub would have most likely continued to be 25MPH besides Sebois and a few other spots, since those restrictions were put in place after CP sent a tie inspection vehicle (noted in other forums) across the exCMQ, and since it couldn't get readings off the joints that were used, the speed was dropped. CMQ had a lot to offer, and I suspect if Fortress hadn't decided to exit the rail business, you might have seen CMQ submit some bids on Pan Am (CMQ had prior interest between Mattawamkeag and Waterville). I believe the current auto business was drummed up by CMQ as well. I wouldn't say that CMQ was on the verge of a gradual downfall by any means, although I don't think that they could have picked up the container business that attracted CP.

So, if I read your post correctly, you disagree by saying essentially what I said?

If Fortress hadn't decided to exit CM&Q then the corporate money would have been available, and my entire post would be invalidated, but then we wouldn't be having this conversation...

But they did decide to exit, and as a result, things were settling back. I didn't say it would be a long slow spiral down to doom, just that things were coming off a peak and settling back towards the reality of what the property had to offer.

A little off topic, sorry. But staying in Greenville (next to trestle). Wondering how many trains pass through daily and if rough schedule is known.

Thanks

rxr717 wrote:A little off topic, sorry. But staying in Greenville (next to trestle). Wondering how many trains pass through daily and if rough schedule is known.

Thanks

CP 250 has been going through town between 1 and 3 PM (depending on what time they get to Jackman). I am not into night photography, so I haven't shot 251 since September. Last I knew, they were going through between 7 and 11 PM.