The directors of the Chicago, Milwaukee, St. Paul and Pacific Railroad voted yesterday to file for reorganization under Section 77 of the Federal Bankruptcy Act.
The line, known as the Milwaukee Road, is the 12th largest railroad and 26th largest transportation company in the country. It had reported $16.7 million in losses for the third quarter to the Interstate Commerce Commission, bringing the total losses for nine months of 1977 to $20.7 million.
The railroad serves 16 states on 10,000 miles of track. Although, it carries mostly freight, it operates some passenger and commuter services under contract to Amtrak and the Regional Transportation Authority in Chicago.
In a message to its 11,400 employees, the railroad said its services would not be interrupted. They were instructed to report to work as usual.
Under Section 77, the ordinary operations of the railroad will be continued under the supervision of one or more trustees appointed by the U.S. District Court in Chicago. It is expected that normal operations of the Milwaukee Road will continue.
In Washington, ICC spokesman Douglas Baldwin said his agency's "first concern is that the essential services continue. The ICC will send in a team of auditors and operations people to review the Milwaukee situation and determine what steps we might be able to take to protect essential services to shippers and commuters."
In an internal report completed only last month, an ICC monitering group had said: "In its present condition, the Milwaukee Railroad is unable to generate sufficient cash flow from operations to support its plant. Without greater financial aid and a major system rationalization through coordination of track with other competing roads, the Milwaukee could soon be forced into reorganization."
In announcing the filing the Chicago yesterday, William J. Quinn, chairman of the board and chief executive officer of the parent Chicago Milwaukee Corp., said that the parent and other subsidiaries of the parent would not be affected by the action.
The holding company operates Aslesen Co., a Munneapolis food service company; Vulcan-Hart, a food service equipment company in West Virginia, and Hi-Way, Inc., a concrete paving subcontractor in Ohio and West Virginia.
Quinn said the action was unavoidable because "revenues have been adversely affected by a number of factors, including reduced grain and lumber shipments caused by the drought in the third quarter and severe weather during the fourth quarter of 1977.
"The Milwaukee is anticipating substantial operating losses for 1977. Projections of revenues and expenses for 1978 indicate continued losses, with the inability to prevent further cash erosion."
The Milwaukee Road failure is one of more than a half-dozen major railroad bankruptcies in the 1970s - starting with the biggest collpase in history, that of the Penn Central Railroad in June, 1970. In short order, serveral other Northeast lines falled and, in 175, the Rock Island line also filed for bankruptcy.
In the case of the Milwaukee Road, there have been fears of a possible bankruptcy over since the 1969 merger of the Great Northern. Northern Pacific and Chicago, Burlington & Quincy into Burlington Northern, the pation's longest rail system.
In vain, the Milwaukee south an order from the Interstate Commerce Commission in recent years that BN be required to takeover the weaker line.
Milwaukee, duplicates BN lines in many areas. The overall parent company, Chicago Milwaukee Corp., suffered losses of $8.9 million in 1976 and $19.6 million in 1975, largely because of the railroad subsidiary. Dividends also were eliminated.
Milwaukee abandoned service on 60 miles of branch lines in 1976 and reduced employment by 5.5 per cent in an effort to stop the railroad losses which were $22 million in 1976 and $31 million in 1975. The railroad operations also had a loss in 1972.
Top executives of Chicago Milwaukee Corp. last year were charged with fraud by the Securities and Exchange Commission. Chairman Quinn and others were accused of falsifying books of the holding company to make its financial condition appear more healthy than it was.
Chicago Milwaukee consented to the charges without admitting guilt or innocence. Among the specific allegations was that the company, faced with deteriorating rail earnings in 1968, used timerland sales to improve the railroad's accounts.