If you were looking for a thriving industry in a prosperous region to invest your money in, would you pick railroads in New England? Probably not, but Timothy Mellon is rushing in where others fear to tread.
In partnership with a railroading veteran and neighbor named David Fink, Mellon is buying up rail lines from Maine to Maryland and trying to forge a new 3,900-mile rail system that would be competitive with other freight haulers.
Mellon, 39, is a great-grandson of Pittsburgh banker Thomas Mellon, grandson of former Treasury Secretary Andrew Mellon and son of Paul Mellon, philanthropist and race-horse breeder. He can afford to lose money on his railroading venture, but according to Fink he does not intend to.
Fink, who is as outgoing and talkative as Mellon is reclusive, said in an interview that "this is a three- to five-year process. Nobody will get rich at it, but we hope at the end of that time to show a respectable return."
Mellon's railroad company, Guilford Transportation Industries Inc., of Durham, Conn., already owns the Maine Central Railroad. It has a commitment to buy the bankrupt Boston and Maine, and a tentative agreement to buy the Delaware and Hudson.
Guilford is also one of six companies that have notified the Federal Railroad Administration of interest in buying some feeder trackage in Connecticut and Rhode Island that may be sold off by Conrail, the federally subsidized freight line that serves most of the northeast.
Fink said he and Mellon launched themselves into railroading because they think New England is due for an economic resurgence, and rail shipment is going to be economically attractive as fuel costs rise.
"We calculate you can move a ton of freight a given distance on one-fourth the amount of fuel it would take to move it by truck, and we see $3-a-gallon fuel down the line," he said. "Also, we believe the economy of New England has bottomed out. It's our opinion you will see a resurgence in the Northeast."
There are two other reasons for Fink's optimism. One is a cooperative attitude on the part of labor unions, which have given wage and benefit concessions to Guilford in an attempt to save jobs that might otherwise be lost to shutdowns. The other is the railway deregulation law known as the Staggers Act, which allows railroads more flexibility in setting rates and negotiating with shippers.
"There's no question," Fink said, "that under the Staggers Act you can negotiate contracts with shippers and make deals on through freight that you could not make before." As a result, he said, Mellon "sincerely believes he can make a contribution and make a buck. Plus, it's fun. Whatever we do has to be fun or we won't do it."
It may be fun, but he and Mellon are not just playing with model trains. They have put up more than $40 million so far and are ready to spend more, though Fink declined to say exactly how large Guilford's capital investment is.
Fink, who is 45, is Mellon's neighbor in Guilford, Conn., and his partner in another business, Perma Treat Corp., which makes wood products -- including railroad ties.
He said he is a "fourth generation railroader" who spent 22 years with the old Pennsylvania Railroad and the Penn Central until it went bankrupt. He is president of Perma Treat and vice president of Guilford Transportation.
His account of Guilford's acquisitions was confirmed by the Federal Railroad Administration, the Interstate Commerce Commission and officials of other railroads who have been watching Guilford's growth.
Early this year, Guilford bought the Maine Central from a subsidiary of Ashland Oil for a reported $20 million. The Maine Central is the only one of Guilford's completed or planned acquisitions that has been profitable.
In July, Guilford reached agreement to buy the Boston and Maine for $24 million, subject to the approval of the line's bankruptcy trustees and the Interstate Commerce Commission.
Guilford has tentatatively agreed to buy the Delaware and Hudson, a money-losing subsidiary of the Norfolk and Western, for $500,000. The N&W has been trying to unload the Delaware and Hudson for some time, and last week its trustees authorized the management to execute a sales agreement.
Fink said Guilford was invited by the State of New York to take over the D&H and keep it running, but he said it would only do so if the unions representing D&H workers accept reductions in wages and benefits. "If we don't get the labor concessions, we won't buy it," he said.
Acquisition of all three lines would give Guilford a 3,900-mile network serving a heavily populated industrial area stretching roughly from Baltimore to Buffalo, Montreal and Bangor, Maine. Each of the lines, he said, would continue to operate under its own name and separate management.
On all three lines, he said, tracks and rolling stock are in "surprisingly good shape" considering the generally depressed state of the railroad industry in the northeast. The D&H in particular, he said, has upgraded its roadbed with the aid of federal and New York State subsidies.
The only apparent challenger to Guilford's plans is a small railroad called the Providence and Worcester. That company existed for decades only as a paper railroad leasing its trackage to bigger lines, but it is now an independent railroad based in Rhode Island.
Allan Kaulbach, vice president of the Providence and Worcester, said his company has submitted the only formal proposal to take over the feeder trackage Conrail may sell. He said Providence and Worcester has also asked the Interstate Commerce Commission to slow its consideration of the Boston and Maine sale because his company might be interested in some parts of it.