Six-year-old Conrail finally got its first pat on the back from the United States Railway Association, the government corporation created to fund and monitor the federally subsidized freight railroad.
In its sixth annual report on Conrail's performance, the USRA told Congress that Conrail's $39 million profit in 1981--its first annual net income--was achieved because of significant improvement in costs and productivity.
The report said dramatic growth in operating profits was achieved despite the recession-caused 8.3 percent drop in traffic. "Conrail's demonstrated capacity to drive down most costs faster than volume declines may yield further productivity gains in 1982," the report predicted. However, it cautioned that, if volume continues to decline, "There may be a point at which further profit margin improvement cannot be achieved."
Conrail--known formally as Consolidated Rail Corp.--was formed in April 1976 as the successor system to the Penn Central and six other bankrupt railroads in the Northeast and Midwest. The Reagan administration originally had hoped to sell Conrail's assets to private railroads and get the government out of the freight business entirely. However, resistance on Capitol Hill resulted in a compromise that gave Conrail some additional time, along with added flexibility, to solve some of its problems and guaranteed funding to continue essential service.
The compromise, enacted last year, also paves the way for Conrail's sale to the private sector. It requires at first that Conrail be sold in one piece and continues that requirement if a determination has been made that it has become profitable. A negative finding on profitability allows the government to sell the assets to more than one buyer beginning next year. After a time, the government can sell it in one piece or in a package of several lines to different buyers.
The USRA's latest report to Congress suggested that the multiyear federal investment in improving Conrail's plant and equipment--totaling about $3.3 billion since the railroad's creation--has established Conrail as an economic and reliable source of freight transportation service to the markets of the region, and that the "dividends on that investment are rising."
The report appears to give a lot of credit for Conrail's revival to L. Stanley Crane, former chairman of Southern Railway, who signed on as Conrail's chairman and chief executive officer last year. "Despite traffic shortfalls, Conrail demonstrated in the first quarter of 1982 the importance of a continuing top management resolve for the corporation to live within its revenue means by tailoring operations and costs to available traffic," the report says.
Conrail derived pivotal benefits from the rail legislation, including the Staggers Act of 1980 that deregulated much of rail transport, the report stated.
In another development, Fred A. Hardin, chairman of the Railway Labor Executives' Association, announced that a task force has been formed to study whether Conrail employes ought to play an active role in the sale of Conrail. Options under consideration include acquisition of Conrail by its employes, and arrangements for a large degree of employe participation in the acquisition of Conrail by other investors.