Steady increases in freight and continuing concessions from labor unions will be particularly important if Consolidated Rail Corp. is to operate profitably in the future, the United States Railway Association said in a report for release today.
The USRA made that assessment in a report to Congress in which the agency also formally declared that Conrail "will be a profitable carrier."
That finding, previously announced without elaboration, is the key to keeping Conrail in one piece and preparing it for possible sale. The federally owned freight railroad--a combination of the bankrupt Penn Central and six other failing northeastern lines--has consumed $3.3 billion in federal funds since it was organized in 1976. It must be found profitable or it can be sold piecemeal.
Since June 1981, however, Conrail has not used federal money and, through a series of one-time gains and strict management controls, the railroad posted a profit in 1982.
The report says that, "While it is vital to recognize the risks in the future outlook, the likelihood that Conrail will generate positive net cash flow is sufficient to justify the determination . . . that Conrail will be a profitable carrier."
Congress said that profitable "means a carrier that generates sufficient revenues to meet its expenses, including reasonable maintenance of necessary equipment and facilities." Deferred maintenance on Conrail's predecessors, plus an excess of railroad capacity in a declining industrial region, are widely blamed as factors in the earlier failures.
Although USRA decided that Conrail meets the congressional definition, its report contains page after page of caveats before the optimistic conclusion. A Conrail projection of steady growth in traffic reflects "reasonable judgments about future uncertainties," but "it must be admitted that consistent traffic growth is without precedent for Conrail or its predecessors over the last 20 years," the report said.
However, the rules of running a railroad have changed dramatically in the last three years with deregulation and other legislation that permitted Conrail to trim its system and sharply reduce its work force.
Concessions from labor unions played a major role in permitting Conrail to report a $174 million profit in 1982. The concessions are guaranteed through July 1, 1984, but Conrail's financial planning assumes that those concessions will continue through 1987, the USRA noted.
The Railway Labor Executives Association, an umbrella group representing the rail unions, is preparing a bid to purchase Conrail. A major part of that proposal will be continued concessions, according to Brian Freeman, financial adviser for the RLEA. Regardless of who buys Conrail, it is agreed that labor cooperation will be essential.
The Reagan administration wants to be certain that Conrail, once sold, never again will become a ward of the federal government.
USRA found reasonable Conrail's projections that revenue would result in $255 million in positive cash flow between 1983 and 1987. The agency said that there is little room for error, but the $400 million in cash reserves that Conrail has accumulated "would be satisfactory" to get it over a hump. Further, the railroad has a $100 million credit line.
"Conrail is pleased with the USRA's finding that Conrail will be a profitable railroad," a Conrail spokesman said yesterday. "We look forward to continuing progress in sustaining that prediction." He said that Conrail revenues are running ahead of 1983 projections.
USRA, which was established by Congress to oversee Conrail, includes representatives from the Reagan administration, the railroad labor unions, Conrail shippers, and other interest groups.