The United States Railway Association staff said yesterday that Conrail "credibly and reasonably projects" that it could survive future economic downturns operating as an independent company.
The report was requested by Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, which will review the Reagan administration's proposed sale of Conrail to Norfolk Southern Corp. The USRA is an agency set up by Congress, first to sort out the Northeast rail crisis, then to oversee Conrail.
This report is certain to be used as fuel by those -- including Conrail's management -- who wish to block a Norfolk Southern takeover and sell Conrail's federally owned stock through a public offering.
The USRA said that Conrail could achieve long-term viability even if it pays full industry wages (its unions have been accepting a 12 percent cut) and state taxes (from which it has been exempt). The USRA also assumes that the freedoms of railroad deregulation will remain (there is a movement afoot for partial reregulation).
The Reagan administration line on Conrail is that it has had its best year (a $500 million profit in 1984), that its Northeast traffic base is dwindling or at best stable, and that it will have difficulty surviving indefinitely on its own. It is in the interests of long-term stability that the administration favors the sale to Norfolk Southern, a strong Eastern railroad.
Robert B. Claytor, Norfolk Southern's chairman, said in an interview with The Washington Post's Nell Henderson yesterday that Conrail would survive the next four to five years, but by the early 1990s, "Conrail will be in a negative cash position. If we don't get it now, we think it will be available in 10 years at a reduced price," Claytor said.
USRA's study shows Conrail's net income declining to $207 million in 1986 and its cash balance improving over the next four years, partially because of real estate sales. Federal Railroad Administrator John H. Riley said "this shows with absolute certainty that now is the time to sell Conrail. If we try to take this company public, we will be taking it public in the face of declining profits."
Industry sources say that Conrail's first quarter is running behind its budget projections despite a relatively strong March.