Consolidated Rail Corp., the $3.3 billion federal solution to the wreck of the Penn Central, seems to have become a real business enterprise that collects more money from its customers than it spends.
Despite a severe recession that has hit hardest at Conrail's major customers, the automobile and steel industries, the federally owned northeastern railroad made $174 million in 1982 and had record income of $13 million in the first quarter of this year.
Those indicators translate into the probable preservation of single-railroad freight rail service for the Northeast, from New York to Chicago and St. Louis, from the 14th Street "Long Bridge" in Washington to Boston. They could mean that the federal government can sell Conrail, possibly to railroad labor unions or private investors, including another railroad.
L. Stanley Crane, former president of the successful Southern Railway, has been chairman and chief executive officer of Conrail since 1981 and is generally regarded as the driving force who turned Conrail from a federal welfare project into a profit-maker.
He speaks confidently of the future. "I can't brag like Chrysler's Lee A. Iacocca can," he said in an interview, "but the government is going to get some of their money back, and there are damn few projects where the government gets any of their money back."
While other railroad specialists disagree with Crane--"Brave words," a Norfolk Southern executive said--Crane made his statement with the confidence of a person who knows there has been a substantial shift in the way Conrail is regarded.
When the Reagan administration took office, it was determined to remove Conrail from the federal budget, selling it a piece at a time, as soon as possible, and abandoning what was left.
But with new legislation from Congress, substantial concessions from the railroad labor unions and new management, Conrail has turned it around: not one dollar of federal money has gone to Conrail since June, 1981.
On Wednesday, an obscure government agency called the U.S. Railway Association will officially tell Congress that Conrail will be "a profitable carrier."
Under the Northeast Rail Services Act of 1981, that means Conrail cannot be sold in pieces, at least not immediately. In October, the USRA must report whether Conrail has, in fact, been profitable for the next six months. If the answer is yes, the federal government will have to keep the railroad together until June 1, 1984.
Only then will the prospect of a piecemeal sale return and, as long as Conrail is staying out of the federal trough, its congressional friends are likely to block any such sale.
Railroad labor unions have said they intend to bid for Conrail by mid-June. They are the only announced potential buyer, but the Transportation Department has hired the investment banking firm of Goldman, Sachs & Co. to seek others.
Goldman, Sachs will assist in reviewing the labor proposal and probably offer suggestions, including a possible public stock offering. The administration's central concern is that, whoever the buyer, the federal government must be assured that it will never again have to save the railroad.
The government will not regain all of the $3.3 billion sunk into Conrail. Nobody is officially estimating an exact purchase price, but the figure $500 million recurs in conversations with railroad specialists.
For the moment, the Conrail story is of a dramatic turnabout, transformation of a bad joke into an operation with new rail, new signals and modernized, computerized yards.
The old Conrail story included anecdotes about dispatchers and shippers frantically searching for lost trains and "standing derailments," where nonmoving boxcars literally fell off the tracks because of shabby roadbeds.
The key legislative ingredients that have contributed to Conrail's turnaround are:
* Deregulation. The Staggers Rail Act of 1980 eliminated many regulations to be met before railroads could sell services to shippers, and Conrail's management has exploited them cleverly. Proof is that Conrail's chief competitor west of Pittsburgh, the Chessie System, has filed numerous complaints with the Interstate Commerce Commission about Conrail. Chessie did not used to worry about Conrail.
* Commuter railroads. In January, at Congress' direction, Conrail abandoned the passenger business. It no longer runs commuter trains in Maryland, Pennsylvania, New Jersey, New York and Connecticut, and local or state authorities have picked up the costs and many Conrail employes.
All of those takeovers, except for the small operation from Maryland to Washington's Union Station, have been accompanied by strikes because state and local managers were unwilling to operate trains under Conrail rules.
* Labor concessions. In 1981, the major railway unions serving Conrail agreed to a three-year, 12 percent wage concession that the Railway Labor Executives' Association estimates is worth $200 million annually to Conrail and that Conrail says has a three-year value of $295.5 million.
It was either concessions, the RLEA explained, or loss of the railroad. Congress also permitted Conrail to "buy out" several Conrail employes with a one-time severance payment.
* Track abandonment. Since August, 1981, when new legislation permitted fast abandonment of underused or unwanted routes, Conrail has officially abandoned or sold 1,777.3 miles of track. It is in the process of abandoning or selling 831 more miles.
That track comprised about 15 percent of Conrail's total mileage but contributed less than 1 percent of total revenue.
Conrail is down to a lean 15,000 miles in 15 states, the District of Columbia and two Canadian provinces.
Track abandonment is not painless, because many communities regard a railroad as essential to their future, if not self-respect.
Monroe County, Pa., for example, is seeking Supreme Court intervention to prevent Conrail from selling sections of an 88-mile link between Scranton and Port Norris, N.J.
The county is also negotiating to buy the track but did not initiate that action during the brief period allowed under the new federal law.
"We think a very important part of the economic life of Monroe County will be removed permanently," said Nancy Shukaitis, chairman of the board of commissioners.
* Tax forgiveness. Conrail has been freed of paying state taxes, which saved it about $25 million last year.
Thus, Conrail has trimmed its labor force from the 100,000 employes it had when organized in 1976 to 58,750 in April, 1982, to 39,957 this April. The ratio of freight labor costs to freight revenues was 49.2 percent in 1982, down from 55.7 percent in 1980.
Most remarkable, and the item that actually has some New York investors looking favorably upon Conrail, is the management performance in 1982.
Conrail suffered a $585 million revenue loss because of the recession and matched it dollar for dollar on the cost side. After that was known, Conrail negotiated a $100 million line of credit in New York, something that would have been impossible a year earlier.
The flip side, of course, is that 17,000 people have been laid off in a part of the country suffering from heavy unemployment.
Stephen Berger is chairman of the USRA, set up by Congress to oversee Conrail and monitor its performance. Its board includes representatives from states, labor unions, the administration, railroads, small and large shippers and the financial community.
When Conrail was formed by Congress in 1976, Berger said, "it was the perfect political solution. There were no liabilities, just assets. Conrail would run everything, keep everybody at work and would not shrink." That did not happen.
By the time President Reagan took office, there was a consensus that something had to be done, Berger said. The administration initially opposed anything that would get in the way of selling off pieces of Conrail, but the votes were not there, so the middle ground of writing new legislation and requiring USRA profitability studies was established.
The bases of Conrail's revenue have been autos and steel. The railroad has invested heavily in coal-loading equipment in hopes of increasing its share of the potentially lucrative export coal trade.
Conrail is pushing to divert more freight from trucks with an aggressive piggyback (truck trailer on rail car) program. Nonetheless, Conrail's territory is the Northeast, which is losing population and industry.
The ultimate question, posed by the USRA in a report in April, was: Is it possible to continue turning a profit with limited or no growth in the business base?
"We're going to find out," said Charles N. Marshall, a Conrail vice president. "I think it is. But it requires an adaptability that is not found in many human beings."