CARRIERS: When If Ever a Profit?

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Capitalization. Railroad spokesmen like to insist that the railroad industry is not overcapitalized. They point out that the stock and bonds in the public's hands are only $17,987,962,640 as against property investment of $26,055,536,805. This statement does not take account of the fact that $5,867,000,000 of rail securities are held by other railroads, notably Pennsylvania, Chesapeake & Ohio, Union Pacific. Nor does it account for the fact that the figure of $26 billion includes many an asset that has not been adequately depreciated. ICC permits equipment in many cases to be depreciated as though its efficient life runs over 30 years, in other cases as though it were immortal. Fact is that rail equipment is in large part old and high cost, and the managements admittedly owe the properties many hundreds of millions of dollars of back maintenance.

Most unarguable fact about rail capitalization is that in the last good year—1937 —Class I U. S. railroads had $3,186 per mile (miles operated: 238,539) of road left, after operating expenses, with which to pay their interest bill of $2,769 a mile, leaving a meagre $417 per mile for preferred and common stockholders. In short, 87% of operating revenue was required for fixed charges in an excellent year. This contrasted with an average of $4,694 a mile available for charges in the ten years 1925-35, $1,821 a mile earned for stock (39% of operating revenue for fixed charges). In 1938, a bad year, fixed interest charges remained around $2,700 a mile, earnings available for interest dropped to $2,177 a mile. Result: preferred & common stockholders were $527 a mile under water. As capitalized on earnings, a conservative value of U. S. railroads today is certainly far below $26 billion.

Reorganization. The 20 bankrupt Class I railroads of the U. S. are:

Akron, Canton & Youngstown

Central of New Jersey

Chicago & Eastern Illinois

Chicago & North Western

Chicago Great Western

Chicago, Indianapolis & Louisville

Chicago, Milwaukee, St. Paul & Pacific

Chicago, Rock Island & Pacific

Denver & Rio Grande Western

Duluth, South Shore & Atlantic

Erie

Minneapolis, St. Paul & Sault Ste Marie

Missouri Pacific

New Haven

New York, Ontario & Western

New York, Susquehanna & Western

Frisco (St. Louis-San Francisco)

St. Louis Southwestern (Cotton Belt)

Spokane International

Western Pacific