Railroads: Toward the 21st Century Ltd.

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Pittsburgh Banker Richard Mellon, called on Saunders in Roanoke to of fer him the opportunity of running the nation's largest railroad. Saunders accepted without hesitation. When he moved to Philadelphia, he took along a cadre of N. & W. executives who are still known around headquarters as the "Virginia Mafia." Before long the Mafiosi had eased 550 oldtimers into retirement. Almost nothing about the Pennsy remained untouched. Saunders, who collects cookbooks as a hobby, even hired a new chef for the executive dining room, ordered him not to serve diet lunches.

He did much more than change menus. Besides making huge investments in equipment and rolling stock, he really began to diversify. He concluded the purchase of the Buckeye pipeline, which threads for 8,000 miles through eight states in the East and South. Today, Buckeye ownership makes the railroad the principal supplier of jet fuel to Kennedy International Airport through a pipeline laid under New York harbor. Already well-stocked with real estate through its rail-related holdings, the Pennsy spent some $80 million to get more. It bought into Arvida Corp., Great Southwest Corp. and Macco Realty Co., which deal in real estate in California, Texas and Florida. Through its subsidiaries, the Pennsy is now developing Rancho California, an 87,500-acre residential project near Los Angeles; it is opening industrial and recreational parks in the Dallas and Fort

Worth area, and it operates the Boca Raton Hotel and Club in Florida.

Unique Position. Saunders also bought a 57% interest in Executive Jet Aviation, a young company organized to provide charter service to businessmen. Among other advantages, Executive Jet gives the Pennsy a foothold in aviation and a start toward what Saunders calls a "total transportation company." For such investments the Pennsy has a large kitty. From its sale of the Long Island Railroad to New York State in 1966, and from the gradual disposal of its shares in the N. & W. and its 98.5% interest in the Wabash, the Pennsy had about $500 million to spend, still has around $107 million unallocated. "We are," says Saunders with some understatement, "in a rather unique position to pursue diversification."

For all the advantages of diversification, Saunders always looked upon consolidation with the New York Central as his most important project. The two lines were in the process of beating each other into bankruptcy. As early as 1957, merger talks had started between Saunders' Pennsy predecessor, James M. Symes, and the Central's Robert Young. Then, after Young committed suicide in 1959, he was succeeded at the Central by Perlman, an M.I.T. graduate who was with the Denver & Rio Grande before Young brought him back East. As it happened, Perlman was most reluctant to couple with the Pennsy, and Saunders had a tough time persuading him that it would be a good deal for both companies.