RAILROADS: Wedding Bells

One of the best-kept secrets in U.S. business history burst into the open last week. After months of top-level discussion that leaked neither to Wall Street, the U.S. Government or even many of their own officers, the Pennsylvania Railroad and the New York Central—the nation's two biggest railroads—announced that they are considering a merger that would be the biggest corporate marriage ever. Said Pennsy President James M. Symes and Central President Alfred E. Perlman: "Preliminary studies and discussions indicate that substantial benefits to all concerned may result from such a merger."

A merger of the two lines would make the united road the eleventh largest U.S. company, with combined assets of more than $5 billion. The Pennsylvania's 9,963 miles of road, running from the mid-Atlantic states westward to St. Louis and Chicago, and the Central's 10,600 miles, reaching northward to Boston, Albany and Quebec and westward to Chicago and St. Louis, serve the nation's most highly industrialized area. The lines own millions of dollars in property (including Grand Central station and a huge chunk of Park Avenue real estate, Pennsy's Pennsylvania Stations in New York and Philadelphia), employ 184,000 workers, last year transported 80 million passengers and hauled 378 million tons of freight.

Peculiar Problems. But despite such impressive foundations, both roads are in serious trouble. Both have been hard hit by rising costs, declining revenues, and the heavy inroads of competition from trucks, airplanes and buses. In addition to competing with "subsidized" forms of transportation, said Symes and Perlman, their roads have suffered from "long delayed and inadequate rate increases, refusal to permit abandoning of unprofitable and unpatronized trains and facilities, inadequate payment for carrying mail, discriminatory excise taxes, excessive state and local taxes, unfair assessments for highway crossings, and other artificial burdens."

Some cynics professed to see in the merger proposal a dramatic attempt to get the railroads' case for higher rates and other changes before the public, but the move was nonetheless a good indication of the unhealthy state of the two roads involved. Many other U.S. railroads are doing well financially (see box), but they are not afflicted with the peculiar problems of the Central and Pennsy: short-haul runs that require numerous stations and facilities and heavy and unprofitable commuter loads in populous big-city areas.

Into the Red. When Central's Chairman Robert R. Young came to the road* in 1954 after a bitter proxy battle, he was sure he had the cure for those ailments. He introduced time-and labor-saving centralized traffic control, installed pushbutton freight yards and increased dieselization. Last year he announced the beginning of a $500 million capital-improvement program, and early this year confidently crowed that Central's stock soon would be up to $100 and paying $8 a share. The stock climbed briefly, but Young saw his hopes dashed as Central's financial position deteriorated and the stock fell to around $18.