Penn Central Transportation Company

The Penn Central Transportation Company, commonly abbreviated to Penn Central, was an American

Pre-merger

The Penn Central railroad system developed in response to challenges facing

• passenger rail
  service
• Railway Express Agency freight service
• Break-bulk freight service via
  boxcars
• Consumer goods and perishables (produce and dairy products)

These labor-intensive, short-haul services proved vulnerable to competition from automobiles, buses, and trucks, a threat recently invigorated by the new limited-access highways authorized in the Federal-Aid Highway Act of 1956.^[1] At the same time, contemporary railroad regulation restricted the extent to which U.S. railroads could react to the new market conditions. Changes to passenger fares and freight shipment rates required approval from the capricious Interstate Commerce Commission (ICC), as did mergers or abandonment of lines.^{[2]: 164–166} Merger, which eliminated duplicative back office employees, seemed an escape.^{[2][failed verification]}

The situation was particularly acute for the

In 1957, the two proposed a merger, despite severe organizational and regulatory hurdles.^[2]: 215 Neither railroad had much respect for its merger partner; the lines had fought bitterly over New York-Chicago custom and ill-will remained in the executive suites.^{[2]: 248, 256} Amongst middle management, the company's corporate cultures all but precluded integration: a team of young, flexible managers had begun reshaping the NYC from a traditional railroad into a multimodal express-freight transporter, while the PRR continued to bet on a railroad revival.^{[2]: 248, 258} At a technical level, the two companies served independent markets east of Cleveland (running through their namesake states), but virtually identical trackage west of Cleveland meant any merger would have anticompetitive effect.^[2]: 215

For decades, merger proposals had tried to balance the competitors instead, joining them with lesser partners end-to-end. The unexpected NYC+PRR proposal required all the northeastern railroads to reconsider their corporate strategy, clouding the waters for the ICC. The resulting negotiations took nearly a decade, and when the PRR and NYC merged, they faced three competitors of comparable size: the Erie had merged with the

Regulators also required the new company to incorporate the bankrupt New York, New Haven & Hartford Railroad (NH) and New York, Susquehanna & Western Railway (NYS&W); if neither the N&W and C&O would buy the Lehigh Valley Railroad (LV), then that railroad should be incorporated as well. (Ultimately, only the New Haven successfully joined the Penn Central; the conglomerate failed before it could incorporate the latter two.)^[2]: 248 The only railroad leaving the Penn Central was the PRR's controlling interest in the N&W, whose dividends had generated much of the PRR's premerger profitability.

Merger begins

The legal merger (formally, an acquisition of the NYC by the PRR) concluded on February 1, 1968. The Pennsylvania Railroad, the nominal survivor of the merger, changed its name to Pennsylvania New York Central Transportation Company, and soon began using "Penn Central" as a trade name. That trade name became official a month later on May 8, 1968.^[2]: 248 Saunders later commented: "Because of the many years it took to consummate the merger, the morale of both railroads was badly disrupted and they were faced with unmanageable problems which were insurmountable. In addition to overcoming obstacles, the principal problem was too much governmental regulation and a passenger deficit which amounted to more than $100 million a year."^[4]

Almost immediately after the transaction cleared, the organizational headwinds presaged during the merger negotiations began to overwhelm the new corporation's management.^{[5]: 233–234} As ex-PRR managers began to secure the plum jobs, the forward-thinking ex-NYC managers departed for greener pastures.^[2]: 248 Clashing union contracts prevented the company's left hand from talking to its right,^{[5]: 233–234} and incompatible computer systems meant that PC classification clerks regularly lost track of train movements.^{[2][failed verification]}

Subpar track conditions, the result of years of deferred maintenance, deteriorated further, particularly in the Midwest. Derailments and wrecks occurred regularly; when the trains avoided mishap, they operated far below design speed, resulting in delayed shipments and excessive overtime. Operating costs soared, and shippers soured on the products. In 1969, most of Maine's potato production rotted in the PC's Selkirk Yard, hurting the Bangor & Aroostook Railroad, whose shippers vowed never to ship by rail again.^[6] Although both PRR and NYC had been profitable pre-merger,^[2]: 248 Penn Central was — at one point — losing $1 million per day.^{[citation needed]}

As PC's management struggled to wrestle the company into submission, the structural headwinds facing all northeastern railroads continued unabated. The industrial decline of the Rust Belt consumed shippers through the Northeast and Midwest.^[2] Penn Central's executives tried to diversify the troubled firm into real estate and other non-railroad ventures, but in a slow economy these businesses performed little better than the original railroad assets. Worse, these new subsidiaries diverted management attention away from the problems in the core business. To create the illusion of success, management also insisted on paying dividends to shareholders, desperately borrowing funds to buy time for the business to turn around.

Bankruptcy

Within two years, Penn Central could no longer remain solvent, and, on June 21, 1970, the nation's sixth-largest corporation had become its largest bankruptcy.

Under the auspices of the

PC unsuccessfully attempted to sell-off the air rights to Grand Central Terminal, and allow developers to build skyscrapers above the terminal, in order to fund continued operations. The resulting lawsuit, Penn Central Transportation Co. v. New York City, was decided in 1978, when the U.S. Supreme Court ruled that PC could not sell Grand Central's air rights because the terminal was a New York City designated landmark.^[8][9]

In May 1974, the bankruptcy court concluded that the railroad operations of PC could never provide enough income to reorganize the company. In the Regional Rail Reorganization Act of 1973, the federal government nationalized Penn Central to save it. For two years, the United States Railway Association sorted through the assets of PC (and six other bankrupt railroads: EL, LV, Reading, Lehigh & Hudson River Railway, Central Railroad of New Jersey and Pennsylvania-Reading Seashore Lines) to decide what could be reshaped into a viable railroad. Then, on April 1, 1976, Penn Central transferred those rail operations to the government-owned Consolidated Rail Corporation (Conrail).^{[2]: 250 [10]}

Facing the continued loss of market share to the trucking industry, the railroad industry and its unions asked the federal government for

The Pennsylvania Railroad absorbed the New York Central Railroad on February 1, 1968, and at the same time changed its name to Pennsylvania New York Central Transportation Company to reflect this. The trade name of "Penn Central" was adopted, and, on May 8, the former Pennsylvania Railroad was officially renamed the Penn Central Company.

The first Penn Central Transportation Company (PCTC) was incorporated on April 1, 1969, and its stock was assigned to a new holding company called Penn Central Holding Company. On October 1, 1969, the Penn Central Company, the former Pennsylvania Railroad, absorbed the first PCTC and was renamed the second Penn Central Transportation Company the next day; the Penn Central Holding Company became the second Penn Central Company. Thus, the company that was formerly the Pennsylvania Railroad became the first Penn Central Company and then became the second PCTC.^[2]: 248

The old Pennsylvania Company, a holding company chartered in 1870, reincorporated in 1958 and long a subsidiary of the PRR, remained a separate corporate entity throughout the period following the merger.

The former Pennsylvania Railroad, now the second PCTC, gave up its railroad assets to Conrail in 1976 and absorbed its legal owner, the second Penn Central Company, in 1978, and at the same time changed its name to The Penn Central Corporation. In the 1970s and 1980s, the company now called The Penn Central Corporation was a small conglomerate that largely consisted of the diversified sub-firms it had before the crash.

Among the properties the company owned when Conrail was created were the Buckeye Pipeline and a 24 percent stake in Madison Square Garden (which stands above Penn Station) and its prime tenants, the New York Knicks basketball team and New York Rangers hockey team, along with Six Flags Theme Parks. Though the company retained ownership of some rights-of-way and station properties connected with the railroads, it continued to liquidate these and eventually concentrated on one of its subsidiaries in the insurance business.

The former Pennsylvania Railroad changed its name to American Premier Underwriters in March 1994. It became part of Carl Lindner's Cincinnati financial empire American Financial Group.

Grand Central Terminal

Until late 2006,

In November 2018, the MTA proposed purchasing the Hudson and Harlem Lines as well as the Grand Central Terminal for up to $35.065 million, plus a discount rate of 6.25%. The purchase would include all inventory, operations, improvements, and maintenance associated with each asset, except for the air rights over Grand Central.^[14] The MTA's finance committee approved the proposed purchase on November 13, 2018, and the purchase was approved by the full board two days later.^[15][16] The deal finally closed in March 2020, with the MTA taking ownership of the terminal and rail lines.^[17]

Heritage

Few railroad historians and former employees view the mega-railroad's brief existence favorably, and the company has little presence in the

As part of Norfolk Southern Railway's 30th anniversary, the railroad painted 20 new locomotives utilizing former liveries of predecessor railroads. Unit number 1073, a SD70ACe, is painted in a Penn Central Heritage scheme.

As part of the 40th anniversary of the Metro-North Railroad, four locomotives were painted in a different heritage scheme to honor a predecessor railroad. Locomotive 217 was painted in the Penn Central Blue and Yellow scheme.

See also

• Alfred E. Perlman - PC President
• Stuart T. Saunders - PC Chairman & CEO
• History of rail transport in the United States
• Penn Central Transportation Co. v. New York City (1978 Supreme Court case)

References