Penn Central Transportation
Encyclopedia
The Penn Central Transportation Company, commonly abbreviated to Penn Central, was an American
railroad company that operated from 1968 until 1976. It was created by the merger on February 1, 1968, of the Pennsylvania Railroad
and the New York Central Railroad
. The New York, New Haven and Hartford Railroad
was added to the merger at the insistence of the Interstate Commerce Commission
(ICC) on January 1, 1969. The headquarters of the merged railroad was in Philadelphia.
The Penn Central was created as a response to challenges faced by all three railroads in the late 1960s. The northeastern quarter of the United States, these railroads' service area, was the most densely populated region of the U.S. While railroads elsewhere in North America drew a high percentage of their revenues from the long-distance shipment of commodities such as coal
, lumber
, paper
and iron ore, Northeastern railroads traditionally depended on a much more heterogeneous mix of services, including:
These labor-intensive, short-haul services were all vulnerable to competition from automobiles and buses (for the first two services) and the trucking industry
(for the remaining three), particularly where facilitated by four-lane highway
s. In 1956, Congress
had passed, and President Dwight D. Eisenhower
had signed, the Federal-Aid Highway Act of 1956. This law authorized construction of the massive Interstate Highway System
, which provided an economic boost to the trucking industry.
Another significant problem was the inability of the New York Central and Pennsylvania railroads to respond to market conditions. The railroad industry at the time was heavily regulated
by the ICC and was unable to change the rates it charged shippers and passengers. Therefore, reducing costs was the only way to become more profitable. Government regulation and agreements with labor unions tightly restricted what cost-cutting could take place. A merger seemed to be a promising way out of a difficult situation.
As it turned out, the merged Penn Central was little better off than its constituent roads were before. A merger implementation plan was drawn up, but not carried out. Attempts to integrate operations, personnel and equipment were not very successful, due to clashing corporate cultures, incompatible computer systems and union contracts. Track conditions deteriorated (some of these conditions were inherited from the three merged railroads) and trains had to be run at reduced speeds. This meant delayed shipments and personnel working a lot of overtime. As a result, operating costs soared. Derailments and wrecks became frequent, particularly in the midwest.
Penn Central management created a holding company
, the Penn Central Company, and 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 railroad assets. In addition, these new subsidiaries diverted management attention away from the problems in the core business. To make matters worse, management insisted on paying dividends to shareholders to create the illusion of success. The company had to borrow more and more to keep operating. The interest on the loans became an unbearable financial burden.
In 1968 most of Maine's potato production rotted in the PC's Selkirk Yards, dooming the Bangor & Aroostook Railroad, whose shippers vowed never to ship by rail again.
in American history at that time. Although the Penn Central Transportation Company was put into bankruptcy, its parent Penn Central Company was able to survive.
The Penn Central's bankruptcy was the final blow to long-haul private-sector passenger train service in the United States. The troubled company filed proposals with the ICC to abandon most of its remaining passenger rail service, causing a chain reaction among its fellow railroads. In 1971 Congress created Amtrak
, a government corporation, which began to operate a skeleton passenger service on the tracks of Penn Central and other U.S. railroads.
The Penn Central continued to operate freight service under bankruptcy court protection. After private-sector reorganization efforts failed, Congress nationalized the Penn Central under the terms of the Railroad Revitalization and Regulatory Reform Act
of 1976. The new law folded six northeastern railroads, the Penn Central and five smaller, failed lines, into the Consolidated Rail Corporation, commonly known as Conrail. The act took effect on April 1, 1976.
Facing continued loss of market share to the trucking industry, the railroad industry and its unions were forced to ask the federal government for deregulation
. The 1980 Staggers Act, which deregulated the railroad industry, proved to be a key factor in bringing Conrail and the old Penn Central assets back to life.
During the 1980s, the deregulated Conrail had the muscle to implement the route reorganization and productivity improvements that the Penn Central had unsuccessfully tried to implement during 1968 to 1970. Many miles of old Pennsylvania and New York Central track were abandoned to adjacent landowners or rail trail
use. The stock of the subsequently-profitable Conrail was refloated on Wall Street
in 1987, and the company operated as an independent, private-sector railroad from 1987 to 1999.
jointly purchased Conrail on the open market and split up its track mileage and other assets between them. Hence the reporting marks for rail cars, locomotives, and related equipment reverted to NYC (as CSX's portion in tribute to the New York Central) and PRR (for the other portion controlled by Norfolk Southern in tribute to the Pennsylvania Railroad).
The small portion of Conrail that represented trackage that was of interest to both CSX and Norfolk Southern was kept as the remaining Conrail system, under the name "Conrail Shared Assets Operations
."
by the Pennsylvania Railroad
. The trade name
Penn Central was adopted, and on May 8 the company was officially renamed to the Penn Central Company. The Penn Central Transportation Company was incorporated April 1, 1969, and its stock was assigned to the new Penn Central Holding Company. On October 1 the PCTC merged into the Penn Central Company. The next day the Penn Central Company was renamed to the Penn Central Transportation Company, and the Penn Central Holding Company became the Penn Central Company.
The old Pennsylvania Company
, a holding company
chartered in 1870, reincorporated in 1958, and long a subsidiary of the Pennsylvania Railroad, remained a separate corporate entity throughout the period following the merger.
While the Penn Central Transportation Company had been merged into Conrail in 1976, the holding company
, the Penn Central Company, continued as a separate firm. In the 1970s and 1980s, the new Penn Central was a small conglomerate that largely consisted of the diversified sub-firms acquired by the old Penn Central before the crash. Among the properties the Penn Central Holding Company owned when Conrail was created were Madison Square Garden
(which stands above Penn Station), and its prime tenants, the New York Knickerbockers
basketball team and New York Rangers
hockey team.
Though the new Penn Central 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 Penn Central Corporation changed its name to American Premier Underwriters in March 1994. It became part of the Cincinnati financial empire of Carl Lindner
and his American Financial Group
. Up until late 2006, American Financial Group, still owned Grand Central Terminal
, though all railroad operations were managed by the New York Metropolitan Transportation Authority (MTA) through a lease entered into in 1994. The current lease with the MTA was negotiated to last through February 28, 2274.
On December 6, 2006, the U.S. Surface Transportation Board
approved the sale of several of American Financial Group's remaining railroad assets to Midtown TDR Ventures LLC for approximately US$ 80 million. The New York Post
on July 6, 2007 reported that Midtown TDR was controlled by Penson and Venture. The Post noted that the MTA, would pay $2.24 million in rent in 2007, and has an option to buy the station and tracks in 2017. However, Argent could also opt to extend the date another 15 years to 2032.
The assets included the 156 miles (251.1 km) of rail used by the Metro-North Harlem-Hudson Line
, and Grand Central Terminal
in New York City
. The most valuable asset cited by Midtown TDR were the unused "air rights
" for additional development above Grand Central's underground boarding platforms and switch yard. The platforms and yards extend for several blocks north of the terminal building under numerous streets and existing buildings leasing air rights, including the famous MetLife Building
and Waldorf-Astoria Hotel
. The cash value of the Terminal building itself though is limited, as the building is listed for purposes of historic preservation
and cannot, under current law, be torn down for redevelopment.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
railroad company that operated from 1968 until 1976. It was created by the merger on February 1, 1968, of the Pennsylvania Railroad
Pennsylvania Railroad
The Pennsylvania Railroad was an American Class I railroad, founded in 1846. Commonly referred to as the "Pennsy", the PRR was headquartered in Philadelphia, Pennsylvania....
and the New York Central Railroad
New York Central Railroad
The New York Central Railroad , known simply as the New York Central in its publicity, was a railroad operating in the Northeastern United States...
. The New York, New Haven and Hartford Railroad
New York, New Haven and Hartford Railroad
The New York, New Haven and Hartford Railroad , was a railroad that operated in the northeast United States from 1872 to 1968 which served the states of Connecticut, New York, Rhode Island, and Massachusetts...
was added to the merger at the insistence of the Interstate Commerce Commission
Interstate Commerce Commission
The Interstate Commerce Commission was a regulatory body in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers, including...
(ICC) on January 1, 1969. The headquarters of the merged railroad was in Philadelphia.
Background of the merger
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
, lumber
Lumber
Lumber or timber is wood in any of its stages from felling through readiness for use as structural material for construction, or wood pulp for paper production....
, paper
Paper
Paper is a thin material mainly used for writing upon, printing upon, drawing or for packaging. It is produced by pressing together moist fibers, typically cellulose pulp derived from wood, rags or grasses, and drying them into flexible sheets....
and iron ore, Northeastern railroads traditionally depended on a much more heterogeneous mix of services, including:
- Commuter rail service
- Passenger rail service
- Railway Express AgencyRailway Express AgencyThe Railway Express Agency was a the national monopoly set up by the Untied States federal government in 1917. Rail express services provided small package and parcel transportation using the extant railroad infrastructure much as UPS functions today using the road system...
freight service - Break-bulk freight service in boxcars
- Consumer Goods and perishables, such as fruit and dairy products
These labor-intensive, short-haul services were all vulnerable to competition from automobiles and buses (for the first two services) and the trucking industry
Trucking industry in the United States
The trucking industry involves the transport and distribution of commercial and industrial goods using commercial motor vehicles . In this case, CMVs are most often trucks; usually semi trucks, box trucks, or dump trucks...
(for the remaining three), particularly where facilitated by four-lane highway
Highway
A highway is any public road. In American English, the term is common and almost always designates major roads. In British English, the term designates any road open to the public. Any interconnected set of highways can be variously referred to as a "highway system", a "highway network", or a...
s. In 1956, Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
had passed, and President Dwight D. Eisenhower
Dwight D. Eisenhower
Dwight David "Ike" Eisenhower was the 34th President of the United States, from 1953 until 1961. He was a five-star general in the United States Army...
had signed, the Federal-Aid Highway Act of 1956. This law authorized construction of the massive Interstate Highway System
Interstate Highway System
The Dwight D. Eisenhower National System of Interstate and Defense Highways, , is a network of limited-access roads including freeways, highways, and expressways forming part of the National Highway System of the United States of America...
, which provided an economic boost to the trucking industry.
Another significant problem was the inability of the New York Central and Pennsylvania railroads to respond to market conditions. The railroad industry at the time was heavily regulated
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
by the ICC and was unable to change the rates it charged shippers and passengers. Therefore, reducing costs was the only way to become more profitable. Government regulation and agreements with labor unions tightly restricted what cost-cutting could take place. A merger seemed to be a promising way out of a difficult situation.
The merged railroad
Penn Central management created a holding company
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
, the Penn Central Company, and 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 railroad assets. In addition, these new subsidiaries diverted management attention away from the problems in the core business. To make matters worse, management insisted on paying dividends to shareholders to create the illusion of success. The company had to borrow more and more to keep operating. The interest on the loans became an unbearable financial burden.
In 1968 most of Maine's potato production rotted in the PC's Selkirk Yards, dooming the Bangor & Aroostook Railroad, whose shippers vowed never to ship by rail again.
Bankruptcy and Conrail merger
The American financial system was shocked when after only two years of operations, the Penn Central Transportation company was put into bankruptcy on June 21, 1970. It was the largest corporate bankruptcyBankruptcy in the United States
Bankruptcy in the United States is governed under the United States Constitution which authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States." Congress has exercised this authority several times since 1801, most recently by adopting the Bankruptcy...
in American history at that time. Although the Penn Central Transportation Company was put into bankruptcy, its parent Penn Central Company was able to survive.
The Penn Central's bankruptcy was the final blow to long-haul private-sector passenger train service in the United States. The troubled company filed proposals with the ICC to abandon most of its remaining passenger rail service, causing a chain reaction among its fellow railroads. In 1971 Congress created Amtrak
Amtrak
The National Railroad Passenger Corporation, doing business as Amtrak , is a government-owned corporation that was organized on May 1, 1971, to provide intercity passenger train service in the United States. "Amtrak" is a portmanteau of the words "America" and "track". It is headquartered at Union...
, a government corporation, which began to operate a skeleton passenger service on the tracks of Penn Central and other U.S. railroads.
The Penn Central continued to operate freight service under bankruptcy court protection. After private-sector reorganization efforts failed, Congress nationalized the Penn Central under the terms of the Railroad Revitalization and Regulatory Reform Act
Railroad Revitalization and Regulatory Reform Act
The Railroad Revitalization and Regulatory Reform Act of 1976, often called the "4R Act," is a United States federal law that established the basic outlines of regulatory reform in the railroad industry and provided transitional operating funds following the 1970 bankruptcy of Penn Central...
of 1976. The new law folded six northeastern railroads, the Penn Central and five smaller, failed lines, into the Consolidated Rail Corporation, commonly known as Conrail. The act took effect on April 1, 1976.
Facing continued loss of market share to the trucking industry, the railroad industry and its unions were forced to ask the federal government for deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
. The 1980 Staggers Act, which deregulated the railroad industry, proved to be a key factor in bringing Conrail and the old Penn Central assets back to life.
During the 1980s, the deregulated Conrail had the muscle to implement the route reorganization and productivity improvements that the Penn Central had unsuccessfully tried to implement during 1968 to 1970. Many miles of old Pennsylvania and New York Central track were abandoned to adjacent landowners or rail trail
Rail trail
A rail trail is the conversion of a disused railway easement into a multi-use path, typically for walking, cycling and sometimes horse riding. The characteristics of former tracks—flat, long, frequently running through historical areas—are appealing for various development. The term sometimes also...
use. The stock of the subsequently-profitable Conrail was refloated on Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
in 1987, and the company operated as an independent, private-sector railroad from 1987 to 1999.
Conrail breakup
In 1999, CSX and the Norfolk Southern RailwayNorfolk Southern Railway
The Norfolk Southern Railway is a Class I railroad in the United States, owned by the Norfolk Southern Corporation. With headquarters in Norfolk, Virginia, the company operates 21,500 route miles in 22 eastern states, the District of Columbia and the province of Ontario, Canada...
jointly purchased Conrail on the open market and split up its track mileage and other assets between them. Hence the reporting marks for rail cars, locomotives, and related equipment reverted to NYC (as CSX's portion in tribute to the New York Central) and PRR (for the other portion controlled by Norfolk Southern in tribute to the Pennsylvania Railroad).
The small portion of Conrail that represented trackage that was of interest to both CSX and Norfolk Southern was kept as the remaining Conrail system, under the name "Conrail Shared Assets Operations
Conrail Shared Assets Operations
Conrail Shared Assets Operations is an American railroad company. It operates three networks—the North Jersey, South Jersey/Philadelphia, and Detroit Shared Assets Areas, where it serves as a local carrier and switching company for CSX Transportation and the Norfolk Southern Railway...
."
Corporate history
The Pennsylvania New York Central Transportation Company was formed February 1, 1968, as an absorption of the New York Central RailroadNew York Central Railroad
The New York Central Railroad , known simply as the New York Central in its publicity, was a railroad operating in the Northeastern United States...
by the Pennsylvania Railroad
Pennsylvania Railroad
The Pennsylvania Railroad was an American Class I railroad, founded in 1846. Commonly referred to as the "Pennsy", the PRR was headquartered in Philadelphia, Pennsylvania....
. The trade name
Trade name
A trade name, also known as a trading name or a business name, is the name which a business trades under for commercial purposes, although its registered, legal name, used for contracts and other formal situations, may be another....
Penn Central was adopted, and on May 8 the company was officially renamed to the Penn Central Company. The Penn Central Transportation Company was incorporated April 1, 1969, and its stock was assigned to the new Penn Central Holding Company. On October 1 the PCTC merged into the Penn Central Company. The next day the Penn Central Company was renamed to the Penn Central Transportation Company, and the Penn Central Holding Company became the Penn Central Company.
The old Pennsylvania Company
Pennsylvania Company
The Pennsylvania Company was a major holding company, owning and operating much of the Lines West territory of the Pennsylvania Railroad, including the Pittsburgh, Fort Wayne and Chicago Railway, the PRR's main route to Chicago. It also owned but did not operate the Pittsburgh, Cincinnati, Chicago...
, a holding company
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
chartered in 1870, reincorporated in 1958, and long a subsidiary of the Pennsylvania Railroad, remained a separate corporate entity throughout the period following the merger.
While the Penn Central Transportation Company had been merged into Conrail in 1976, the holding company
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
, the Penn Central Company, continued as a separate firm. In the 1970s and 1980s, the new Penn Central was a small conglomerate that largely consisted of the diversified sub-firms acquired by the old Penn Central before the crash. Among the properties the Penn Central Holding Company owned when Conrail was created were Madison Square Garden
Madison Square Garden
Madison Square Garden, often abbreviated as MSG and known colloquially as The Garden, is a multi-purpose indoor arena in the New York City borough of Manhattan and located at 8th Avenue, between 31st and 33rd Streets, situated on top of Pennsylvania Station.Opened on February 11, 1968, it is the...
(which stands above Penn Station), and its prime tenants, the New York Knickerbockers
New York Knicks
The New York Knickerbockers, prominently known as the Knicks, are a professional basketball team based in New York City. They are part of the Atlantic Division of the Eastern Conference in the National Basketball Association...
basketball team and New York Rangers
New York Rangers
The New York Rangers are a professional ice hockey team based in the borough of Manhattan in New York, New York, USA. They are members of the Atlantic Division of the Eastern Conference of the National Hockey League . Playing their home games at Madison Square Garden, the Rangers are one of the...
hockey team.
Though the new Penn Central 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 Penn Central Corporation changed its name to American Premier Underwriters in March 1994. It became part of the Cincinnati financial empire of Carl Lindner
Carl Lindner, Jr.
Carl Henry Lindner, Jr. was a Cincinnati businessman and one of the world's richest people. According to the 2006 issue of Forbes Magazine's 400 list, Lindner was ranked 133 and was worth an estimated $2.3 billion...
and his American Financial Group
American Financial Group
American Financial Group Incorporated is a holding company based in Cincinnati, Ohio whose primary business is insurance and investments. American Financial Group's purpose is to enable businesses and individuals to manage risk using insurance products and services tailored to meet their specific...
. Up until late 2006, American Financial Group, still owned Grand Central Terminal
Grand Central Terminal
Grand Central Terminal —often incorrectly called Grand Central Station, or shortened to simply Grand Central—is a terminal station at 42nd Street and Park Avenue in Midtown Manhattan in New York City, United States...
, though all railroad operations were managed by the New York Metropolitan Transportation Authority (MTA) through a lease entered into in 1994. The current lease with the MTA was negotiated to last through February 28, 2274.
On December 6, 2006, the U.S. Surface Transportation Board
Surface Transportation Board
The Surface Transportation Board of the United States is a bipartisan, decisionally-independent adjudicatory body organizationally housed within the U.S. Department of Transportation. The STB was established in 1996 to assume some of the regulatory functions that had been administered by the...
approved the sale of several of American Financial Group's remaining railroad assets to Midtown TDR Ventures LLC for approximately US$ 80 million. The New York Post
New York Post
The New York Post is the 13th-oldest newspaper published in the United States and is generally acknowledged as the oldest to have been published continuously as a daily, although – as is the case with most other papers – its publication has been periodically interrupted by labor actions...
on July 6, 2007 reported that Midtown TDR was controlled by Penson and Venture. The Post noted that the MTA, would pay $2.24 million in rent in 2007, and has an option to buy the station and tracks in 2017. However, Argent could also opt to extend the date another 15 years to 2032.
The assets included the 156 miles (251.1 km) of rail used by the Metro-North Harlem-Hudson Line
Hudson Line (Metro-North)
Metro-North Railroad's Hudson Line is a commuter rail line running north from New York City along the east shore of the Hudson River. Metro-North service ends at Poughkeepsie, with Amtrak's Empire Corridor trains continuing north to and beyond Albany...
, and Grand Central Terminal
Grand Central Terminal
Grand Central Terminal —often incorrectly called Grand Central Station, or shortened to simply Grand Central—is a terminal station at 42nd Street and Park Avenue in Midtown Manhattan in New York City, United States...
in New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
. The most valuable asset cited by Midtown TDR were the unused "air rights
Air rights
Air rights are a type of development right in real estate, referring to the empty space above a property. Generally speaking, owning or renting land or a building gives one the right to use and develop the air rights....
" for additional development above Grand Central's underground boarding platforms and switch yard. The platforms and yards extend for several blocks north of the terminal building under numerous streets and existing buildings leasing air rights, including the famous MetLife Building
MetLife Building
The MetLife Building, originally called the Pan Am Building, is a skyscraper located at 200 Park Avenue in Midtown Manhattan, New York City.-History:...
and Waldorf-Astoria Hotel
Waldorf-Astoria Hotel
The Waldorf-Astoria is a luxury hotel in New York. It has been housed in two historic landmark buildings in New York City. The first, designed by architect Henry J. Hardenbergh, was on the Fifth Avenue site of the Empire State Building. The present building at 301 Park Avenue in Manhattan is a...
. The cash value of the Terminal building itself though is limited, as the building is listed for purposes of historic preservation
Historic preservation
Historic preservation is an endeavor that seeks to preserve, conserve and protect buildings, objects, landscapes or other artifacts of historical significance...
and cannot, under current law, be torn down for redevelopment.
See also
- Alfred E. PerlmanAlfred E. PerlmanAlfred Edward Perlman was a railroad executive, having served as president of the Penn Central Transportation Company, and its predecessor, the New York Central Railroad.- Career :...
- PC President - Stuart T. SaundersStuart T. SaundersStuart Thomas Saunders was an American railroad executive.Saunders served as president of the Norfolk and Western Railway, one of the nation's most profitable, from 1958 to 1963...
- PC Chairman & CEO - David C. Bevan
- History of rail transport in the United StatesHistory of rail transport in the United StatesRailroads have played a large role in the development of the United States of America, from the industrial revolution in the North-east to the colonization of the West. The American railway mania began with the Baltimore and Ohio Railroad in 1828 and flourished until the Panic of 1873 bankrupted...
- Penn Central Transportation Co. v. New York CityPenn Central Transportation Co. v. New York CityPenn Central Transportation Co. v. New York City, was a landmark United States Supreme Court decision on compensation for regulatory takings.-The New York City Landmarks Law:...
(1978 Supreme Court case)