State of Rails

Great railroads buy their cars and locomotives in much the same way as an individual buys an automobile--on the instalment plan. Instead of arranging the purchase through a financing company, the carriers usually sell equipment trust certificates to the public. Repossessions are exceedingly rare, for in order to keep its rolling stock a road will generally meet its instalment and interest when it can pay no other fixed charges. Not since 1910, when Buffalo & Susquehanna defaulted, have bondholders actually seized and sold a yard-full of equipment to satisfy their claims.

Last week Florida East Coast's receivers bluntly told the holders of an issue of its equipment trust bonds to come & get their 20 mountain-type locomotives, five switching engines, 200 box cars, 100 ballast cars, three passenger cars and 20 cabooses. With traffic what it was, said the receivers, the road did not need the equipment anyway. In normal times the bondholders might sell the equipment to another road. But fearing that they could do nothing with the cars and locomotives except put them in their own back yards, the bondholders protested, and a protective committee persuaded the receivers to hold up their request for court approval until a compromise could be laid before them.

Florida East Coast's dramatic move last week served to spotlight the fact that the U. S. Railroad System is rapidly losing much of the ground gained in the past year. In the first six months the railroads as a whole reported net operating income of $225,000,000, up from $154,000,000 in the 1933 half. But rising costs, notably of fuel, began to catch up with rising revenues in late spring. On July 1 the first of three wage increases totaling 10% went into effect. Last week as July reports began to trickle in, it was clear that not only net income but gross revenues as well were sliding. The first 15 roads to report showed a 7% drop in gross and a 42%, drop in net from July 1933. And though they intend to fight its Constitutionality, the railroads face additional charges of $65,000,000 annually under the Railway Pension Act passed by the last Congress.

Railroadmen were cheered last week, however, by what they took to be White House recognition of their plight. Having lately spent a week-end with President Roosevelt aboard the Sequoia, Editor Raymond Moley led off his main editorial in last week's issue of Today: "No friend of the New Deal is likely to grow enthusiastic over the progress of its railroad policies." And after listing all the railroad's woes, Editor Moley concluded: "There are many complaints from business, these days, that hardly stand examination. But these of the railroads are unquestionably an exception. . . . The Administration has a railroad policy, and those charged with carrying it out should give careful consideration to the complaints of the railroads."

Devoutly hoping that Mr. Moley's kind words really did mean a shift in the Washington wind, railroadmen nevertheless gave the highball to their long-awaited petition for rate increases. The request filed with the Interstate Commerce Commission last week called for a rise of as much as 10% on a vast and complex schedule of goods. If granted, the increases would yield about $170,000,000 of the $293,000,000 which railroadmen say they must have to meet their swelling bills.

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