Bankruptcy a choice at all?

[sldispatcher]

At the risk of getting totally flamed, I simply am asking for my own educational purposes.

Delta, United, and other airlines (and now American) have all gone into Chapter 11 to fix a myriad of financial issues (I am NOT supporting it or opposing it).

I would like to know the pros and cons strictly from the business side (I am very well aware of potential employee pain).

Pros and Cons regarding:

1) equipment

2) unsecured debt

3) routes

4) restructuring

5) expansion

6) contraction

7) onboard service changes

Again, I realize some cannot help but hurl insults and pout and pontificate. That's fine. It's a free country (well, maybe not as much as it once was). More importantly, I hope some of the more knowledgable experts on here regarding the financial status of Amtrak could shed some light.

Thanks in advance for the well thought out/mature responses.

 

[Ocala Mike]

This is an old article, but still appropriate:

http://www.nytimes.com/2005/06/12/weekinreview/12wald.html

 

[rrdude]

At the risk of getting totally flamed, I simply am asking for my own educational purposes.

Delta, United, and other airlines (and now American) have all gone into Chapter 11 to fix a myriad of financial issues (I am NOT supporting it or opposing it).

I would like to know the pros and cons strictly from the business side (I am very well aware of potential employee pain).

Pros and Cons regarding:

1) equipment

2) unsecured debt

3) routes

4) restructuring

5) expansion

6) contraction

7) onboard service changes

Again, I realize some cannot help but hurl insults and pout and pontificate. That's fine. It's a free country (well, maybe not as much as it once was). More importantly, I hope some of the more knowledgable experts on here regarding the financial status of Amtrak could shed some light.

Thanks in advance for the well thought out/mature responses.

Outside of a small amount of equipment, much of it very old, and the real estate of the NEC, (much of what has been sold or leased, non-track, there isn't much for Amtrak to pay off creditors. And what would the purchaser, even at fire sale prices do with "20 Superliners"? An occasional fan run?

Plus, if the agreements that Amtrak has with the freight railroads were abrogated by the bankruptcy judge, no freight railroad in their right mind would offer a private company the kind of deal that Amtrak had......

So "No", for those reasons, and many more (smarter and better) ones to come, Chap 11 would not be a good thing for LD or even regional PAX RR in this country...

Now, "privatization" of the lines might. IF, and that's a big IF, if you could get the gov't or some gov't entity to supply the infrastructure, just as they do to the airlines (ATC, airports, essential air service, TSA, etc., etc.) or the trucking, barge, or pipeline companies..................

 

[the_traveler]

Amtrak is a quasi-public corporation. The airlines you had mentioned are private corporations!

That's the big difference!

 

[George Harris]

Remember: Warrington mortgaged almost everything. Are these still outstanding?

 

[afigg]

Remember: Warrington mortgaged almost everything. Are these still outstanding?

Amtrak has made significant strides in the past few years in reducing much of their debt. The 2008 PRIIA act provided for the US Treasury to transfer funds to Amtrak to close out the Warrington era leases. Amtrak has an agreement in place to get $420 million in FY12 and FY13 to exercise the Early Buyout Options on 13 equipment leases. More leases are up for early buyouts in FY15. This is discussed in detail in the FY12 - FY15 5 year financial plan which is on Amtrak's website.

This is a major reason why this bankruptcy idea makes no sense for Amtrak. Their old debt load is being cleared off the books without having to go through chapter 11. Bankruptcy would have all sorts of consequences in operations, for the LD trains, the contracts with the states, vendors, unions, and politically.

American Airlines is sitting on a large amount of cash, $4 billion if I recall correctly. Their bankruptcy is a tactical move to reduce costs.

 

[sldispatcher]

This is an old article, but still appropriate:

http://www.nytimes.com/2005/06/12/weekinreview/12wald.html

Thank you. That summed it up perfectly for me. Alas, the problem they have gotten themselves into in terms of cutting costs appears to be one that is present from its birth and without any political agreement to fix. Thus the rut it is currently in.

 

[mkellerm]

In addition to the points made above, there is another big difference between Amtrak and the airlines. When the airlines in chapter 11 crammed down their labor contracts, there wasn't really anyplace for the workers to go. For Amtrak, there would be well-compensated alternatives for most of the crafts, either the Class 1s or commuter operations. This is a huge factor to explain why labor costs have fallen dramatically for the airlines but not for Amtrak.

 

[Trogdor]

In addition to the points made above, there is another big difference between Amtrak and the airlines. When the airlines in chapter 11 crammed down their labor contracts, there wasn't really anyplace for the workers to go. For Amtrak, there would be well-compensated alternatives for most of the crafts, either the Class 1s or commuter operations. This is a huge factor to explain why labor costs have fallen dramatically for the airlines but not for Amtrak.

That's a bit too simplistic of a view, as it assumes that airline workers only go to other airlines, and railroad workers only go to other railroads (and it also assumes that these Class 1s and commuters are hiring; and only engineers and, perhaps, conductors, plus a certain mechanical staff, are really compatible with other railroads; station agents, LSAs, TAs, etc., have not comparable jobs elsewhere).

That said, the key reason the airlines were able to get "huge" concessions/reduced labor contracts is because their labor costs skyrocketed in the 90s, when they were wildly profitable. These contracts turned out to be unaffordable during the slightest of economic troubles, and disastrous after 9/11, and they really had no choice but to bring them down.

I believe that during a similar period, many Amtrak employees went without any sort of pay raise at all for a number of years (maybe a cost-of-living adjustment; but nothing more).

Ignoring the legal differences between a railroad bankruptcy and other types bankruptcies out there, there still isn't any argument that shows how a bankruptcy would help. During a typical chapter 11 restructuring, outstanding shareholder value is wiped out (it's essentially already zero), and creditors take ownership (in exchange for the debt that the company owes). Amtrak's debt load, as others have stated, isn't really the problem.

What is the problem is that Amtrak doesn't make money, and even a significant restructuring (other than, basically, completely cutting service through most of the country, and only becoming an operator on the NEC and a competitor for subsidized contracts elsewhere) will not enable Amtrak to make money. Therefore, none of the creditors would want anything to do with Amtrak ownership. Either they would have to put more money into the operation (which they absolutely would not do; private corporations tend not to like to subsidize things), or the operation would shut down anyway.

 

[Cho Cho Charlie]

Amtrak is a quasi-public corporation. The airlines you had mentioned are private corporations!

That's the big difference!

Isn't that also true of the USPS, and they're hinting of bankruptcy.

 

[rrdude]

Kind of, here's a story in the Post, relatively well written, that goes into some detail.