H. ROGER GRANT
Erie Lackawanna: An Ohio Railroad
The Erie Railroad possessed a strange
past. In the nineteenth century it
could claim to be an unusual road. For
one thing, it was America's first
long-distance trunk line. Under the
corporate banner of the New York
& Erie Railway, the company in April
1851 completed a 483-mile route
"Between the Ocean and Lakes,"
linking the New York communities of
Piermont on the Hudson River with
Dunkirk on Lake Erie. The railroad
also extolled its distinctive broad or
"Erie Gauge," the impressive six feet
between its iron rails rather than what
emerged as the standard width of
four feet eight and one-half inches.
(Later the company advertised ex-
tensively that because of its uncommon
construction, "[It] ... is select-
ed over and over again for handling
oversize shipments because it is fa-
mous for the highest and widest
clearances of any eastern railroad.")1
But there was a dark side to Erie. Its
building process took nearly a gen-
eration, in part because self-serving
politicians forced it to push through
New York's rugged and sparsely settled
"Southern Tier" of counties. As
a result the road missed direct ties to
the burgeoning cities of New York
and Buffalo and skirted the traffic
centers of northeastern Pennsylvania,
thus weakening its earnings
capabilities. The property was hardly a mod-
el for emulation. In the 1850s it was in
such wretched shape that Edward
Harold Mott, the Erie's first chronicler,
observed that it "became notori-
ous for the insecurity of travel upon
it." When reorganized and revitalized
during the Civil War, the Erie Railway
soon became the "Scarlet Woman
of Wall Street." The unscrupulous
speculator, Daniel Drew, discovered
the company and manipulated its stock.
Then, in 1867, a three-way bat-
tle erupted for control, with interests
represented by the wily Drew; John
Eldridge of the Boston, Hartford &
Erie; and "Commodore" Cornelius
Vanderbilt of the New York Central. Two
other financiers joined the fra-
cas: the resourceful Jay Gould and the
flamboyant Jim Fisk. When the
smoke cleared, Vanderbilt lost, although
subsequent negotiations between
Drew, Eldridge and Vanderbilt produced a
satisfactory compromise agree-
H. Roger Grant is Professor of History
at The University of Akron.
1. Edward Hungerford, Men of Erie: A
Story of Human Effort (New York, 1946), 105-
35; Erie Magazine, 45 (October,
1949), 36.
6 OHIO HISTORY
ment. "Having scraped the oyster
clean," observes historian Maury Klein,
"the participants were content to
toss the empty shell to Gould and Fisk."2
A silver-lining of sorts came with the
"Erie War." The able Gould took
the throttle, and he immediately sought
to rehabilitate the Erie rather than
destroy it. Notwithstanding the
railroad's poor overall condition and its
heavy burden of fixed charges-the conflict
alone cost nearly $10 mil-
lion-Gould's guidance made it a better
property.3
Jay Gould, however, was no magician. The
Erie did not emerge as a pow-
erful concern. He did not have enough
time to work wonders; his enemies
ousted him from the presidency soon
after Jim Fisk's death in early 1872.
And so the company limped along under
the ineffectual leadership of John
Dix and Peter Watson until its second
bankruptcy in 1874.4
A better day for the Erie seemed to have
arrived by the late 1870s;
reorganization in 1878 as the New York,
Lake Erie & Western Railroad
bode well for the struggling pike.
Modernization of rolling stock, stan-
dardization of gauge and creation of an
expanded "system" that included
a 998-mile main line from Jersey City,
New Jersey, to Chicago, Illinois,
highlighted the administrations of Hugh
Jewett (1874-1884) and John King
(1884-1894). In fact, the Erie's new
artery into the Windy City, opened
by its subsidiary, the Atlantic &
Chicago Railway, between Marion,
Ohio, and Hammond, Indiana, in June
1883, sported "air-line" qualities.
Likely this 250-mile extension could
claim to be the best engineered right-
of-way between Ohio and Illinois.5
But the Erie stumbled again. This time
the deadly Panic of 1893, which
made a shambles of American business,
sent the company into its third
bankruptcy. Two years later, in 1895,
the New York, Lake Erie & West-
ern became the Erie Railroad Company.
Shortly, a seasoned railroader,
Frederick Underwood, assumed the
presidency, and he became an out-
standing chief executive. The Underwood
era began in May 1901, and last-
ed for twenty-six years; this would be
the Erie's "Golden Age." The com-
pany extensively upgraded its plant and
its crack passenger trains, most
of all the "Vestibuled
Limited," daily trains 3 and 4 between New York,
Chicago and Cincinnati, symbolized the
"New Erie."6
Toward the end of Frederick Underwood's
tenure, the Van Sweringen
brothers (O.P. and M.J.) of Cleveland,
who were in the process of "col-
2. Edward
Harold Mott, Between the Ocean and the Lakes: The Story of Erie (New
York,
1899), 109-22, 147-60; Maury Klein, The
Life and Legend of Jay Gould (Baltimore. 1986),
81-87.
3. Klein, Jay Gould, 86.
4. Ibid., 92-97, 122-26; Hungerford, Men
of Erie, 171-99.
5. Mott, Between the Ocean and the
Lakes, 230-94; George H. Minor, The Erie System
(New York, 2nd ed., 1936), 53-63.
6. Hungerford, Men of Erie, 211-23.
Erie Lackawanna
7
lecting railroads," won control.
They particularly liked the Erie's low-
grade, double-tracked speedway for coal
trains between Ohio and Chica-
go connections. The carrier remained in
their orbit until their empire col-
lapsed during the Great Depression. The
Erie itself entered bankruptcy in
1938, where it lost most vestiges of
these remarkable Ohioans.7
While the Erie failed to be the
embodiment of a nineteenth century rail-
road, it could likely make that claim
for the twentieth century, in part due
to Frederick Underwood's considerable
skills. Argues historian Richard
Saunders: "It may have been the
quintessential American railroad, a rail-
roader's railroad-double track, heavy
rail, long trains, and high speed."
But the case for the Erie being
"America's railroad" involves more than
track and operations. The saga of the
Erie during the past half century re-
veals that it experienced all the
major forces at work in the complex world
of railroading. The Erie was: a
causality of the Great Depression when a
third of the nation's rail mileage went
into bankruptcy; a dependable mover
of materials and personnel during World
War II; a leader of dieselization,
two-way radios and other cost-saving
technologies; an early player in the
"merger madness" of the 1960s;
and a victim in the 1970s of modal com-
petition, a substantially restructured
rail industry, and a hostile econom-
ic environment.8
Like most railroads, the 2,313-mile
Erie, headquartered in Cleveland
since the days of the Vans, enjoyed
relative prosperity during the 1940s
It emerged from a three-year
receivership (its fourth) in 1941, with a more
streamlined corporate structure and a sense
of optimism. Reduced inter-
est payments and robust wartime earnings
prompted the company to de-
clare a modest dividend in 1942, the
first in sixty-nine years and a proud
moment for management. The press
release, orchestrated by its image-
conscious president (1941-1949), Robert
Woodruff, said in part: ". . . Wall
Street tradition was shattered and
Brokers were dazedly groping for reli-
able replacements for the immemorial
dictums-When Erie Common pays
a dividend there'll be icicles in
hell-and three things are certain-
Death, Taxes, and no dividends for Erie
Common."9
Paying dividends did not mean that the
Erie was splurging. Quite the
contrary, it was "a penny-pinching
property." The company correctly rec-
ognized early on that substantial
savings could be derived from dieseliza-
tion. Even before the war ended,
powerful and sleek General Motors road
7. Ibid., 235-38; Henry S. Sturgis, A
New Chapter of Erie: The Story of Erie's Reorga-
nization, 1938-1941 (New York, 1948), 1-6.
8. Richard Saunders, "Erie
Railroad," in Keith L. Bryant, Jr., ed., Railroads In the Age
of Regulation, 1900-1980 (New York, 1988), 137.
9. Robert E. Woodruff, "I Worked
for the Erie," unpublished ms., ca. 1954, Erie Lack-
awanna papers, The University of Akron
Archives, hereafter cited as EL papers.
8 OHIO HISTORY
units pulled long trains over the hilly
main line between Marion, Ohio, and
Meadville, Pennsylvania. President Paul
W. Johnston, Sr., who succeed-
ed Woodruff, reported in February 1950
that "The Erie has invested
$34,400,000 in its present ownership of
178 diesel locomotives and now
has one of the highest percentages of
diesel ownership of any railroad in
the east." And he added,
"These locomotives have produced impressive
savings in operating costs and we expect
to realize further savings in the
years to come." The Erie retired
its last steamer three years later. Finan-
cial gains from dieselization, however,
were finite. Then during the lat-
ter part of the 1950s expanding
competition from motor vehicles that rolled
over better roads, including ever-more
abundant "superhighways" and
"thruways," hurt the Erie as
it did other eastern carriers, with the possi-
ble exception of the
"Pocahontas"-region coal roads. The Erie, moreover,
suffered from high terminal costs,
including extensive lighterage opera-
tions in New York Harbor;
"confiscatory" property taxes in New Jersey;
unprofitable commuter trains in the
metropolitan New York City area; and
erosion of on-line manufacturing, for
example, tire production in Akron,
Ohio.10
Understandably management and the
financial community thought
merger might guarantee Erie's solvency.
So in the late 1950s the compa-
ny explored corporate marriage with the
940-mile Delaware, Lackawan-
na & Western, the faltering
"Road of Anthracite," and the 700-mile
Delaware & Hudson, a strategic
bridge line between northern Pennsylvania
and Canada. Although the D&H left
the talks-it considered itself
"wealthy" and refused the
proposed stock-exchange formula-a wedding
still occurred. The new couple was the
3,188-mile Erie-Lackawanna
Railroad (EL), and it met the public
officially on October 17, 1960. 11
After a shaky and discouraging start,
the merged company showed some
promise. Most of all, economies
predicted by the respected consulting firm
of Wyer, Dick & Company became
reality. By 1963 savings amounted to
about $21 million annually rather than
the $13 million initially anticipated.
"Yet if there was an error in the
merger process," contends Charles Shan-
non, a Wyer, Dick associate, "it
was the assumption that both members
of the proposed merged company would be
efficiently operated."12
In fact, that was the problem. The
management team, headed by Mil-
ton McInnes, "Mr. Mac," a
long-time Erie officer who assumed the pres-
10. 1949 Annual Report, Erie Railroad
Company (1950), 3; Interview with Milton G.
Mclnnes, Southbury, Connecticut, 5 June
1989, hereafter cited as Mclnnes interview.
11. Interview with Perry M. Shoemaker,
Tampa, Florida, 19 August 1989, hereafter cit-
ed as Shoemaker interview; Richard
Saunders, Railroad Mergers and the Coming of Con-
rail (Westport, Conn., 1978), 95-118; New York Times, 17
October 1960.
12. Interview with Charles J. Meyer,
Livingston, New Jersey, 25 May 1988; Interview
Erie Lackawanna 9 |
|
idency on November 22, 1960, floundered. The most talked about matter was its failure to control rivalries between former Erie and Lackawanna personnel. As one Erie official remembers, "DL&W fellows had chips on their shoulders." Perhaps they did, since in reality the Erie absorbed their former employer and Erie people frequently, although not always, pros- pered at Erie-Lackawanna. The trouble ran much deeper than Erie versus Lackawanna. Unwilling to continue in the number two position as Chair- man of the Board, Perry Shoemaker, the last president of the Lackawan- na, accepted a lower paying job as head of the sickly Central of New Jer- sey in 1962, leaving the less capable McInnes in charge. Shoemaker was probably the most talented of EL's top officers. Part of the problem in- volved the conduct of Garret "Gary" White, Vice-President-Operations. According to some he was the "bad guy," "a real Tartar." For instance, White refused to modernize the company's obsolete station service. "Gary was a great lover of L.C.L. (less-than-carload) merchandise," re- calls consultant Shannon. "[I]t was killing the company. [LCL] was too expensive to handle; it should have been going by piggyback [trailer-on- flatcar] or by truck." But McInnes was close to White and "he had grown up with these [Erie] people and he couldn't bring himself to do what had to be done." In desperation, the Board of Directors turned to the aging
with Charles Shannon, Arlington Heights, Illinois, 1 October 1988. |
10 OHIO HISTORY
William "Bill" White, former
president of the Lackawanna and the New
York Central and then Chairman and Chief
Executive Officer of the
Delaware & Hudson, "to clean
house." This he did. White fired his broth-
er, Gary, and demoted Mclnnes -"I
was put out to pasture." Gregory
Maxwell, a "good operating
man" whom White had trusted at the New
York Central, became second in command.
(The EL lacked a president
from 1963 until 1965 when Maxwell
assumed the post; White served as
Chairman of the Board.)13
Bill White did his best to save
Erie-Lackawanna. This seasoned exec-
utive, considered by some to be one of
the best railroad leaders of the cen-
tury, worked effectively. He closed six
terminal yards which saved mil-
lions of dollars annually and increased
freight-train efficiency; opened a
heavy car repair facility in Meadville,
Pennsylvania, which, although built
in the late 1950s, had never been
brought into full operation (the "bad-
order" ratio of cars in the EL
freight fleet soon dropped from 15.9 to an
acceptable 4.5 percent); and chipped
away at chronic suburban service
losses in New Jersey, ultimately leading
to healthy state subsidies.14
Yet Bill White and associates in
Cleveland correctly concluded that the
Erie-Lackawanna could not operate in
perpetuity. For the "mega-mergers,"
which eventually produced Penn Central
(Conrail), CSX, and Norfolk
Southern, were starting to develop, and
poor roads, like EL, needed to find
merger partners. While the carrier made
modest yearly profits during
White's tenure (he, unfortunately, died
suddenly in 1967), it was hardly
a money-machine, for as Gregory Maxwell
admitted, "a small cold could
easily turn into fatal pneumonia."15
The Norfolk & Western (N&W), the
future Norfolk Southern, seemed
to offer the best hope for financial
security. As a condition of its merger
with the New York, Chicago & St.
Louis (Nickel Plate) and Wabash rail-
roads in 1964, the Interstate Commerce
Commission (ICC) provided for
inclusion of the Erie Lackawanna in the
expanded N&W. At EL's insis-
tence, the ICC ordered the N&W in
June 1967 to include EL, Delaware &
Hudson and the Boston & Maine
(B&M) in its galaxy of subsidiaries. (The
B&M later decided not to enter.)
Then on March 27, 1968, the Supreme
Court of the United States upheld the
ICC's position. There was rejoic-
ing in Cleveland but none in Roanoke.16
13. Interview with Milford M. Adams,
Perry, Ohio, 18 March 1988, hereafter cited as
Adams interview; Shoemaker interview;
Interview with Gregory W. Maxwell, Moreland
Hills, Ohio, 19 February 1988, hereafter
cited as Maxwell interview; Wall Street Journal,
12 February 1962; McInnes interview.
14. Interview with Robert G. Fuller,
Singer Island, Florida, 26 December 1989, hereafter
cited as Fuller interview; 1966
Annual Report, Erie Lackawanna Railroad Company (1967),
3-5.
15. Maxwell interview.
16. 1967 Annual Report, Erie
Lackawanna Railroad Company (1968), 3-4; Fuller inter-
Erie Lackawanna 11
Norfolk & Western control began on
April 1, 1968. Rather than ab-
sorbing Erie-Lackawanna, the N&W
used a holding company, Dereco, to
protect itself in case of an EL failure.
Dereco, this wholly-owned sub-
sidiary of the N&W, took
Erie-Lackawanna Railroad and merged it into
the Erie Lackawanna Railway. This cost
the N&W about $50 million. Yet
no cash was involved; "it was a
paper deal." The N&W gave EL investors
Dereco preferred stock which it agreed
to exchange after five years for div-
idend-paying N&W common stock.
"It was a good deal for holders of EL
securities," remarked an Erie
Lackawanna financial officer; "after-all, they
owned a railroad with no earnings."17
Immediately, Norfolk & Western
President Herman Pevler sent his able
senior vice-president, John
"Jack" Fishwick, whom he despised and
feared, to Cleveland to head the
"booby prize." Fishwick became presi-
dent of Dereco while Gregory Maxwell
remained as head of Erie Lack-
awanna.
Jack Fishwick labored hard for Norfolk
& Western. Even though he con-
sidered his new job as "almost
impossible since the likelihood of doing
anything with the Erie was slight"
and he did not wish to leave Roanoke
for Cleveland-"I felt that I was
being sent to Siberia," he knew that a good
performance would advance his career at
the parent company. (He was cor-
rect about the potential rewards of his
"high-risk assignment;" he became
president of N&W in 1970 after he
led a successful coup against Pevler.)
Luckily for Fishwick, he got off to a
good start. The EL showed a slight
profit for the first quarter, but as he
recalls, "this figure was really a mat-
ter of luck." For the "Erie
Lack-of-Money" was in his opinion "unprof-
itable and wouldn't ever be made so.
There was too much trackage in the
East."18
The arrival of Jack Fishwick and several
talented associates from Nor-
folk & Western, "the Virginia
Mafia," boosted morale in Cleveland head-
quarters and throughout the railroad.
The company, nonetheless, slipped
badly in the early 1970s. Even though
Erie Lackawanna generated a net
income of $1,259,000 in 1969, it lost
$10,890,000 in 1970; another
$2,247,000 in 1971; and generated a
whopping $16,292,000 deficit be-
tween January 1 and June 26, 1972. (The
latter includes $5.4 million
caused by Hurricane Agnes in June 1972.)
"The balance sheets hemor-
rhaged red ink as revenues
dropped."19
view.
17. Interview with Isabel Hamilton
Benham, New York, New York, 6 June 1989; Inter-
view with John P. Fishwick, Roanoke,
Virginia, 9 May 1989, hereafter cited as Fishwick in-
terview.
18. Fishwick interview; Maxwell
interview.
19. 1972 Annual Report, Dereco, Inc. (1973),
3, 5; 1972 Annual Report, Erie Lackawanna
12 OHIO HISTORY
Admittedly Agnes, an unusually intense
storm which blew out of the
Gulf of Mexico and dumped record
rainfall throughout much of New
York's Southern Tier and adjoining
areas, axed Erie Lackawanna. The
company sustained damage to 375 miles of
trackage; especially hard hit
was its main line between Owego and
Salamanca, New York. Crews
worked continuously for twenty-one days
to restore service, and the price
was high: extra wages, lost revenues,
and the cost of rerouting traffic. This
was too much. The EL did not wait for
waters to drain completely from
its flood-ravaged arteries before it
filed for bankruptcy.20
Had the heavens not opened over New York
and Pennsylvania in June
1972, the Erie Lackawanna would
undoubtedly still have failed. Several
forces worked against the road's
success. One involved loss of consider-
able traffic through the Maybrook, New
York, "gateway." For decades the
Erie and then the EL interchanged
hundreds of cars daily with the New
York, New Haven & Hartford (New
Haven) for delivery to and from
Boston and other southern New England
destinations. Recalls Gregory
Maxwell: "On Day 1 of the Penn
Central merger [February 1, 1968], the
company [Penn Central] sent an Assistant
General Manager to New
Haven from Philadelphia to destroy the
connection at Maybrook." He did
his job effectively. "With the slow
down policy of the PC, it might take a
week for the cars to arrive [in
Boston]." Before this happened, cars from
the EL would reach Maybrook at eight or
so in the morning and then be
in Boston that evening. Of course, Penn
Central did not want to "short-
haul" itself; it sought to move
traffic from Chicago and other midwestern
points to New England entirely over its
own rails, namely the former New
York Central to Albany and the former
Boston & Albany, an NYC affil-
iate, to Boston. The impact of the
slowdown was staggering: the EL ex-
perienced a decline of 34,000 cars in
1969 with a loss of $9.5 million of
gross revenues; 22,900 cars in 1970 and
an $8.3 million decline of gross
revenues; and 16,925 cars in 1971 and
$4.8 million in losses. In Decem-
ber 1969 the company won an order from
the ICC to restore service and
made a second complaint in May 1970 when
little improvement had oc-
curred. Because EL accepted conditions
of the Penn Central merger of
1968, it could not appeal to the federal
courts; it was stuck with the reg-
ulatory process. Eventually the ICC
reopened the gateway but permanent
damage had been done; shippers seemed
leery of using the old Erie-New
Haven route and for good reason.21
Railway Company (1973), 2-3; Interview with Richard H. Hahn, Cleveland, Ohio,
32 March
1989, hereafter cited as Hahn interview.
20. Minutes of the Board of Directors,
Erie Lackawanna Railway Company, 26 June 1972,
59-60, EL papers.
21. Maxwell interview; 1970 Annual
Report, Dereco, Inc. (1971), 5-6; 1971 Annual Re-
port, Dereco, Inc. (1972), 6.
Erie Lackawanna 13 |
Government's fostering of what business historian Albro Martin has la- beled "Enterprise Denied" seemed ubiquitous. Like all Class I roads, with exception of the Florida East Coast after 1963, labor costs adversely af- fected the Erie Lackawanna. During the 1960s the company made little headway against "full-crew" laws in New York, Ohio and Indiana. (In the latter state, an EL freight train needed a six-person crew if it were longer than seventy cars.) And, too, the railroad was still required to have fire- men on diesel locomotives. When "featherbedding" was coupled to in- dustry-mandated wage increases and an employee protection agreement as a condition of the N&W inclusion case, which meant life-time tenure after 1968, the company lost even more money. As Maxwell argues, "La- bor was bleeding us dry." Even the former general chairman of the Broth- erhood of Locomotive Engineers agrees: "I'm sure that wage and protec- tion agreements severely hurt the carrier, but they were legally ours to have."22 The federal government, most of all, continued to foster highway ex- pansion. By the early 1970s the network of interstate highways, created
22. Maxwell interview; Interview with J. D. Allen, Cleveland, Ohio, 10 May 1989. |
14 OHIO HISTORY
by the Federal-Aid Highway Act of 1956,
covered New York, New Jer-
sey, Pennsylvania, Ohio, Indiana and
Illinois like a morning dew. Truck
tonnage increased and railroad freight
traffic dropped. Revenue carload-
ings in the Eastern District of the
nation, for example, fell from 10,071,261
in 1970 to 9,009,574 by 1972, and
similar data from the EL reflected this
downward trend.23
There is usually the expectation that a
railroad bankruptcy will give way
to a re-energized company. In the case
of the Erie this had been so after
its reorganizations of 1861, 1878, 1895,
and 1941. Yet the failure of Erie
Lackawanna in 1972 did not hold as much
promise, although management,
especially Maxwell, and the road's two
trustees felt during the latter half
of 1972 and much of 1973 that it might
be possible to restructure this Ohio-
based carrier. The Norfolk &
Western, though, did not care. It was de-
lighted to "get out from under the
Erie." N&W may have lost its invest-
ment in Erie Lackawanna Railway through
Dereco, but it "made a damn
lot of money with the tax losses,"
in excess of $100 million and possibly
as high as $150 million.24
The reorganization process started
auspiciously. The judge named to
oversee the bankruptcy was Robert
Krupansky of the Northern District of
Ohio. He was bright, honest and a
"workaholic;" moreover, he had served
earlier in his legal career as trustee
for the reorganization of a midwest-
ern brokerage firm. "I knew
something about business bankruptcies." But
Judge Krupansky admitted that this was a
"highly complex" case, and so
he sought counsel from judges involved
in the now fallen Penn Central,
Reading, and Lehigh Valley railroads.
Judge Krupansky grew close to John
Fullam, judge in the Penn Central case.
"He acted as my adviser." Judge
Krupansky quickly decided that the
trustees (two or possibly three) must
possess extraordinary business skills
and financial connections. "I want-
ed qualified people and ideally ones who
had a positive reputation in the
financial world. This was a national
case with major national significance."
Fortunately, he located two top-notch
Clevelanders, Thomas Patton, re-
tired chairman of the board of Republic
Steel Corporation, and Ralph
Tyler, Jr., retired chairman of the
board of the Lubrizol Corporation. As
the judge later reflected, "I had
two big-league businessmen with nation-
al connections." More exactly what
he had were two trustees who com-
plemented each other superbly: Patton
was an able businessman and civic
leader and Tyler was "a lawyer's
lawyer." They, together with Gregory
Maxwell, made an exceptionally strong
team.25
23. Yearbook of Railroad Facts (Washington,
D.C., 1973), 25.
24. Fishwick interview; Interview with
Harry G. Silleck, Jr., Cleveland, Ohio, 19 Octo-
ber 1988, hereafter cited as Silleck
interview.
25. Interview with Robert Krupansky,
Cleveland, Ohio, 21 February 1989, hereafter cit-
Erie Lackawanna
15
Trains continued to run and the overall
quality of service remained sur-
prisingly high. The company ordered
twenty-six 3600 horsepower loco-
motives and leased or rebuilt additional
rolling stock, although it experi-
enced a critical shortage of all types
of freight cars and trailers. "An
estimated $17 million of revenues were
lost due to these shortages dur-
ing [1973]," stated that year's Annual
Report. While Erie Lackawanna
lacked funds for an adequate rail and
tie replacement program, it made
some track improvements. Remembers
Joseph Neikirk, the road's vice-
president for operations, "We
bought a lot of ballast!" Trains generally
moved at speeds of 45 to 50 mph; the
Erie had been a 60 mph freight hauler
during the 1940s and 1950s. Still the
company enjoyed a coveted contract
with United Parcel Service, like the EL,
a consumer-oriented concern.
"UPS liked the schedules, even
though the Erie was no speedway." And
the EL wisely expanded its intermodal
operations. Railway Age reported
in an October 1974 feature story,
"EL: A Winning Strategy Against Long
Odds," that "EL
trailer/container volume in 1973 was not just up, it was
up to a record-high of almost 190,500
units. EL intermodal revenues were
not just up, they were up to a
record-high of more than $46 million." Thus
for the latter part of 1972 and 1973 the
company operated on a positive
cash-flow basis: its power to generate
revenues ($289,379,364 in 1973)
and the court's prohibition of payments
of property taxes and interest on
its debt made this possible.26
While piggyback service became nearly
twenty percent of Erie Lack-
awanna's total revenues in 1973, other
bright spots on the traffic front were
not apparent. Economic conditions
worsened in the nation and through-
out the EL's service territory in 1974
and 1975. Double-digit inflation that
came in the wake of the Arab oil boycott
of 1973, a nationwide recession,
and the accelerating decline of
"smoke-stack" industries, especially in the
steel-producing Mahoning Valley, once
called the "breadbasket of the
Erie," damaged earnings. The
question most commonly being asked
among senior management on the
thirteenth floor of Cleveland's Midland
Building was "What should Erie
Lackawanna do?"27
The railroad was not alone with
concerns about the future. Carriers in
the Northeast were rapidly declining;
indeed, the region by the early 1970s
had become a railroad graveyard.
Casualties included the Central of New
Jersey in March 1967; the Boston &
Maine in March 1970; Penn Central
ed as Krupansky interview; Interview
with Thomas Patton, Cleveland, Ohio, 7 February 1989,
hereafter cited as Patton interview.
26. 1973 Annual Report, Erie
Lackawanna Railway Company (1974), 4-5; Interview with
Joseph Neikirk, Norfolk, Virginia, 16
May 1989; "EL: A Winning Strategy Against Long
Odds," Railway Age, 175 (28
October 1974), 24, 26, 29.
27. Maxwell interview; Hahn interview.
16 OHIO HISTORY
in June of that year (America's greatest
business failure); Lehigh Valley
a month later; Reading in November 1971;
and the Lehigh & Hudson Riv-
er in early 1972. This obvious crisis
worried more than railroad managers,
workers and investors; it prompted
politicians to act, "but not until these
dead dogs were dropped on the doorsteps
of the federal government."
There existed widespread fear of the consequences
of a court-threatened
liquidation of Penn Central. Some
troubled carriers, however, already had
received assistance from both state and
federal authorities; EL, for one,
had forced New Jersey to assume the
principal costs of its highly unprof-
itable commuter service in the
mid-1960s, and it benefitted from passage
of the Emergency Rail Facilities
Restoration Act in 1973, which provid-
ed generous loans to repair roadways,
structures and equipment damaged
by Hurricane Agnes. But massive infusions
of funds, whether direct
grants, guaranteed loans or a
combination of the two, were needed ur-
gently. After considerable debate,
Congress passed in late 1973 the Re-
gional Rail Reorganization Act of 1973
or 3R Act. In order to conduct the
planning process necessary to aid the
bankrupts, the measure created the
United States Railway Association
(USRA). Thus the process began that
led to formation of the quasi-public
Consolidated Rail Corporation, Con-
rail, in April 1976.28
Since Erie Lackawanna decided to
reorganize in the traditional fashion,
it rejected participation in the
Northeast railroad reorganization under the
3R Act, and the court agreed on April
30, 1974. Recalls Judge Krupansky,
"A successful reorganization was initially
in sight." Instead, the EL and
also the Boston & Maine attempted to
reorganize on an income basis un-
der Section 77 of the Bankruptcy Act;
the other bankrupts, however, will-
ingly accepted inclusion in some future
type of Conrail system.29
Although the United States Railway
Association worried about how rail-
roads in the Northeast might be
restructured without Erie Lackawanna, its
concerns came to naught. The
ever-worsening economic climate forced
EL to reconsider. The company suffered a
net income loss of nearly
$17.2 million during 1974, and its
forecasts for 1975 were even more
gloomy. As the road said officially,
"[I]t became obvious that Erie Lack-
awanna would need financial assistance
from the Federal Government to
carry on its operations."
Therefore, on January 9, 1975, trustees Patton and
Tyler asked the USRA for inclusion in
its planning. They decided that their
only recourse was to come under the
government's wing and thus to qual-
28. Saunders, Railroad Mergers, 295-323;
The Great Railway Crisis: An Administrative
History of the United States Railway
Association (Washington, D.C., 1978),
170-211; In-
terview with Albro Martin, Detroit,
Michigan, 27 September 1991.
29. Krupansky interview; Silleck
interview.
Erie Lackawanna 17
ify for funds appropriated under the 3R
Act to keep bankrupt carriers op-
erating while the process of
restructuring continued. Judge Krupansky
agreed.30
The Erie Lackawanna's inclusion in
Conrail required considerable ef-
fort. Since the 3R act had to be amended
to include the EL, trustees turned
to Harry Silleck, a partner of the New
York law firm of Mudge, Rose and
an experienced railroad attorney,
"probably the best in the business," to
draft the necessary legislation. The
enabling measure that he devised said
that "a company in Section 77 could
either reorganize or liquidate its as-
sets, subject to such terms and
conditions that the Reorganization Court
found reasonable." Some opposition
developed. The Department of Trans-
portation objected to the EL trustees
having two chances to make up their
minds and it fussed about the cost of
inclusion. However, public opinion
favored EL's request and Patton and Silleck
worked carefully with Re-
public Steel's lobbyists in Washington
to win Congressional approval in
February 1975.31
The cash-starved Erie Lackawanna soon
received substantial amounts
of federal assistance; the government
provided nearly $50 million between
March 1975 and April 1976. Under Section
213 of the 3R Act, EL got
$27.9 million in outright grants
"to defray certain costs of essential trans-
portation service." And it received
under Section 215 approximately
$10 million, which it also had no
obligation to repay, for maintenance. The
government likewise provided about $11
million to help meet EL's ma-
turing equipment debt.32
While the company got crucial public
monies, the United States Rail-
way Association moved toward formation
of its "Final System Plan." This
document appeared on July 26, 1975, and
included sale of a major segment
of the Erie Lackawanna-about 1,200 miles
of main line from northeast
Ohio to New Jersey-to the Chessie
System; Conrail would acquire the
bulk of the EL' s remaining trackage.
But Chessie did not buy. The inability
of that company to reach agreement with
labor unions over employee pro-
tection prompted it to withdraw from the
scheme in February 1976.33
Until much of Erie Lackawanna entered
Conrail on April 1, 1976, the
trustees and top management considered
several options during 1975 and
early 1976. As Thomas Patton observes,
"Things were volatile during
those months." Initially United
States Railway Association planners liked
30. Financial Reports for Year Ended
December 31, 1975 and Three Months Ended March
31, 1976, Erie Lackawanna Railway
Company (1976), 1-4; Silleck
interview.
31. Interview with Bernard V. Donahue, 9
March 1988, hereafter cited as Donahue in-
terview; Silleck interview; Patton
interview.
32. Silleck interview; Financial
Reports, 1976, 1-3.
33. The Great Railway Crisis, 512-60;
Silleck interview.
18 OHIO HISTORY
the concept of "MARC-EL," an
acronym for Mid-Atlantic Railroad Cor-
poration-Erie Lackawanna. It would
consist of the Central of New Jersey,
Lehigh Valley, Reading and EL, and
seemed viable. Indeed, Charles
Bertrand, Reading's president, became
MARC-EL's great "messiah."
EL liked the idea, too, although Gregory
Maxwell wanted to add Penn Cen-
tral's "Big Four" line from
Galion, Ohio, through Indianapolis to St. Louis.
In reality MARC-EL would become
"Little Conrail" with "Big Conrail"
consisting of the Penn Central (less its
Galion-St. Louis line) and the
Ann Arbor, a mostly Michigan carrier
that had failed in October 1973.
Even though "MARC-EL would have
worked," pressure became great
for "three systems east"
(Conrail, Norfolk & Western and Chessie) rather
than four, and so MARC-EL was stillborn.34
A less likely possibility for a home for
Erie Lackawanna outside of gov-
ernment sponsorship came from the
Atchison, Topeka & Santa Fe. This
prosperous western road had long been
Erie's principal interchange part-
ner in Chicago, and it obviously had a
strong interest in the fate of EL. Ex-
cept for a detailed study, little
happened. "I told John Reed [Santa Fe pres-
ident]," recalls Gregory Maxwell,
"that we were too far along with our
commitment to Conrail." Yet he
added, "I wish that we could have got-
ten together sooner."35
About the same time as the Santa Fe
feeler, an attorney who represent-
ed Nelson Bunker Hunt and William
Herbert Hunt, the colorful Texas oil-
men, contacted EL about
"affiliation with a western carrier." Apparently
the Hunt brothers had become interested
in railroads; they already con-
trolled a shortline in Oklahoma.
Although EL sent an officer to Dallas with
a package of financial data, nothing
materialized.36
Equally ill-fated was a suggestion of
employee ownership. It was "dis-
cussed internally" in Cleveland and
more so among workers in Marion,
location of the company's principal
diesel shops and home of a major yard.
The model would have been the Chicago
& North Western Transportation
Company, which embarked upon an employee
ownership scheme in 1972.
"We had good relations with our
employees," relates Maxwell, "and it
might have worked, particularly at an
earlier point in time." But as an
EL electrician recalls, "I was
afraid it [employee ownership] would go
down the tubes. I wasn't about to invest
any of my money in such a scheme,
although I wanted the company to stay in
Marion." Perhaps Maxwell was
too optimistic.37
34. Patton interview; Maxwell interview.
35. Maxwell interview.
36. Adams interview.
37. Adams interview; Maxwell interview;
Interview with Leonard Kellogg, Marion, Ohio,
12 May 1989, hereafter cited as Kellogg
interview; Marion (Ohio) Star, 16 August 1975.
Erie Lackawanna 19 |
|
The Erie Lackawanna Railway Company disappeared as a railroad on April 1, 1976. It was a sad day, most of all for thousands of dedicated em- ployees. "We didn't want Conrail. We knew that we wouldn't be number one in this arrangement." And they were correct. Workers, particularly those in Ohio, who did not retire or take severance pay, commonly faced relocation to former Penn Central offices and facilities, since "Penn Cen- tral people came out on top with Conrail.... Penn Central's lines, not Erie's, were used by Conrail." For example, the former EL workforce in Marion, numbering about 1,300, declined dramatically, even though em- ployees, civic leaders and others had battled since the summer of 1975 to protect these jobs. Their MONEY (Marionites Opposed to the Negation of the Erie Yards) grass-roots crusade collected thousands of signatures on petitions that opposed any downgrading, but it found few supporters outside the community.38 Fortunately, the world did not end for those associated with this "fall- en flag." Employees who had worked for Erie Lackawanna at least five
38. Kellogg interview; Marion Star, 23 August 1975, 6 September 1975, 7 October 1975. |
20 OHIO HISTORY
years kept their jobs, found new ones,
or took cash settlements. And some
bondholders eventually "made a
killing."39
The losers of the Erie Lackawanna's
absorption into Conrail were
those shippers who no longer enjoyed
access to the "Friendly Service
Route." Particularly hard hit were
those along the former Erie in Ohio and
Indiana. Not only did Conrail quickly
end through service between New
York and Chicago, but scrappers
subsequently pulled much of the track.
By the early 1990s the line had become
mostly a memory west of Akron,
although scattered former shippers
retained modest service. These are cus-
tomers of shortlines-for example,
Akron-Barberton Belt Railroad; Ash-
land Railway; and Spencerville &
Elgin Railroad in Ohio, and Tippeca-
noe Railroad in Indiana-that operate
small segments of former Erie
Lackawanna main line.40
The wake of Erie Lackawanna continues.
Likely the outcome, mostly
known, will be one of the most
successful large business liquidations in
the nation's history. Trustees Patton
and Tyler (who died in 1986), their
legal counsel, their remaining employees
and Judge Krupansky effectively
handled a myriad of problems and
details. After protracted and forceful
negotiations, they persuaded the
government to pay more than $350 mil-
lion for property transferred to
Conrail. This was a major victory; the gov-
ernment's initial offer was about $60
million.41
With a favorable settlement with Uncle
Sam, Erie Lackawanna Railway
reorganized as Erie Lackawanna Inc. (EL
Inc.) on November 30, 1982.
Since then this Cleveland-based firm has
gone forward with the process
of liquidation. Sales of track,
equipment and real estate not taken by Con-
rail and other assets, even old stock
certificates, produced considerable
income. These funds have made possible
full payment to taxing authori-
ties and creditors, including secured
bondholders. Remaining monies ei-
ther have or will go to EL Inc.
stockholders, former owners of unsecured
bonds. By 1992 the last traces of Erie
and Erie Lackawanna will disappear,
a happy ending to the old "Weary
Erie" and "Erie Lack-of-Money."42
39. Silleck interview.
40. Interview with Harry Zilli, Jr.,
Cleveland, Ohio, 5 April 1989, 12 June 1989; Silleck
interview.
41. Journal of Commerce, 25 April
1983; Donahue interview.
42. Zilli interview.
H. ROGER GRANT
Erie Lackawanna: An Ohio Railroad
The Erie Railroad possessed a strange
past. In the nineteenth century it
could claim to be an unusual road. For
one thing, it was America's first
long-distance trunk line. Under the
corporate banner of the New York
& Erie Railway, the company in April
1851 completed a 483-mile route
"Between the Ocean and Lakes,"
linking the New York communities of
Piermont on the Hudson River with
Dunkirk on Lake Erie. The railroad
also extolled its distinctive broad or
"Erie Gauge," the impressive six feet
between its iron rails rather than what
emerged as the standard width of
four feet eight and one-half inches.
(Later the company advertised ex-
tensively that because of its uncommon
construction, "[It] ... is select-
ed over and over again for handling
oversize shipments because it is fa-
mous for the highest and widest
clearances of any eastern railroad.")1
But there was a dark side to Erie. Its
building process took nearly a gen-
eration, in part because self-serving
politicians forced it to push through
New York's rugged and sparsely settled
"Southern Tier" of counties. As
a result the road missed direct ties to
the burgeoning cities of New York
and Buffalo and skirted the traffic
centers of northeastern Pennsylvania,
thus weakening its earnings
capabilities. The property was hardly a mod-
el for emulation. In the 1850s it was in
such wretched shape that Edward
Harold Mott, the Erie's first chronicler,
observed that it "became notori-
ous for the insecurity of travel upon
it." When reorganized and revitalized
during the Civil War, the Erie Railway
soon became the "Scarlet Woman
of Wall Street." The unscrupulous
speculator, Daniel Drew, discovered
the company and manipulated its stock.
Then, in 1867, a three-way bat-
tle erupted for control, with interests
represented by the wily Drew; John
Eldridge of the Boston, Hartford &
Erie; and "Commodore" Cornelius
Vanderbilt of the New York Central. Two
other financiers joined the fra-
cas: the resourceful Jay Gould and the
flamboyant Jim Fisk. When the
smoke cleared, Vanderbilt lost, although
subsequent negotiations between
Drew, Eldridge and Vanderbilt produced a
satisfactory compromise agree-
H. Roger Grant is Professor of History
at The University of Akron.
1. Edward Hungerford, Men of Erie: A
Story of Human Effort (New York, 1946), 105-
35; Erie Magazine, 45 (October,
1949), 36.