UTU News Digest - Friday, March 26, 1999

UTU Daily News Digest

Information of interest to operating railroad and transportation employees

Friday, March 26, 1999

WASHINGTON: STB approves CN acquisition of IC

WASHINGTON -- The U.S. Surface Transportation Board (STB) yesterday unanimously voted to approve the merger of Canadian National Railway Co. (CN) and Illinois Central Corp. (IC), a $2.4-billion takeover that would create the first rail network under single ownership linking Canada, Mexico and the U.S.

The 3-0 decision by the STB, which included only minor conditions, sets up a major competitor to the U.S. rail industry's four giants.

The STB has scheduled a final written decision for May 22, which would allow the applicants to begin their combination as planned on July 1, 1999, when a step-by-step integration of the two railroads is expected to start. The two railroads have developed a comprehensive safety integration plan that has been approved by the U.S. Federal Railroad Administration, and implementation teams are reportedly working to ensure a safe, smooth integration process.

The merger proposal was submitted last July by the Montreal-based CN and the Chicago-based IC.

CN had completed its 75-percent cash, 25-percent stock offer for the IC last June, four months after making its bid. As part of the takeover, CN also assumed about $600 million of IC debt.

In its decision, the board refused to block the new railroad's marketing alliance with Kansas City Southern (KCS). But the board said it would oversee the deal for as long as five years to make sure the alliance doesn't lead to collusion, particularly in the area between New Orleans and Baton Rouge, La.

On the labor front, the board gave extra severance protection to any U.S. worker who could lose their benefits if they are unable to transfer to Canada after the merger. U.S. workers who refuse to transfer lose severance benefits, but Canadian labor law makes it difficult -- at best -- for a U.S. employee to go to Canada.

The board also imposed standard severance conditions on U.S. workers whose jobs might not be transferred to Canada and required that CN-IC consult with the Federal Railroad Administration to assure that there are no adverse safety effects if jobs move to Canada.

Labor effects appeared to be modest, since the total job loss of 311 positions was expected to be exceeded by creation of 384 jobs within three years. Approximately 140 employees will have to relocate under the merger plan.

The STB imposed several small restrictions on the merger. CN must give KCS access to three customers in Geismar, La., a major chemicals-producing center. The STB denied a request by CN, IC, KCSR and a KCSR subsidiary for the removal of certain trackage rights limitations at Springfield, Ill., requiring the merged companies to maintain the Chicago link with a rail subsidiary of Canadian Pacific Ltd. to help move grain shipments.

The board also did not impose as a merger condition the agreement between CN-IC and the National Industrial Transportation League, which was intended to preserve future competitive options for shippers and keep a lid on rates. The carrier-shipper deal still will take effect because it has the force of a contract, the agency said.

The board also won't force the new company to sell off its half interest in a key rail tunnel between Windsor, Ontario, and Detroit, but said it will monitor management of the tunnel to make sure that CN doesn't block either efficient operations or proposed improvements. CN's rival, Canadian Pacific Railway (CP), and a new company called Ontario Michigan Railroad, had tried to force divestiture of the international tunnel jointly owned by CN and CP.

In essence, the vote also rejected arguments by the Union Pacific Railroad (UP) that the alliance was a three-way merger in disguise.

Shares of CN stock surged with the news that the proposed merger had gained STB approval. Its stock rose C$2.30 to C$82.90 on the Toronto Stock Exchange and were up $0.38 at $54.75 on the New York Stock Exchange on Thursday.

"The board is presented today with another pro-competitive transaction," said Linda Morgan, the STB’s chairwoman, who added that it "offers clear transportation benefits with minimal adverse consequences."

CN operates 15,300 route-miles of track in eight Canadian provinces and six U.S. states. It is North America's only transcontinental railroad, and Canada's largest railway, serving all five major Canadian ports on the Atlantic and Pacific Oceans and the Great Lakes.

The IC operates 3,370 route-miles of track running north-south from Chicago to the Gulf of Mexico, and east-west between Chicago, Iowa and Nebraska.

Last April, CN and Illinois Central concluded a key 15-year marketing alliance with Kansas City Southern Railway Co. Under the pact, the companies will coordinate sales, and marketing, operations, fleets and information systems, but not traffic movements where any two of them provide the only direct service.

Thus allied, CN’s 18,670-mile network is poised to capture rapidly growing freight traffic generated by the North American Free Trade Agreement, with tracks stretching from Halifax, Nova Scotia, and Vancouver, British Columbia, to Mexico City.

The company hopes to tap commerce among the three countries, with goods shipped by rail valued at more than $70 billion annually and growing 10% to 12% a year. Among the products transported by rail in the tri-national trade are automobiles, grain, fertilizer, chemicals, lumber and international cargo carried in truck-size containers.

"This is turning Canadian National into a true North American company," said Paul Tellier, CN’s president and chief executive officer. The new network "can provide a very efficient competitive alternative" to the four U.S. railroad giants.

In particular, CN will be competing with UP. and BNSF while seeking to grab business from trucks, which are more expensive to use than railroads and are often delayed at U.S.-Mexico border crossings by traffic. Trucks move about 70% of goods between the U.S. and Mexico, for instance, with railroads claiming 13%.

"The merger of CN and IC is the best possible outcome for IC's stakeholders," said IC President and Chief Executive Officer John D. McPherson. "I have every confidence that the two carriers will deliver the product customers tell us they want: A consistent, predictable rail service that allows them to compete effectively in North American and global markets."

The STB said the merger will mean savings of about $100 million annually for the combined company, mostly because of the more efficient use of equipment and crews.

CN projected revenue growth of $217 million from carload traffic diversions, while KCS and its affiliates were expected to add $84 million in revenue. CN expects an additional $30 million in intermodal revenue resulting from truck and port diversions.

UP was the largest projected loser at $165 million, followed by Burlington Northern & Santa Fe Railway at $54 million, and other large North American carriers at approximately $20 million apiece.

The focus on the North-South trade is a historic shift for U.S. railroads, most of which grew up hauling goods between the East and Western frontiers. The recent round of U.S. mergers also focused largely on cargo going from coast to coast, including UP’s $3.9 billion takeover of SP and BN's $4 billion acquisition of the Santa Fe Pacific Corp. (SF).

The STB’s vote marked another step toward the conclusion of a round of major mergers among North American railroads. That trend began in 1995 with the merger between Burlington Northern Railroad (BN) and Atchison, Topeka & Santa Fe Railway (SF), advanced in 1996 with UP’s purchase of Southern Pacific Lines (SP), and continued with last year's acquisition of Conrail Inc. by Norfolk Southern Corp. (NS) and CSX Corp.

No further rail mergers are pending before the agency.

ILLINOIS: State can’t withhold truck driver’s license

SPRINGFIELD, Ill. -- As federal investigators begin to re-interview three witnesses to last week’s deadly Amtrak crash in Illinois, Illinois Secretary of State Jesse White said state law would not allow him to withhold the drivers’ license of he man blamed for causing the train crash near Bourbonnais.

According to reports, White said that he has "very serious problems" with the driving record of John Stokes, whom investigators say may have been trying to go around a railroad crossing when his steel-hauling rig was struck by the passenger train, causing the derailment.

White notes court supervisions given to Stokes were never reported to the secretary of state's office, resulting in him being issued a commercial driver's license.

"Quite frankly, if the choice were mine, I would not return the CDL until local authorities have completed their report in Kankakee County on the tragic accident that occurred there," White said.

"However, there is no basis in state law which allows me to hold the license," said White, adding he is creating a task force to determine how Illinois laws can be strengthened with regards to the issuance of commercial truck driving licenses.

Stokes, 58, of Manteno, has told investigators he was already on the tracks when the gates began lowering, and claims he never saw the train. He was driving on a restricted license because of a series of moving violations in Indiana.

Republican lawmakers in Illinois are asking the state’s General Assembly to boost the penalties for people who cause accidents by knowingly ignoring railroad crossing warning gates.

Six GOP Illinois House members yesterday said they were crafting an amendment that would make a motorist guilty of reckless homicide if people are killed in such an accident. The amendment is to be added to a bill to be considered by the House before their legislative deadline today.

A conviction would carry a prison term of up to seven years, unlike most reckless homicide cases that are punishable by up to five years in prison.

The measure is the second legislative proposal in Illinois this week inspired by the Amtrak derailment that killed 11 people. Two state senators have asked the General Assembly to create a bond program providing up to $50 million annually to improve safety at railroad grade crossings across the state.

Meanwhile, Bob Lauby, the head of the National Transportation Safety Board's (NTSB) rail division, said yesterday that investigators' initial report on the eyewitnesses did not reconcile the inconsistencies of their testimony to his satisfaction.

He said it is not clear whether they have slightly different stories, which he would not detail, because they did not see the entire incident, they have incomplete memories or some other reason.

A key question is whether the driver of the steel-laden tractor-trailer that the train hit 50 miles south of Chicago, killing 11, started into the railroad crossing after warning lights had started to flash.

An attorney for truck driver John R. Stokes has said his client did not cause the March 15 crash by attempting to go around the crossing gates and beat the oncoming train. But NTSB Chairman Jim Hall told a Senate panel looking into the accident that evidence suggests the truck driver did try to cross when the lights were flashing.

"We believe that the information and data we've collected so far tells a different story" from that of the driver, Hall said Thursday.

Hall also said a key part of the investigation will focus on whether Stokes' employer, Melco Transfer Inc., adequately monitored his driving record before allowing him to stay on the road. Ken Wykle, head of the Federal Highway Administration, said it appeared the company met all federal requirements.

The crash is renewing an old debate in Washington over what can be done to keep vehicles out of the nation's 259,000 grade-level railroad crossings, where most train accidents and fatalities occur.

Of all the options discussed before the Senate Transportation subcommittee on surface transportation, one given the least attention is the one many believe is the most foolproof way to reduce accidents: spending the enormous sums needed to either eliminate crossings or add high-tech improvements that make it virtually impossible for cars to get around gates.

Instead, talk focused on drivers' responsibility to obey warning signs, increasing penalties for those who don't, adding enforcement tools such as cameras and encouraging efforts to educate the public about the dangers of crossings.

Wykle said the Federal Highway Administration is ready to issue tough new penalties for truck drivers who violate federal rules about how to drive through a rail crossing. In the works for a year and expected out within a few months, the new regulations would suspend the licenses of first-time violators for two months. Fines would range from $2,500 to $10,000.

Separate rules penalizing such truck drivers' employers are being considered.

Federal Railroad Administration head Jolene Molitoris heralded a test of photo enforcement at California railroad crossings that has reduced collisions by 72 percent.

The agency's goal is to reduce the number of U.S. crossings 25 percent by 2001.

TEXAS: Single-car Amtrak derailment under investigation

SAN ANTONIO, Tex. -- A single dormitory car that was part of a slow-moving Amtrak train derailed yesterday morning in an industrial area south of San Antonio’s Brackenridge High School.

The passenger train was switching tracks at about 4 a.m. when a set of wheels -- called a truck --left the track. The car, which houses sleeping quarters for the crew, remained upright.

"The train was going 4 mph," station manager Mike Evans said. "What caused it, I don't know yet. There were no injuries, no damage - just an inconvenience."

The cause of the incident remains under investigation.

The double-decker train was the Sunset Limited, traveling from Los Angeles to Florida. It was about a mile shy of the San Antonio station when the car derailed. The train left the city about 10:30 a.m.

The incident took place on track belonging to the Union Pacific (UP), where a crew was repairing the track yesterday morning with jackhammers and heavy metal calibration devices.

NEW JERSEY: Teen gets probation in train incident

HAWTHORNE, N.J. -- A 17-year-old Hawthorne youth was sentenced Thursday to a year of probation and 150 hours of community service for his role in placing a cinder block in the path of a commuter train last fall.

After the teen and a second boy placed the block on the tracks last September in Hawthorne, a NJ Transit passenger train rolled over it, smashing the block. No one was injured, and an expert testified that there was never a risk of derailment.

The second boy, 16, was found guilty of a more serious offense because he placed a large boulder in the path of a Conrail freight train earlier that day. The locomotive's fuel tank struck the rock and was punctured, spilling about 1,000 gallons of diesel fuel. Train service was delayed for three hours, and the cleanup cost more than $10,000.

Last month, the 16-year-old was found guilty in juvenile court of criminal mischief and causing or risking widespread injury or damage. He is scheduled for sentencing in two weeks and faces up to two years in a juvenile detention center.

The 17-year-old was found guilty of disorderly-persons mischief -- a lesser charge -- because the state did not prove a specific dollar amount of damage to the train. The teen could have received the maximum sentence of six months in the state detention center in Jamesburg.

At sentencing, the boy told family court Judge Stephen H. Womack that he was sorry and that he was glad no one was injured in the incident.

As part of the sentence, Womack ordered the teen to take a course on train safety and vandalism taught by Conrail or NJ Transit.

"This type of action served no purpose, and there was no reason for these kids to do these things," said Passaic County Assistant Prosecutor Paul De Groot. "Someone could have been hurt if the rock had been kicked up into a window. I think the decision showed that this type of action will not be tolerated."

De Groot has said he will seek a harsher sentence for the second teen because of the amount of damage caused by the boulder.

PENNSYLVANIA: SEPTA issues Y2K readiness report

PHILADELPHIA -- The Southeastern Pennsylvania Transportation Authority (SEPTA) yesterday issued a release indicating that nearly 80% of preparations needed to ensure a smooth transition into the new year have been completed.

The agency is working to ensure that no problems related to computer systems confusing the year 2000 with the year 1900 occur.

SEPTA issued the following statement:

"SEPTA ranks Year 2000 readiness among its highest operational and financial priorities. A team of staff professionals, assisted by external experts, has been working diligently to ensure that critical functions operate continuously and unimpeded into the new year. The team has conducted an inventory of all date-sensitive automated systems throughout the Authority, evaluated their impact on the day-to-day operations, and has been actively engaged in any necessary solution-based activities.

"As of this month, 79% of all the work needed to finish the project has been completed. To date, 56% of all the systems (354 total systems) identified at SEPTA as being date-sensitive have been certified as Year 2000 compliant. Most importantly, 52% of SEPTA systems classified as "critical" to the daily operation -- including safety-sensitive, transportation-related operating equipment and financial control and collection mechanisms -- have been certified as compliant. The Authority is budgeted to invest approximately $5.7 million to achieve Year 2000 readiness. About $3 million has been spent to date.

"Based on the Authority's level of compliance as defined by the federal government, SEPTA's goal is to enter the new year without any interruption of customer service. To date, the Authority's Year 2000 readiness efforts have been presented and reviewed by federal transportation authorities and found to be on target. As a precaution, contingency service plans are being assembled since SEPTA operations are so dependent on external suppliers. These suppliers are required to submit to SEPTA their own Year 2000 compliance certificates, but SEPTA is still preparing for any eventuality. However, SEPTA believes citizens can plan with confidence to ride its buses, trains, and trolleys into the next millennium."