UTU News Digest - Tuesday, November 2, 1999

UTU Daily News Digest

Information of interest to operating railroad and transportation employees

Tuesday, November 2, 1999

NEBRASKA: No Headquarters plans yet for U.P.

OMAHA -- Union Pacific Corp. executives haven't changed their views on the possibility of building a new headquarters in downtown Omaha, despite the company's improving financial performance, the Omaha World-Herald reported.

"It's something that we continue to look at," said Dick Davidson, the company's chairman and chief executive. "If it works out that it has a reasonable economic benefit, we would consider it. It's something that we've been studying lately."

The company has workers in 10 different Omaha office buildings because its headquarters at 15th and Dodge Streets can't hold them all.

City and business leaders talked with Davidson three years ago about a new building as part of a redevelopment plan north of Douglas Street, but at the time, Union Pacific executives were focused on the company's acquisition of Southern Pacific Corp.

Davidson said Union Pacific's financial recovery doesn't change the fact that its primary focus is running its railroad, and that's where its financial resources will be concentrated.

WASHINGTON: FRA collected $6 million in civil penalties

WASHINGTON --U.S. Secretary of Transportation Rodney E. Slater announced in a press release that the Federal Railroad Administration (FRA) has reached settlements of issued orders that will result in the collection of approximately $6 million in civil penalty assessments against the major carriers, shippers of hazardous materials, and small railroads in fiscal year 1999.

"Enforcement of safety regulations provides for public safety, which is President Clinton's highest transportation priority," said Secretary Slater. "These fines represent a significant means that the Administration employs to make the nation's railroad industry the safest it can be."

The settlement total this year, which is substantially more than the totals collected in the previous two fiscal years, includes approximately $4.6 million in fines against the major railroad carriers and approximately $1.4 million against the small railroads and hazardous material shippers.

The FRA issues civil penalties for violations of established safety regulations that involve all areas of railroad safety: track, signal and train control, brake equipment and procedures, locomotive and freight car equipment standards, the transportation of hazardous materials, operating practices, alcohol and drug testing procedures, hours of service, roadway worker protection, locomotive engineer certification, and accident reporting. In most cases, the railroads and shippers subject to the fines agree to pay the civil penalties in lieu of litigation.

In some cases, FRA reduces the initial civil penalty amount in consideration of mitigating factors, such as remedial measures taken by the company to prevent the act from recurring, the relative safety hazard presented in the violation report, the compliance history of the company, and the company's ability to pay the assessment.

"The FRA takes an aggressive but reasonable approach in the enforcement program, focusing on the most serious and persistent safety violations," said FRA Administrator Jolene M. Molitoris. "This approach, combined with our focus on eradicating the root causes of safety concerns, will help us reach our goal of zero tolerance for incidents, injuries and fatalities."

Molitoris said that, although FRA is having great success in improving safety and compliance with the law through partnerships with management and labor in the Safety Assurance and Compliance Program, civil penalties and other enforcement tools are also important to assure full compliance with the law and to make the nation's railroads as safe as possible.

This effort was the result of the work of 16 trial attorneys and FRA safety inspectors and specialists working throughout the United States.

SWITZERLAND -- 2 killed in Swiss train collision

BERN -- Two crowded commuter trains collided Monday outside the Swiss capital of Bern, killing two people and injuring 25, police said.

The Associated Press reported that the accident happened during evening rush hour, when a train leaving Weissenbuehl station for Thun, southeast of Bern, ran into the side of another train entering the station.

The impact derailed two carriages of the incoming train. A four-month-old child and a woman, who were not identified, were killed.

Ten people were taken to Bern's main hospital with injuries, among them the driver of the Bern-Thun train.

The outgoing train left the station on time, even though the signal was still red, railway official Matthias Tromp said.

It was unclear why the train did not wait, Tromp said. The trains were supposed to pass each other in the station.

CALIFORNIA: Transit officials under fire over budgeting

LOS ANGELES--Los Angeles City Council members blasted county transit officials Friday for failing to follow proper procedures in budgeting money for the San Fernando Valley, the Los Angeles Times reported.

The Metropolitan Transportation Authority's inspector general recently found the agency had failed to follow procedures under which all Valley transit money should have been set aside in a special fund.

The amount promised for building the Red Line subway to North Hollywood was in fact spent on the project, according to the report.

"They say that the money was spent appropriately, but the process was deeply flawed," Councilwoman Laura Chick said.

Councilman Hal Bernson said an MTA report found that only part of the money spent in the Valley had been deposited in a special trust fund aimed at making sure principal and interest are reserved for Valley transit.

"The result was OK. The Valley did get the money as far as it went, to North Hollywood," Bernson said. "The problem was the procedure."

COMMENTARY: Who has to pick up the acquisition premium?

WASHINGTON: Some critics of the Norfolk Southern Corp.-CSX Transportation Inc. joint purchase of Conrail Inc. have argued that the two Eastern rail giants paid too much when they coughed up $10 billion in cash to buy the Northeast rail carrier, writes Lawrence H. Kaufman, national transportation correspondent for The Journal of Commerce

Mostly, these critics are customers or their representatives. Their concern is that the only way CSX and NS can ever pay for Conrail will be to raise rates. That concern is growing now that both railroads have released third-quarter financial results showing huge operating expense increases as they struggle to integrate Conrail into their operations.

Washington shipper attorney Michael McBride put it succinctly recently when he said: "I am not saying NS and CSX 'overpaid' for Conrail, nor have I ever argued that. The point is, rather, that they paid an acquisition premium, however folks define that, and it should not be the responsibility of the customers."

To some extent an easy response would be, "That's the cost of doing business." Customers always end up paying rates that cover all the costs of doing business unless a vendor -- in this case NS and CSX -- is pricing to go out of business. (Don't laugh; that's the way railroads were pricing before deregulation.)

The fact is that neither CSX nor NS paid too much. High as it was, they paid exactly what it took to get Conrail. Once CSX started the ball rolling on Oct. 16, 1996, with a cash-and-stock deal for all of Conrail worth about $8.4 billion, the market eventually determined the price.

Norfolk Southern leadership understood exactly what they were facing. If they did nothing, their company would be condemned to being a large regional system that eventually would be overwhelmed by the much larger CSX, which would have a market reach throughout the East that NS could never match.

Further, if NS did nothing, it would lose control over its future when the eventual transcontinental rail merger occurred. CSX would be the object of desire for either of the two big Western systems and whichever one did not merge with CSX would take NS as a second prize.

So NS counterattacked eight days later with a higher all-cash offer for Conrail. After much legal maneuvering and increased bids by both would-be acquirers, sanity was restored. NS and CSX agreed to divide Conrail, with Norfolk taking and paying for 58% and CSX 42%. Combined, they paid $10 billion.

That was the market value of Conrail. It was neither too much, nor too little. It did, however, represent an acquisition premium. Such premiums are common. If they weren't, what incentive would any company have for selling out?

In a competitive environment the acquisition premium would present little or no problem. Customers could take their business elsewhere if a railroad raised its rates beyond a level the customer considered justified by service quality considerations.

As Mike McBride says: "If there were no barriers to entry, and thus competition as with barges, trucks, or airplanes, competition would prevent the customers from paying higher rates to cover the premium."

That's certainly true of intermodal business, where the customer easily can dray containers or trailers to a competing railroad’s terminal. In effect, there are no barriers to entry in intermodal.

The problem lies with carload service, the bulk of rail traffic. Most industries are served by tracks of only one railroad. The Surface Transportation Board, which handles what regulation of railroads remains on the books, has adopted the old Interstate Commerce Commission definition of captivity, under which there are virtually no captive customers.

Regardless of regulatory definitions, most customers do not have a practical alternative to doing business with the railroad that serves their facilities.

The STB is supposed to see to it that rail customers are protected from having to pay acquisition premiums through conditions in merger proceedings for those who would lose competition, or who would otherwise be harmed, as do regulators of other industries.

Merging companies must recover premiums through cost reductions and growth, which is what CSX and NS said they would do when they sought STB approval for acquiring Conrail.

It's hard to find clear evidence of rate increases imposed by NS and CSX, particularly as most freight moves today under contract and details remain confidential. Many, who watch such things for a living, however, say both railroads have raised rates, particularly where the customer has no effective alternative.

Customers -- still called shippers in the arcane world of regulation -- believe the STB has not held Norfolk Southern and CSX to the assurances made in the Conrail case.

WASHINGTON: Teamsters report Overnite admits strike growing stronger

WASHINGTON-- /PRNewswire/ -- As the historic unfair labor practice strike against Overnite Transportation Company enters its second week, reports from around the country demonstrate it is growing stronger by the day. More than 140 Overnite terminals in 39 states are now involved in the strike and Overnite freight is drying up around the system.

"We are winning the war everyday," said James P. Hoffa, Teamsters' President. "We had sought to avoid this but now that it is here, Teamster Locals across the country are responding to the Overnite workers' struggle for justice."

The number of Overnite workers joining the strike has grown to over 2,000. More workers at striking terminals are joining the strike lines in solidarity with their fellow workers. Information from industry sources indicates that Overnite's freight levels have dropped almost 50 percent.

Five Overnite barns have been closed: Little Rock, AR; Milwaukee, WI; New Orleans, LA; Laredo, TX; and Rockford, IL, with many others operating at minimal capacity.

Company officials at Overnite Transportation, on the other hand, offer contradictory assessments of the strike.

For example, Ira Rosenfeld, Overnite's communication director, reported in September that Overnite's freight volume was 40,000 bills a day (1). On October 26, Rosenfeld reported the company making 30,000 (2) bills a day, a plunge of 25 percent.

Additionally, Overnite reports differing levels of participation in the strike by the Overnite workers. Rosenfeld put the figure at 600. Overnite Vice President and General Counsel Mark Goodwin estimated 850 to 900 workers were on strike (3). CEO Leo Suggs reports that there are over 850 Overnite workers on the strike-line at just 16 of the 140 terminals involved in the strike.

Additionally, last week, Overnite Transportation's strike hotline boasted that all Overnite terminals were open and operating. Today, Overnite's hotline lamely told customers that, "Normal operations are expected ... in all GEOGRAPHIC service areas."

ENGLAND: Stagecoach raising funds to refinance Coach USA deal

LONDON -- British transport firm Stagecoach Holdings Plc was raising 700 million pounds ($1.2 billion) on Tuesday towards refinancing the $1.9 billion it paid earlier this year for Coach USA Inc, Reuters reported.

Stagecoach netted proceeds of 389 million pounds from the sale of 260 million shares, which it said on Tuesday were priced at 1.54 pounds apiece, and was due to formally launch a $500 million Yankee bond in the U.S. market.

The total sum paid for Coach USA included $638 million debt. The share issue represented a down payment on that total "and the balance of the bridge borrowings is going to be refinanced through debt markets," said Credit Suisse First Boston, which led the selling group.

Stagecoach bought into the U.S. bus market in the hope of repeating its success in Britain where it has prospered as public transport services have been sold off to the private sector.

CSFB managing director Tom Reid said the Stagecoach story had "gone down well with international investors. This has been reflected in.the broad book of demand from UK and international investors."

Existing shareholders bought 42 percent of the new shares. Around 60 percent of the balance was sold into Britain and 25 percent into the United States, with French and German investors also involved.

New stock is necessarily issued at a discount to the market and the price of the new Stagecoach shares was 10 percent below Monday's 170.25 pence closing level, and 23 percent below the high on September 20 when the share offer was announced.

Holders of the new stock quickly moved to take advantage of the difference and the share price was down 5.4 percent to 161 pence by 0930 GMT, having recovered from a 153.5 pence low. Nevertheless, it was still the biggest loser on the day in the FTSE 250 index of mid-range stocks.

"The book-building was an open price process. We invited bids from institutions at whatever price they wanted to pay for the stock with a view to getting competition going," the syndicate manager said.

"As things have turned out we decided that (154 pence) was the appropriate price." CSFB has an over-allotment option to subscribe for up to 39 million additional ordinary shares at the offer price.

Stagecoach's $500 million 10-year Yankee bond was likely to be priced in the region of 240-250 basis points over U.S. Treasuries, where the 10-year yield was 6.05 percent, dealers said.

Stagecoach was also expected to launch a 300 million euros five-year Eurobond in the near term. After the financial operations Stagecoach's gearing was expected to fall to 140 percent from 280 percent.