Track to Survival

In an era of tough competition and rising operating costs, the road to profitable survival for many of the nation's railroads and some of its airlines is merger. Many leaders in the rail and air fields have long appreciated this fact, and it is becoming increasingly clear that the appropriate agencies of the U.S. Government share their view.

The Interstate Commerce Commission is on record as favoring railroad consolidations in principle--as the best way to meet the powerful competition of trucks for freight, and autos and planes for passengers. Costs can be cut by eliminating duplicate facilities. Last fall the ICC approved a merger of the Norfolk & Western and the Virginian railroads; last March a commission examiner recommended a merger plan for the Erie and Lackawanna roads. Similarly, the Civil Aeronautics Board is moving toward the view that mergers, not subsidies or new routes, are the best way for the airlines industry to meet the formidable problems of new jet-age competition. Both the CAB and the ICC are expected to go along with mergers that make economic sense. Last week six railroads and two airlines (see below) announced merger plans or closer working relationships.

The Chesapeake & Ohio Railway, the nation's biggest soft-coal carrier, offered to buy the stock of the Baltimore & Ohio as "the first step toward merger." The railroads have more than 11,000 miles of track and assets of $2.3 billion, would displace the Southern Pacific in the No. 2 spot, and rank only below the Pennsylvania. Another road deeply interested in the C. & O. merger is the New York Central. It has been talking to the two roads about a three-way merger that would make the biggest U.S. railroad, web the Eastern states with a network touching almost all major cities (see map).

To put through its plan, the C. & O., which is controlled by Cyrus Eaton, Premier Khrushchev's favorite U.S. capitalist, offered to exchange one share of its common stock for each share of B. & O. preferred stock and one share of C. & O. common for each 1 1/2 shares of B. & O. common. The new road would have the prospect of fat profits. Last year, under President Walter J. Tuohy, the C. & O. earned $45.7 million on revenues of $347.6 million, while the B. & O. earned $14.8 million. As a rich dowry, the B. & O. would bring its 42.2% stock interest in the Reading Co., through which it indirectly controls the Central Railroad of New Jersey, and its 43% stock interest in the Western Maryland Railway.

The Atlantic Coast Line announced plans to merge with the aggressive Seaboard Air Line Railroad, thus end a long rivalry. The new road would be called the Seaboard Coast Line, have assets of $900 million and rank tenth among the nation's railroads. Seaboard common stockholders would retain their present shares, which would be equal to one share in the new road. Coast Line common stockholders would receive 1.42 shares in the new company for each share now held. John W. Smith, Seaboard president, would become chairman of the new line and W. Thomas Rice, Coast Line president, president.

The Boston & Maine Railroad took control of the Northern Railroad (N.H.), which it has operated under a 99-year lease since 1890. The Northern, organized in 1844, is an important segment in through routes from Boston to Canada.

Eighteen other U.S. roads are studying consolidation. If last week's deals go through, the other plans are bound to speed up, bring the most drastic changes since World War I when the Government took over the railroads, tried to operate them as one enormous unit. All the new plans made railroad stocks, which have been sliding for months, suddenly look inviting. A burst of buying sent some of the stocks up smartly as investors began looking to the rails as a place for dividends--some are paying 6%--and for long-term capital gains.

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