A Need for Profits

In Williamsport, Pa., one day last week, two diesel locomotives hummed slowly toward each other. When they were close enough, smiling crewmen leaned across the gap and shook hands. Trainmen from the Pennsylvania Railroad and the New York Central were plainly delighted that after a decade of proposition and opposition their lines had finally been formally merged with the permission of a federal court in New York. As far as the railroads were concerned, it was about time.

The basic premise behind the merger is that it will yield greater efficiency--and therefore higher profits. Those profits are desperately needed. Stuart Saunders, who became chairman and chief executive of the new Penn Central (TIME cover, Jan. 26), recently reported that the Pennsy's operating earnings for 1967 were off 68.7%, falling from $45,055,320 in 1966 to $14,091,593. Consolidated earnings, which covered non-rail activities, brought the total to $60,344,240, a drop of 33.2%. In the ailing railroad industry, that was not bad at all--and it seemed almost good compared with the Central's performance.

Delivering a final report on the New York Central, Alfred E. Perlman, now president and administrative head of the Penn Central, announced that railroad operating earnings in 1967 plunged from $43,554,927 to $1,233,610--a full 97%. Even with subsidiary endeavors counted, the Central's profits went from $60,215,400 to $10,996,000--an 81.7% dropoff.

Expenses for the combined railroads are not likely to fall quickly. The bill for consolidating track and freight yards will amount to millions. And the Penn Central has also promised a $25 million loan to the New Haven Railroad to bail out its money-losing passenger services until the merged roads include the New Haven in their system. But eventual savings from joint operations may reach $100 million a year. And additional revenue sources are being tapped. Last week Perlman announced that a lease agreement had been signed with a British investment group which plans to build an office building over the Grand Central Terminal in New York. The lease for the building will return $3,500,000 a year in rent to the railroad.

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