Monday, Feb. 25, 1974

The Green Giant

"Railroads," says Louis W. Menk, "are a growth industry." As chairman of Burlington Northern Inc., the nation's biggest railroad, he might be guilty of some slight bias, but his opinion is widely shared in financial circles. The oil shortage has made coal critically important as an alternative energy source, and most coal moves by rail. Shippers of other goods are beginning to realize that freight trains consume only about one-fourth as much energy per ton-mile as trucks do. And the Nixon Administration's newly proposed Transportation Improvement Act would protect railroads from discriminatory local taxation and make it easier for them to raise their rates--provisions that would dramatically improve the industry's profitability.

No railroad better illustrates both the potential and the problems of cashing in on it than Menk's Burlington Northern. It was formed four years ago by the merger of two Minnesota-based railroads, the Northern Pacific and the Great Northern, and two smaller lines they controlled jointly. The company's distinctive green cars now run over more than 25,000 miles of track from Chicago to Vancouver, British Columbia.

Three of the U.S. states in between, Wyoming, Montana and North Dakota, contain the bulk of the nation's coal reserves. In addition, Burlington Northern owns 2.4 million acres of timber and farm land in the Great Plains states and has mineral rights to another 6.1 million acres. Those rights, granted by Congress and state legislatures in the 19th century, have endowed the railroad with coal reserves of some 11 billion tons, or about 18 times more than all the coal mined last year in the U.S.

Name Problem. Yet somehow Burlington Northern has not so far made much money out of this bonanza. Operating revenues have climbed 31% since the merger, to $1.3 billion last year and net operating income has jumped 74%, to $108 million. But the firm's railroad operations are still only marginally profitable. Since the merger, Menk has managed to reduce the firm's payroll by 8% and retire 8,000 obsolete cars. But total labor costs have gone up 48%, and Burlington Northern has lacked the capital to buy enough new equipment to handle increased traffic. Last year the company's own Plum Creek Lumber Co., in Montana, had to ship some of its output by truck because there were not enough B.N. freight cars around.

Officials expect to spend at least $139 million this year to buy new rail equipment and expand the line's timber and mining operations. Coal-hauling revenues are expected to jump by at least 27%. B.N. officers announced last week that they are planning commercial and residential real estate developments for as many as 23 company-owned tracts in various cities and suburbs, including a half-billion-dollar "new town" complex along the Mississippi River in Minneapolis.

One special problem that Burlington Northern faces is public unfamiliarity with its name. Not long ago, a secretary asked Menk for a sample of one of its products. She had in mind pantyhose produced by Burlington Industries, the totally unrelated giant of the textile business. In order to clear up the confusion, Burlington Northern has spent $1.5 million on network television advertising and has produced a documentary film on railroading. The film seems to be a success: it has been playing in such commercial theaters as Manhattan's Radio City Music Hall and a Freehold, N.J., moviehouse, where it was part of a double bill with Deep Throat II.

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