The Pennsylvania Railroad
"As the early colonists grew in number, their cities expanded and their need for natural resources increased. Foot paths and the early roads were inefficient. New York state opened the Erie Canal in 1825 and in 1828 the Chesapeake and Ohio Canal was started in Maryland. The Baltimore and Ohio Railroad was also begun in 1828. Pennsylvania businessmen and legislators were well aware of their precarious position. They were afraid of loosing out to the people to the North and South of Pennsylvania. They pushed forward with a plan of their own, “The Main Line of Public Works.” This was a system that used a railroad from Philadelphia to Columbia, canal from Columbia to Harrisburg then on to Lewistown and Hollidaysburg. In Hollidaysburg the Allegheny Portage Railroad took over, hauling the canal boats out of the water and onto inclined planes where they hauled the boats over the mountains using a series of 10 inclines to Johnstown. From Johnstown to Pittsburgh the boats were returned to a canal. This system was used a short time because, while regarded as an engineering marvel, it too was inefficient.
The Pennsylvania Railroad Company was the largest of the railroads that connected the East Coast of the United States with the interior. The PA state legislature passed an act incorporating the Pennsylvania Railroad (PRR) on April 13, 1846. They surveyed several routes across the state and decided on a middle option, or the mainline of Conrail/Norfolk Southern today. The PRR purchased much of the earlier canal routes for their rail beds. The railroad moved westward under the leadership of John Edgar Thomson, civil engineer and later, PRR President. The railroad ran along the Susquehanna and Juniata Rivers until it came to the base of the Allegheny mountains at Altoona/Hollidaysburg. The rail route was opened to Pittsburgh for east/west traffic in 1852 and then improved and completed in 1854 with the completion of the tunnels at Gallitzin and the Horseshoe Curve. After buying the Pittsburgh, Fort Wayne and Chicago Railway, the railroad reached Chicago in 1856. The railroad expanded to St. Louis, Mo., and Cincinnati, Ohio, in the west and to New York City, Washington, D.C., and Norfolk, Va., in the south and east, ultimately becoming a 10,000-mile (16,000-kilometre) system. In 1910, with the completion of a tunnel under the Hudson River, it became the only railroad to enter New York City from the south. It also acquired control of the Long Island Railroad Company. When the main line of the PRR was finally complete, it opened the flood gates of economic activity between East and West. The corporate headquarters for the PRR were in Philadelphia and their primary facility for design, maintenance, repair, and construction was in Altoona. Throughout most of its history the Pennsylvania was a prosperous railroad, losing money for the first time in 1946. It suffered from the disadvantage that its route to Chicago had to cross the Appalachians, with grades of greater than 0.5 percent.
The PRR was important in all of our nation’s wars. Many of the PRR administrators served in the cabinet and other areas of Lincoln’s government during the Civil War. Their expertise in operating railroads was important in the outcome of the war. In WWI the federal government took over all the railroads until the war was over. The PRR helped moved many of our troops and much of our equipment and supplies. When WWII started, the federal government didn’t take them over, but they did require that the railroads do all they could to keep the country’s war effort moving. They were not allowed to expand or improve their operations during this time and it hurt the PRR. While other railroads had invested in diesel locomotives in the 1920’s and 1930’s, the PRR stayed with steam because they had done so much research and invested so heavily in steam locomotion. Diesels run more efficiently, require far fewer people to operate and are more cost effective. With the advent of war they were forced to run their steam equipment into the ground while other railroads managed better with diesel engines. When the war was over in 1945 the PRR was in bad shape.
The PRR was the largest railroad and the most successful corporation in world history. They gave a dividend (profit) to their shareholders every year for over 100 consecutive years. No company has ever been able to match this success. For many years the President of the PRR was considered more powerful than the President of the United States. The budget for the PRR was larger than that of the U.S. government and they employed approximately 250,000 workers.
Altoona was built in 1849 by the PRR to service their locomotives as they trudged back and forth over the Allegheny Mountains. Within a few years the facility grew and they went from a maintenance facility to actually constructing the locomotives. In the 1880’s the PRR created a Chemical Testing facility and by the early 1900’s it was the largest, most significant industrial scientific research facility in the world. The PRR became nicknamed the “Standard Railroad of the World” because of its Testing Department. They used scientific principals to determine the most efficient and cost effective means to accomplish their goals. They ran locomotives on a dynamometer, or giant tread mill, with gauges and monitors attached to determine its strengths and weaknesses. They also tested oranges to see which produced the best tasting and highest quantity of juice. The reason was simple, they served orange juice on their dining cars every day and wanted the best. Their research was then published and made available to anyone interested in their work. They invested great sums of money and manpower into this department. As a result of their work, they set the standards for railroading around the world.
The Altoona Works were huge. Over 17,000 people worked in the shops at its peak. In a single day an army of workers in Altoona built 16 box cars, 10 gondolas, 2 cabooses, and 10 freight cars; repaired 4 passenger and 16 freight cars and rebuilt 6-10 steam locomotives. In 1 month they built 20 new steam locomotives. From 1934-1942 the shops turned out 23,000 freight cars and cabooses, equivalent to a 175 mile long train. During the first one hundred years of the PRR there were approximately � of a million freight cars constructed in Altoona and other PRR shops, enough to stretch 1,956 miles, twice the distance from New York to Chicago. Altoona produced 6,700 locomotives, which is over three times the number of stars that can be seen by the naked eye on a clear night. (Astronomers say the average number that can be seen in Central PA is 2000) No other railroad came close in terms of production.
Altoona was important to the PRR and to the nation. To highlight this, the German government sent saboteurs to the United States in WWII. Eight men were given the assignment to destroy/sabotage 12 key industrial sites. The Altoona shops, Horseshoe Curve and Gallitzin Tunnels were on their list. Fortunately, they were captured before they could carry out their mission. Of the eight, six were executed and two imprisoned.
The Penn Central Railroad
During all of this time the railroads around the country had become arrogant and their business practices made a lot of people angry. Everyone from farmers to factory operators were upset with how the railroad’s “bullied” smaller companies and people. After WWII, the government responded by strengthening regulations to control how the railroads operated. These regulations were so hard on the railroads that they almost went out of business. Instead of working with the railroads, the federal government invested money in building a national interstate highway system, airports in most of our nation’s larger cities and in other forms of mass transportation.
The Pennsylvania Railroad Company was known as the railroad "standard of the world until it was merged with the New York Central Railroad on February 1, 1968 and became the Pennsylvania New York Central Transportation Co. This name lasted only a few months as it was changed to the Penn Central Company on May 8, 1968 and was reorganized once again as the Penn Central Corp. on October 24, 1 968. The following year it absorbed the New York, New Haven and Hartford Railroad Company. The new corporation also had a number of subsidiaries in real estate, oil refining, and a variety of other industries. Penn Central encountered serious management and financial difficulties, however, and was forced into bankruptcy in June 1970. Its passenger services were taken over by the federally established National Railway Passenger Corporation (Amtrak) in 1971. The Penn Central continued to lose money, and, when efforts at reorganization failed, the assets of the railroad were acquired by Consolidated Rail Corporation (Conrail) in April 1976. Operation of the New York-Washington route was later transferred to Amtrak. The Penn Central Corporation continued in business as a diversified corporation not connected with the railroad industry.
Scores of railroads in the Northeast and Midwest had been acquired or merged into six different lines: Central Railroad of New Jersey, Erie Lackawanna, Lehigh & Hudson River, Lehigh Valley, Reading, and the largest, the Penn Central Railroad.
In the early 1970s, one by one, these six railroads entered bankruptcy. Although there were many reasons for the economic difficulties they faced, chief among them was competition from trucks, subsidized by the federally-built Interstate highway system, and an archaic system of economic regulation which prevented railroads from responding to the needs of the market. As freight revenues declined, railroads deferred maintenance, allowing tracks and equipment to fall into poor condition, and as service levels deteriorated, more business went to trucks. Requirements to run money-losing passenger service added to the rails decline.
The federal government, recognizing the national economic importance of the six railroads, responded by creating Conrail and appropriating the funds needed to rebuild tracks, locomotives and freight cars. Conrail was a publicly owned American railroad company which was established by the federal government under the Regional Rail Reorganization Act of 1973 in order to take over six bankrupt northeastern railroads. Conrail commenced operations on April 1, 1976, with major portions of the Central Railroad Company of New Jersey, Erie Lackawanna Railway Company, Lehigh & Hudson River Railway Company, Lehigh Valley Railroad Company, Penn Central Transportation Company, and Reading Company.
Conrail began operations in April 1976, although its origins go back to the earliest days of railroading in North America. The oldest segment of what became Conrail was the Granite Railway Co., built in 1826 to carry granite blocks for the Bunker Hill Monument in West Quincy, Massachusetts. Conrail carried freight traffic in the northeastern and mid-western states. Its tracks extended from the Atlantic Ocean to St. Louis and from the Ohio River north to Canada. All passenger traffic was turned over to Amtrak or to regional transportation authorities in 1983. Conrail was set up to be an independent profit-making corporation though in its early years, even with the aid of federal loans, it lost more than the bankrupt lines had lost before consolidation. Stockholders in the roads taken over received Conrail stock in exchange. By 1983 the corporation had become profitable. The system operated in 15 states over some 12,000 miles (about 19,000 km). On June 1, 1999, Conrail was sold to the Norfolk Southern Railroad.
Even though several bankrupt railroads, including the Penn Central Railroad, were taken over by the Federal Government to create Conrail in 1976, the Penn Central Corp. continued to exist as a real estate holding company. The name Penn Central Corp. was s changed to American Premier Underwriters, Inc. on March 25, 1994 and merged into American Premier Group, Inc. on April 3, 1995. The name was changed once again to American Finance Group, Inc. on June 9, 1995. It is now a property damage insurance company operating out of Cincinnati, Ohio and trades on the New York Stock Exchange under the symbol AFG and is worth about $42.00 a share as of mid-January 1999.
Another railroad that went into Conrail was the Reading Railroad, which was owned by the Reading Company, also incorporated under the laws of Pennsylvania. The Reading Company filed for bankruptcy under chapter 11 of the Federal Bankruptcy laws on December 31, 1980. The common stock of the company became valueless five years later on December 31, 1985; however, several classes of preferred stock still existed and were converted into shares of a new Reading Company common stock at the same time. This company continued to exist as a real estate trust and continued to trade in the over-the-counter markets u under the symbol RDG. The company changed its name to become Reading Entertainment, Inc., under the laws of the state of Delaware on October 15, 1996, with their headquarters still in Philadelphia.
One other noteworthy railroad company worth mentioning is the New York, New Haven and Hartford Railroad Co., better known as the "New Haven" which was also merged into Penn Central at the time. It was declared insolvent on December 24, 1968, and there was no stockholder equity. By 1981 Conrail began its financial turnaround. After June 1981, Conrail would no longer require federal investment, and finished the year with the first profit in its history.
While Conrail succeeded in rebuilding the railroad, the problem of severe economic regulation remained. With the passage of the Staggers Act in 1980, many of these constraints were loosened, giving railroads more freedom to compete with trucks. Later, other legislation transferred the burden of operating money-losing commuter rail service from Conrail to state agencies. (In the 1970s, Congress created Amtrak to take over intercity passenger service from the nation's freight railroads.)
With Conrail continuing to succeed in providing high quality service for its freight customers and improving its financial outlook, the federal government sold its ownership interest in Conrail through what at the time was the largest initial public stock offering in the nation's history. This March 26, 1987 transaction, with added cash payments from Conrail to the U.S. Treasury, produced about $1.9 billion for the taxpayers and returned the Northeast-Midwest rail freight system to the private sector as a for-profit corporation, as Congress had envisioned when it created Conrail as Consolidated Rail Corporation. Through the initial public stock offering in 1987, Conrail shares were brought to market at a split-adjusted equivalent of $13 per share. When shareholders sold Conrail to CSX Corporation and Norfolk Southern Corporation in 1997, the price was $115 per share. The U.S. Surface Transportation Board approved the railroads' application for operating control in mid-1998. Under the operating plan approved by the U.S. Surface Transportation Board in July, 1998, CSX and Norfolk Southern began operating most Conrail lines and facilities on June 1, 1999. In much of New Jersey and portions of the Philadelphia and Detroit metropolitan areas, however, some lines and facilities remain under Conrail's control to manage and operate. Customers along these lines can be served by both CSX and Norfolk Southern, with Conrail acting as their local switching and terminal management agent.