The Blanchard Company

Let the games begin. On Monday CSX and NS filed their historic Conrail acquisition application with the STB. The application itself is 15,000 pages in 23 soft-cover books covering eight volumes of material and weighing in at 74 lbs. Copies are reportedly $1,000 apiece from the printer. By comparison, the application is nearly twice the size of the 14-volume filing by Union Pacific 18 months ago to acquire control of the Southern Pacific for a mere $5.4 billion, at the time the most expensive rail merger ever attempted.

According to a joint press release, the companies will spend a combined $1.2 billion for capital improvements over three years for such things as track improvements, added capacity, new or expanded freight terminals, clearance projects, new automobile distribution centers. The Monday filing started the clock on the 350-day schedule the STB has set to consider the application.

In support of their application, Norfolk Southern and CSX submitted to the STB more than 2,300 letters from shippers, public officials and other railroads, the strongest show of support ever for a railroad transaction. The projected diversion of traffic from congested highways to rail will within three years will save 120 million gallons of diesel fuel, eliminate more than a million truck trips, reduce truck traffic on the nation's highways by more than 780 million miles, and save about $94 million in highway maintenance costs.

And now the details are at hand in this office. Many readers of this letter have undoubtedly seen the various state highlight sheets on the websites and elsewhere, however the details from poring over the books themselves are very helpful for putting things in perspective.

For example, did you know that the mechanism to do the split is the creation of NYC and PRR subsidiaries of Conrail? In an agreement among the parties dated 6/10/97, Conrail will divide itself up along the lines of assets to be transferred to CSX and NS (the "Splitting the X" map you all have seen). Once this has been done CSX will operate NYC assets and NS will operate the PRR assets. Shared asset areas (Phila/So Jersey, No Jersey, Detroit) remain in control of the surviving "Conrail" organization for use by both CSX and NS.

The thrust of the arguments in The Filing is that "CSX and NS will be able to provide better service to former Conrail customers by integrating CR routes and facilities into their existing networks" and "they will use their improved service to attract new customers." Operating cost savings "will be realized by providing more efficient rail transportation" and "by eliminating substantial portions of general and administrative costs currently incurred by Conrail." Finally, "new single line routes will enhance the railroads' competitive positions."

As I wade through the document, I'll pass along selected excerpts. The financials, for instance. There is a complete set of pro formas for both railroads down to expected sources of and uses for anticipated cash flow including earnings estimates three years out and beyond. Both companies announced on Monday that they expect savings and income gains of more than $800 million a year, 25% more than previous estimates, and realized chiefly through shorter and faster routings of freight, more use of new, high-powered locomotives and more long-distance shipments. NS Chief Financial Officer Hank Wolf will hold a conference call on the subject this coming Monday morning.

Elsewhere, CSX has announced that former Amtrak president Paul Reistrup has been tapped to join the firm as vice president-passenger integration. He will report to CSX Transportation president Pete Carpenter effective July 1. He will be responsible for integrating passenger/commuter and freight operations across CSXT's system, with a particular focus on the SEPTA lines north of Philadelphia that CSXT will be acquiring from Conrail Inc.

BNSF has announced two new web-based customer service developments. Over the July 4 weekend, BNSF will make the transition to a single information system that will support all transportation, billing and other customer service functions. The transition will begin at 11 p.m. Central Time July 3, and information flows will be affected for about 24 hours. Progress reports on the transition will be available on the BNSF Internet home page at www.bnsf.com>>customers. Then there's the new BNSF 6003 program to calculate mileage between BNSF stations, including Union Pacific Railroad stations served through trackage rights. The system is PC-based and is available in an executable file on the BNSF web site. Route: www.bnsf.com>>customers>>publications>>BNSF 6003.

Two UP trains ran head-on into each other on the former MP single track line south of San Antonio last week. Three people were killed (including a trespasser riding the cars), 33 cars went on the ground, and a bridge was destroyed as the fuel in the locomotives went up in flames. The railroad is dark and traffic is controlled by track warrant, and that raises all kinds of questions as to how two trains could be authorized on the same track at the same time.

Once source suggests that one train could have read back the warrant incorrectly and the dispatcher did not catch the error. In a brief summary of the accident, BNSF admonished its dispatchers to be extra careful to be sure read-backs are accurate. There is a distinct possibility the dispatcher did not communicate -- or the receiving crew hear -- the authority line stating the warrant did not go into effect until after the opposing train had passed.

Shortline holding company Pioneer Railcorp (Nasdaq: PRRR) reported record May carloadings this week, 3464 cars vs. 3175 last May, a change of nine percent. According to the company, its 14 subsidiary railroads experienced increased shipments for virtually all of its customers with no decreases. Recent additions Michigan Southern and Keokuk Junction bring the Pioneer group to more than 31,000 carloads a year over some 500 route miles.

Power Parts Company, a subsidiary of MotivePower Industries, Inc. (Nasdaq: MOPO), has been awarded a two-year $6 MM contract renewal for inventory and just-in-time delivery services of locomotive parts for Union Pacific, a company it's been doing business with for more than 50 years. Established in 1945, the company has become known for "Fire Wagon Service" -- guaranteed delivery of stock items within 48 hours. For a discussion of MOPO's remarkable stock price performance, go to Week in Review for 6/7/97.

For dessert, I commend to you Rip Watson's three-part article on Amtrak beginning in the Wednesday 6/25 edition of the Journal of Commerce, www.joc.com. The focus is freight, finances, and the small town angle. It is an enlightening read, to say the least.

--Roy Blanchard