The Railroad Week in Review:
Week Ending March 13, 1999

Burlington Northern Santa Fe (NYSE: BNI) plans to spend approximately $2.5 bn in its 1999 capex program. The shopping list includes some $800 mm for track and engineering projects. That's enough to buy and install more than 800 miles of new and relay rail and 2.4 million ties and have enough left over to resurface 12,500 miles of track. Another $456 mm will go to capacity expansion projects. Included here are double-and triple-tracking key routes in the southwest and yard expansions in California, Alabama, and New Mexico. And for dessert BNSF is acquiring 476 high-horsepower locomotives for $733 mm.

One more hurdle has been passed in the Canadian National - Illinois Central merger, the environmental. The STB's Section for Enviromental Analysis (SEA) has determined, in its own words, "that there would be potentially significant impacts on only one issue area, hazardous materials transportation safety." The press release goes on to say the SEA is recommending mitigation measures with a nod to potential added exposure to "minority and low-income populations."

Recall a significant amount of the Cleveland flap over the Conrail transaction had to do with increased rail traffic in low-income areas. It is in the area of what the SEA delicately calls "environmental justice populations." The report wraps with "The SEA determined that none of the other environmental issue areas would have a potential for significant environmental effects, and thus do not warrant mitigation."

Meanwhile, the UTU has told the STB that it continues to oppose the CN-IC merger. Among other things, the union objects to what it sees as management manipulation of extant agreements, longer jobs with less rest between, and "IC's improper use of road switchers to replace yard workers" being adopted on CN's Grand Trunk Western (GTW). The press release concludes, "Safety is one of UTU's major concerns in this merger, especially in light of the recent safety problems arising out of implementation of the Union Pacific (UP) merger transaction with the Southern Pacific (SP)." And of course there's New York Dock.

The STB was also busy this week with the Dakota Minnesota & Eastern (DME) application to extend into the Powder River Basin. The SEA has issued the final scope of study for the Environmental Impact Statement (EIS). At the same time the STB announced a 30-day comment period on two newly proposed alternatives. In one DME proposes an alternative main line alignment in Wyoming and South Dakota in response to local authorities and agencies. In the other the City of Rochester, MN (Rochester) proposes to build (it doesn't say with whose money) a rail line bypassing the city.

February carloads for RailTex (Nasdaq: RTEX) were up 25% over last year system-wide. Excluding lines acquired in the past 12 months, the increase was 21%. Which at first glance seems a good news/bad news story. Good, because one always likes to see "same railroads" holding their own. Bad, because it could indicate a slow start for the new properties.

Take a look at the numbers. The Feb 98 carload total was 40,845. Same railroad Feb 99 was 49,228 -- up 8,383 cars. System Feb 99 was 50,957 -- up 10,112 cars of which only 1,729 were added by three new railroads. Central Properties in central Indiana came into the fold 8/1/98. Canada's Guelph Line started 11/16/98 and North Dallas Lines came in a month ago. Granted, two months on one and one month on another is not a lot of time to generate a ton of cars. But one would expect five months on Central alone to do better than that.

Last week we pondered how RailAmerica (Nasdaq: RAIL) was going to pay for its share of the latest Australian venture. Word now comes that the company completed a private offering of approximately $12.5 mm of restricted common stock. Time is of the essence, too as it is anticipated that Freight Victoria will take over operations of V/Line Freight within the next sixty days.

More on the Jordan issue. Friend of mine reports "The Wall Street Journal mis- spoke about the number of employees for the WC venture in Jordan. There are about 400 or so construction workers on the job in upgrading this railroad, though they will not be permanent party. I am involved on a new construction project there and we can anticipate having hundreds of people [on it] but they would definitely not be on the payroll. The Jordanian Government wants the project to be profitable - if they are ever going to attract foreign investment into their country."

Privately held OmniTrax, a Denver-based shortline holding company, has acquired 25% of Canada's RaiLink (TSE: RLK) in just two bites, the first 2/12, the second 2/19. It shows what can happen all too quickly with a thinly traded stock. Going to the charts you can see a spike in RLK trading volume and a day or two later the price started to move up from around $6 where it had been for some time. There was a second volume spike a week later and by Tuesday it had risen to $7.10 bid, $7.65 asked. That's up 23% in two weeks if you use the midpoint in the bid-ask spread.

Tuesday London's Financial Times ( reported that Eurotunnel, operator of the Channel tunnel, trebled operating profits to $300 mm (L. 184 mm) from L. 57 mm in FY 1998. Revenues were up 26%, mostly from freight and passenger train service, up 87% to L. 210 mm. The Financial Times editorial page notes in its usual terse manner that the profits surge "was largely due to the Eurotunnel's massive restructuring." A sidebar to all this is the threat of eliminating duty-free shopping within the EU which could hurt Eurotunnel profits. The editorial continues this is "small beer" in light of the share dilution coming from the restructuring, concluding "at least the company seems to have broken its habit of missing forecasts [and is] a case for being thankful for small mercies."

We often report here about rail acquisitions, and, again from Financial Times, comes another one. The British Government wants to privatize infrastructure management of the London Underground and a three-way split is contemplated. However, there is not a jot of hope of privatizing the operating side. This is unfortunate. Disputes will inevitably arise - see RailTrack vs. the passenger franchises and EWS - for eliminating capacity constraints and for ROW improvements yet a suitable mechanism for arbitration is not at hand. At least on this side of the Atlantic we tend to sell a single operation to a single operator.

--Roy Blanchard

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