Demise of the Olympian Hiawatha

Classic Trains General Discussion
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“These were the 8-10 trains per day that the PCE averaged for the remainder of the time before bankruptcy. These were trains that were up to 60% heavier than the trains run during the 1960s, and had MILW stayed with those tonnage limits, the PCE would have been running 14-16 trains per day.”

It is notable that, during a key point in time, 1960-1975, railroads with long-distance passenger services were complaining, loudly, that the cost of maintaining those services was “killing them.” The U.S. Postal Service made the hemorage somewhat palatable, as memorialized by Arlo Guthrie, “Fifteen cars and fifteen restless riders. Three conductors and twenty-five sacks of mail. … And the sons of pullman porters, And the sons of engineers, Ride their father’s magic carpets made of steel.”

And recall “why” trains like the “City of New Orleans” became an economic drag on long distance railroads in that era. Not only the Interstate Highway System, but Air travel. A passenger could travel faster, more cheaply flying than by train. And more conveniently by automobile. Passenger travel by train became an expensive, time-consuming mode of transportation compared to those two new, key features of transportation.

A third element played into the post-1947 rail passenger services: the cost of the locomotion. The new diesel-electrics had been “sold” on the basis of a 20 year depreciation life; the IRS had established that based on “studies” offered by GM. Compared to the well-established deprecation life of 30 years for Steam, it seemed plausible. In reality, the relative complexity of the new power proved an additional financial handicap. The actual economic service life was far shorter than 20 years. And, piled on top of that was something new: financing charges. Interest charges on the debt incurred – GM’s “other” big innovation, “time-pay” – quickly outstripped every other operating cost: fuel, oil, mainte

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All of those statements about the other carriers may have been true at that point, but why are they still operating and the PCE and MILW’s Omaha main are only memories?

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CSSHEGEWISCH wrote the following post an hour ago: “All of those statements about the other carriers may have been true at that point, but why are they still operating and the PCE and MILW’s Omaha main are only memories?”

Different question, different answers. Recall, when Bankruptcy Trustee Stanley Hillman got his “outside” studies back, including “the Big One” from Booz Allen Hamilton, he stopped speaking to the senior executives, feeling that they had misled him. As Paul Cruikshank, VP Operations, put it, “Mr. Hillman became difficult to work with.” I’d bet that he did!

Recall Stanley Hillman’s famous public statement when he got his outside appraisals back: “It turns out that the Milwaukee Road is a relatively wealthy company.”

Not “what he had been told.”

What were you told?

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Again, not true. The service was simply discontinued. Gone was any through service over ANY Milwaukee Road trackage from Chicago to Seattle or Tacoma or Spokane, not to mention from Minneapolis/St. Paul. True, one could ride the “City of Portland” from Chicago to Council Bluffs on the Milwaukee, and then the UP to Hinkle, Oregon and change trains and go to Spokane, but one could also ride the Milwaukee Road from Chicago to Deer Lodge 1961-1964 and change trains and ride the Northern Pacific to Spokane. Or ride the Milwaukee Road from Milwaukee to St. Paul and the Great Northern to Seattle. Not “preserving” service, but simply using the trains of another carrier.
And it’s far from a “fact” the UP contract was profitable when the entire cost of the upgrade is factored, especially considering the upgrade was designed for six pa

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Actually, the question is: If these Milwaukee lines were such powerhouse money-making entities, why did no one with the wherewithal to save them, do so? The leaders of the other railroads were well aware of the physical plant and the operating inefficiencies of the Milwaukee. Clearly, if the Milwaukee was that superior, they would jumped at the chance to obtain it. The reality was that BN wanted just about no part of it, and UP passed it up, too. The Pacific Extension was the high-cost operation and the route across Iowa was superfluous.

The underlying reality of Michael Sol’s attempts to show why things turned out the way they didn’t are:

The Milwaukee Road Pacific Extension is the only U.S. transcontinental railroad to be largely abandoned; and

The Milwaukee Road’s route across Iowa is the only such route to be largely abandoned.

Two impressive superlatives, indeed.

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I wrote: “Milwaukee was not insulated. As NP, GN, and CBQ struggled to convince the ICC that it was a “good idea,” having been shot down by the ICC once already, Milwaukee was attempting to do the same thing with the CNW, and by 1969, the two companies had a formal merger agreement, and officer positions assigned for the new successor company.”

From a letter from a lead Counsel in Morton Weinress v. CMC, 565 F.2d 416 (1977), October 11, 1977

"The second was Morton Weinress, a Chicago investment banker, head of Weinress & Co., who had been a director of CNW from 1954-1967. Weinress had helped Ben Heineman gain control of CNW, but he had feuded with Heineman and left the C board. Weinress saw the Milwaukee Road as an investment opportunity. He knew that t had many valuable assets and an incompetent elderly management. He knew what had been one to transform the CNW into Northwest Industries, and he believed that the Milwauke Road presented a similar opportunity. It was his hope that the CNW merger would fail and that a new group (including him) would then be able to take control of the Milwaukee. As our firm was opposing the CNW-Milwaukee merger, Weinress was eager to help our effort.

“As you know the CNW- Milwaukee merger did not happen. Quinn was brought in to take over from Crowley. We threatened a proxy contest. In a compromise, Weinress and another of our commttee were elected as directors. Chicago Milwaukee Corporation was formed, but Weinress did not like the way he was treated. He resigned as a director, but continued for the rest of his life to attempt to ihterest investors in the potential of the Milwaukee Road.”

Letter, David Rosenstein to Michael Sol, July 12, 1999.

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"In 1968, with the senior partner of my firm (Eli Fink) I attended a special meeting of the Milwaukee Road’s board of directors. As I looked over the group at the front of the room in Chicago Union Station it seemed that each director was older and more feeble than the next. One man sitting if front of me shaking looked so old that I said to Mr. Fink “that guy looks like he is 100 years old.” In fact he was! Joshua Green served as a director until 100!

“The average age of that board was well over 80. Crowley stood up (with difficulty) and shook a finger at Eli Fink warning him that Milwaukee Road needed the merger with Northwest Industries and that we were causing great trouble by opposing it. Mr. Fink pointed out that the merger was not a certainty, and that the Milwaukee Road ought to have a contingency plan if the merger did not take place.”

Under Board Chair Leo Crowley, Milwaukee did not. That underscored the vast gap between what “management” at the operating level, and “owners” at the Board of Directors level were doing and were, in fact, in conflict.

Letter, David Rosenstein to Michael Sol, July 29, 1999.

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Well, the graphic version of that is better organized by not accidentally hitting the “send” button.

And, if the “surreptitious juggling of the books” were also “unjuggled,” and Miles City was properly included in the “Lines West” economic data, as it historically had been (right up until that Abandonment Petition), the data was more … “illuminating!” It is amazing what can be done when … passenger services “get out of the way!”

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Well, the graphic version of that is better organized by not accidentally hitting the “send” button.

According to the ICC Exhibits:

Milwaukee Road Revenue, 1976-1978

System Net Operating Income

1976 ($8,834,435)

1977 ($29,392,706)

1978 ($49,331,000)

Total System Net Three Year Operating Loss ($87,558,141)

Lines West of Miles City, Net Operating Income

1976 $10,580,676

1977 $8,051, 207

1978 $3,555,501

Lines West of Miles City, Net Three Year Operating Income $22,187,384

System, Net Operating Income WITHOUT Lines West of Miles City

1976 ($19,415,111)

1977 ($37,443,913)

1978 ($52,886,501)

System Net Operating Income WITHOUT Lines West of Miles City ($109,745,525)

Now, just to enhance the “view” of the shenanigans involved in “Exhibit K,” add “Miles City” Revenues “back into Lines West.”

Net Operating Income, Lines West, Including Miles City

1976 $17,632,978

1977 $15,677,061

1978 $11,177,355

Net Three Year Operating Income, Lines West Including Miles City $44,487,394.

System Net Operating Income WITHOUT Lines West Including Miles City

1976 ($26,467,413)

1977 ($45,069,767)

1978 ($60,508,335)

Net Three Year System Operating Income WTHOUT Lines West Including Miles City ($132,045,535).

And, if the “surreptitious juggling of the books” were also “unjuggled,” and Miles City was properly included in the “Lines West” economic data, as it historically had been (right up until that Abandonment Petition), the data was more … “illuminating!”

It is amazing what can be done when … passenger services "get o

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In 1973, Milwaukee “hotshot” train 261 was carded for 63 hours from Chicago to Seattle, and 80 hours from Chicago to Portland.

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[quote user=“TRR”]

Well, the graphic version of that is better organized by not accidentally hitting the “send” button.

According to the ICC Exhibits:

Milwaukee Road Revenue, 1976-1978

System Net Operating Income

1976 ($8,834,435)

1977 ($29,392,706)

1978 ($49,331,000)

Total System Net Three Year Operating Loss ($87,558,141)

Lines West of Miles City, Net Operating Income

1976 $10,580,676

1977 $8,051, 207

1978 $3,555,501

Lines West of Miles City, Net Three Year Operating Income $22,187,384

System, Net Operating Income WITHOUT Lines West of Miles City

1976 ($19,415,111)

1977 ($37,443,913)

1978 ($52,886,501)

System Net Operating Income WITHOUT Lines West of Miles City ($109,745,525)

Now, just to enhance the “view” of the shenanigans involved in “Exhibit K,” add “Miles City” Revenues “back into Lines West.”

Net Operating Income, Lines West, Including Miles City

1976 $17,632,978

1977 $15,677,061

1978 $11,177,355

Net Three Year Operating Income, Lines West Including Miles City $44,487,394.

System Net Operating Income WITHOUT Lines West Including Miles City

1976 ($26,467,413)

1977 ($45,069,767)

1978 ($60,508,335)

Net Three Year System Operating Income WTHOUT Lines West Including Miles City ($132,045,535).

And, if the “surreptitious juggling of the books” were also “unjuggled,” and Miles City was properly included in the “Lines West” economic data, as it historically had been (right up until that Abandonment Petition), the data was more … “illuminating!”

It is amazing what can be done wh

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Mark Meyer: “TRR [Edited by admin to remove personal attacks on another Forum user. In future, refrain from doing this, please.]” Interesting indeed.

The “personal attacks” were a listing of prior “Mark Meyer” comments over the years, including his odd attack on Northern Pacific Railfans and his perception of their inferiority complex, and his extended paen to the Great Northern Railway route so he could visit his Dad.

Part of a larger picture of … the poster. And yes, I get private communications from various of his former colleaques from time-to-time. They ARE interesting, but, go more to “the person” than “the subject.” It is a glass house.

Meanwhile, Midwestern Railroads were struggling desperately for survival, and those with transcontinental business, not so much, although by 1979, Burlington Northern management at “Burlington Northern” were having as much difficulty as Burlington Northern management at Milwaukee Road!

The Operating Ratio there was over 95% that year. The “Hill era” was over. Say Hello to … the Frisco!

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Who?

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The problem with the tendentious diatribes of Mr. Meyer are … manifold. His obsession, which is what it has become, is intense and, by now, long lasting. He deluges any on-line commentary on Milwaukee Road with his … theories.

The problem?

The complete lack of any expertise whatsoever. And that stands in marked contrast to the genuine expertise offered by people … “who were there.”

As the Milwaukee was surrendered to BN Management with the appointment of former CBQ President/BN Vice Chair William J. Quinn, and his bringing officers of the Burlington Northern with him, “to run things,” it is true that Milwaukee Road quickly succumbed to that management. The same thing (devastating Operating Ratios) that happened at MILW under former BN VP Worthington Smith, happened at BN under Smith’s former boss, Lou Menk at BN.

Coincidence?

As Stanley Hillman found out after his appointment at Trustee for the Milwaukee, things were “not as they seemed,” and certainly NOT as he had been led to believe by the former BN officers now in charge, Worthington Smith and Paul Cruikshank.

Indeed, the prolonged rumor-mill perpetuated by people like Mark Meyer was entirely false: as Hillman publicly stated after his “outside appraisals” came back: “It turns out that the Milwaukee Road is a relatively wealthy company.”

Why does that contrast so dramatically with what Mr. Meyer … claims?

Well, “knowledge, experience, and being there” is just a part of it.

Compare Mr. Meyer’s expertise (non-existent) with that of … Curtiss Crippen: “That line is the life blood of this Company.”

Compare Mr. Meyer’s entirely false claims that the Milwaukee Road lost money on its Pacific Extension, when, in fact, the Milwaukee showed, under oath, in documents filed with the ICC and the Bankruptcy Court, that it was the only part of the railroad that made mo

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Booz Allen Hamilton estimated that “the Louisville Transcon,” had the highest likelihood of success, and prospective proffitability by a factor more than double that of any other proposed configuration."

Did that meet approval? Well, yes, after Max Baucus put together the legislation that provided a venue for reorganizing the Milwaukee Road under the newly created law, the “Milwaukee Railroad Restructuring Act,” a consortium of experienced railroad executives, major shippers, and the States of South Dakota, Montana, and Idaho put together “the Plan” and submitted it, as required, to the Interstate Commerce Commission.

It is everything that Mr. Meyer claims did not exist. That too was a false claim.

Dated December 1, 1979, the detailed reorganization plan was submitted.

It is “the Louisville Transcon” alternative, the most probable identified by BAH as likely to be successful – at a time when even solvent railroads were struggling.

New Milwaukee Lines Reorganization Plan, December 1, 1979

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The New Milwaukee Lines proposal not only relied on the Booz Allen Hamilton Econometic Study – the one that gave no credit Mark Meyer at all – but the Milwaukee Road’s own Planning Department internal study which had been a thorough examination of, and plan for, reorganization of the company through key abandonments.

Completed just before the Bankrupcty Petition was filed, the detail plan was presented in the Fall, 1977 Milwaukee Road Magazine.

“What can be done about our low density lines?”

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And, of course, what was MISSING in those analyses was the key that Curtiss Crippen and knowledgeable investors understood. The “BN Management” at Milwaukee Road was doing what “BN Management” was doing at BN, with one key difference. The “BN Management” at BN was hobbled, crippled, by the 100 year bonds that encumbered all of the Northern Pacific Bonds from the bankruptcy of 1893, and issued in 1896.

All those assets and, they were locked up.

At Milwaukee, “all of those assets” were titled in the Milwaukee Land Company, and not “just” free and clear, but the Land Company had ceased making dividend payments to the Milwaukee from its “fat kitty of retained earnings,” but instead, making loans to the Railroad. That had two net effects: that method avoided the high taxation on corporate dividends to stockholders and, for the Land Company, put it into the position of a creditor.

In Bankruptcy, technicaly it had become … a creditor. [:|]

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NONE of this is true, nor is any of it anything but speculation without any documentation to support. Again, reiterating:
It’s interesting that “transcontinental passenger rail service was doomed to be unprofitable,” but evidently only on the Milwaukee Road – but not on the Union Pacific? Unlikely indeed. The reality is that the Milwaukee Road offered a quality service on its Olympian Hiawatha right to the end, and made numerous attempts to attract riders through 1960. The train was simply losing too much money to warrant continuing the service. Another reality is that the ICC allowed the train to be discontinued because of the operating deficits and lack of pa

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Which (if true) begs the question: Well, why didn’t the Burlington Northern then go the way of the Milwaukee Road? Because railroads with strong route structures survive, regardless. Those with weak route structures (the Milwaukee Road) are largely abandoned. Even if you’re a weak railroad like the Rock Island with worthwhile routes, most survive bankruptcy – lines so attractive, the even railroads with minimal financial resources stepped up to the plate to save it: C&NW, MKT, and SP.

But for