The Penn Central Transportation Company, commonly abbreviated to Penn Central, was an American
class I railroad that operated from 1968 to 1976. Penn Central combined three traditional corporate rivals (the
Pennsylvania
Pennsylvania (; (Pennsylvania Dutch: )), officially the Commonwealth of Pennsylvania, is a state spanning the Mid-Atlantic, Northeastern, Appalachian, and Great Lakes regions of the United States. It borders Delaware to its southeast, Ma ...
,
New York Central
The New York Central Railroad was a railroad primarily operating in the Great Lakes and Mid-Atlantic regions of the United States. The railroad primarily connected greater New York and Boston in the east with Chicago and St. Louis in the Mid ...
and the
New York, New Haven and Hartford railroads), all united by heavy service into the
New York metropolitan area
The New York metropolitan area, also commonly referred to as the Tri-State area, is the largest metropolitan area in the world by urban landmass, at , and one of the most populous urban agglomerations in the world. The vast metropolitan area ...
and (to a lesser extent) New England and Chicago. The new company failed barely two years after formation, the largest bankruptcy in U.S. history at the time. The Penn Central's railroad assets were nationalized into
Conrail along with the other bankrupt northeastern roads; its real estate and insurance holdings successfully
reorganized into
American Premier Underwriters
American Premier Underwriters is a property and casualty insurance company that was established as the Pennsylvania Railroad in 1846. It was formerly known as the Penn Central Transportation Company and it currently owns non-rail assets. The comp ...
.
History
Pre-merger
The Penn Central railroad system developed in response to challenges facing
northeastern American railroads during the late 1960s. While railroads elsewhere in North America drew revenues from long-distance shipments of commodities such as coal, lumber, paper and
iron ore
Iron ores are rocks and minerals from which metallic iron can be economically extracted. The ores are usually rich in iron oxides and vary in color from dark grey, bright yellow, or deep purple to rusty red. The iron is usually found in the ...
, railroads in the densely-populated northeast traditionally depended on a heterogeneous mix of services, including:
*
commuter/
intercity
InterCity (commonly abbreviated ''IC'' on timetables and tickets) is the classification applied to certain long-distance passenger train services in Europe. Such trains (in contrast to regional, local, or commuter trains) generally call at ma ...
passenger rail
Rail transport (also known as train transport) is a means of transport that transfers passengers and goods on wheeled vehicles running on rails, which are incorporated in Track (rail transport), tracks. In contrast to road transport, where the ...
service
*
Railway Express Agency freight service
* Break-bulk freight service via
boxcars
* Consumer goods and perishables (produce and dairy products)
These labor-intensive, short-haul services proved vulnerable to competition from automobiles, buses, and
trucks
A truck or lorry is a motor vehicle designed to transport cargo, carry specialized payloads, or perform other utilitarian work. Trucks vary greatly in size, power, and configuration, but the vast majority feature body-on-frame constructi ...
, a threat recently invigorated by
the new limited-access highways authorized in the
Federal-Aid Highway Act of 1956. At the same time, contemporary railroad regulation restricted the extent to which U.S. railroads could react to the new market conditions. Changes to passenger fares and freight shipment rates required approval from the capricious
Interstate Commerce Commission
The Interstate Commerce Commission (ICC) was a regulatory agency in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads (and later trucking) to ensure fair rates, to elimina ...
(ICC), as did mergers or abandonment of lines.
Merger, which eliminated duplicative
back office employees, seemed an escape.
The situation was particularly acute for the
Pennsylvania
Pennsylvania (; (Pennsylvania Dutch: )), officially the Commonwealth of Pennsylvania, is a state spanning the Mid-Atlantic, Northeastern, Appalachian, and Great Lakes regions of the United States. It borders Delaware to its southeast, Ma ...
(PRR) and
New York Central
The New York Central Railroad was a railroad primarily operating in the Great Lakes and Mid-Atlantic regions of the United States. The railroad primarily connected greater New York and Boston in the east with Chicago and St. Louis in the Mid ...
(NYC) railroads. Both had extensive physical plant dedicated to their passenger custom. As that revenue stream faded following
WWII
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the World War II by country, vast majority of the world's countries—including all of the great power ...
, neither could slim their assets fast enough to earn a substantial profit (although the NYC came much closer).
In 1957, the two proposed a merger, despite severe organizational and regulatory hurdles.
Neither railroad had much respect for its merger partner; the lines had fought bitterly over New York-Chicago custom and ill-will remained in the executive suites.
Amongst
middle management, the company's corporate cultures all but precluded integration: a team of young, flexible managers had begun reshaping the NYC from a traditional railroad into a
multimodal express-freight transporter, while the PRR continued to bet on a railroad revival.
At a technical level, the two companies served independent markets east of Cleveland (running through their namesake states), but virtually identical trackage west of Cleveland meant any merger would have
anticompetitive
Anti-competitive practices are business or government practices that prevent or reduce Competition (economics), competition in a market. Antitrust laws differ among state and federal laws to ensure businesses do not engage in competitive practice ...
effect.
For decades, merger proposals had tried to balance the competitors instead, joining them with lesser partners end-to-end. The unexpected NYC+PRR proposal required all the northeastern railroads to reconsider their corporate strategy, clouding the waters for the ICC. The resulting negotiations took nearly a decade, and when the PRR and NYC merged, they faced three competitors of comparable size: the Erie had merged with the
Delaware, Lackawanna & Western
The Delaware, Lackawanna and Western Railroad (also known as the DL&W or Lackawanna Railroad) was a U.S. Class 1 railroad that connected Buffalo, New York, and Hoboken, New Jersey (and by ferry with New York City), a distance of . Incorporated in ...
to create the
Erie Lackawanna Railway
The Erie Lackawanna Railway , known as the Erie Lackawanna Railroad until 1968, was formed from the 1960 merger of the Erie Railroad and the Delaware, Lackawanna & Western Railroad. The official motto of the line was "The Friendly Service Route ...
(EL) in 1960, the
Chesapeake & Ohio Railway (C&O) acquired control of the
Baltimore & Ohio (B&O) in 1963, and the
Norfolk & Western Railway (N&W) absorbed several railroads, including the Nickel Plate and the Wabash, in 1964.
Regulators also required the new company to incorporate the bankrupt
New York, New Haven & Hartford Railroad (NH) and
New York, Susquehanna & Western Railway (NYS&W); if neither the N&W and C&O would buy the
Lehigh Valley Railroad (LV), then that railroad should be incorporated as well. (Ultimately, only the New Haven successfully joined the Penn Central; the conglomerate failed before it could incorporate the latter two.)
The only railroad leaving the Penn Central was the PRR's controlling interest in the N&W, whose dividends had generated much of the PRR's premerger profitability.
Merger begins
The legal merger (formally, an acquisition of the NYC by the PRR) concluded on February 1, 1968. The Pennsylvania Railroad, the nominal survivor of the merger, changed its name to Pennsylvania New York Central Transportation Company, and soon began using "Penn Central" as a trade name. That trade name became official a month later on May 8, 1968.
Saunders later commented: "Because of the many years it took to consummate the merger, the morale of both railroads was badly disrupted and they were faced with unmanageable problems which were insurmountable. In addition to overcoming obstacles, the principal problem was too much governmental regulation and a passenger deficit which amounted to more than $100 million a year."
Almost immediately after the transaction cleared, the organizational headwinds presaged during the merger negotiations began to overwhelm the new corporation's management.
As ex-PRR managers began to secure the plum jobs, the forward-thinking ex-NYC managers departed for greener pastures.
Clashing union contracts prevented the company's left hand from talking to its right,
and incompatible computer systems meant that PC classification clerks regularly lost track of train movements.
Subpar track conditions, the result of years of
deferred maintenance Deferred maintenance is the practice of postponing maintenance activities such as repairs on both real property (i.e. infrastructure) and personal property (i.e. machinery) in order to save costs, meet budget funding levels, or realign available bud ...
, deteriorated further, particularly in the Midwest. Derailments and wrecks occurred regularly; when the trains avoided mishap, they operated far below
design speed, resulting in delayed shipments and excessive overtime. Operating costs soared, and shippers soured on the products. In 1969, most of Maine's potato production rotted in the PC's
Selkirk Yard, hurting the
Bangor & Aroostook Railroad, whose shippers vowed never to ship by rail again.
Although both PRR and NYC had been profitable pre-merger,
Penn Central was — at one point — losing $1 million per day.
As PC's management struggled to wrestle the company into submission, the structural headwinds facing all northeastern railroads continued unabated. The industrial decline of the
Rust Belt
The Rust Belt is a region of the United States that experienced industrial decline starting in the 1950s. The U.S. manufacturing sector as a percentage of the U.S. GDP peaked in 1953 and has been in decline since, impacting certain regions a ...
consumed shippers through the Northeast and
Midwest
The Midwestern United States, also referred to as the Midwest or the American Midwest, is one of four census regions of the United States Census Bureau (also known as "Region 2"). It occupies the northern central part of the United States. ...
.
Penn Central's executives tried to diversify the troubled firm into real estate and other non-railroad ventures, but in a slow economy these businesses performed little better than the original railroad assets. Worse, these new subsidiaries diverted management attention away from the problems in the core business. To create the illusion of success, management also insisted on paying dividends to shareholders, desperately borrowing funds to buy time for the business to turn around.
Bankruptcy
Within two years, Penn Central could no longer remain solvent, and, on June 21, 1970, the nation's sixth-largest corporation had become its largest bankruptcy.
(The
Enron Corporation's 2001 bankruptcy eclipsed the PC in large measure). George Drury described the bankruptcy as "a cataclysmic event, both to the railroad industry and to the nation's business community,"
not least because the Penn Central increasingly appeared the proverbial
canary in the coal mine
Sentinel species are organisms, often animals, used to detect risks to humans by providing advance warning of a danger. The terms primarily apply in the context of environmental hazards rather than those from other sources. Some animals can ac ...
. Across the nation, railroads discontinued the Penn Central's core business (passenger trains) as fast as regulators would let them. The
Rock Island, midway through a decade arguing a merger with regulators, was stumbling towards another stunning bankruptcy, as was the
Milwaukee Road, the nation's most technologically advanced
transcontinental
Transcontinental may refer to:
Arts, entertainment, and media
* "Transcontinental", a song by the band Pedro the Lion from the album ''Achilles Heel''
* TC Transcontinental, a publishing, media and marketing company based in Canada, a subsidiary o ...
. In 1972, the damage from
Hurricane Agnes
Hurricane Agnes in 1972 was the costliest hurricane to hit the United States at the time, causing an estimated $2.1 billion in damage. The hurricane's death toll was 128. The effects of Agnes were widespread, from the Caribbean to Canada, ...
destroyed important Penn Central branches and main lines,
and pushed the other northeastern roads into bankruptcy. By the mid-70s, no major player east of
Rochester
Rochester may refer to:
Places Australia
* Rochester, Victoria
Canada
* Rochester, Alberta
United Kingdom
*Rochester, Kent
** City of Rochester-upon-Medway (1982–1998), district council area
** History of Rochester, Kent
** HM Prison ...
-
Pittsburgh
Pittsburgh ( ) is a city in the Commonwealth (U.S. state), Commonwealth of Pennsylvania, United States, and the county seat of Allegheny County, Pennsylvania, Allegheny County. It is the most populous city in both Allegheny County and Wester ...
, north of Pittsburgh-
Philadelphia
Philadelphia, often called Philly, is the largest city in the Commonwealth of Pennsylvania, the sixth-largest city in the U.S., the second-largest city in both the Northeast megalopolis and Mid-Atlantic regions after New York City. Sinc ...
, and southwest of the Maine-New Hampshire border remained solvent.
Under the auspices of the
U.S. Department of Transportation (U.S. DOT), the Penn Central agreed to trial new technologies to revive the flagging passenger services on what would become the
Northeast Corridor
The Northeast Corridor (NEC) is an electrified railroad line in the Northeast megalopolis of the United States. Owned primarily by Amtrak, it runs from Boston through Providence, New Haven, Stamford, New York City, Philadelphia, Wilmington, ...
. PC continued to operate the PRR's ''
Metroliner'' service between
New York City
New York, often called New York City or NYC, is the most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the most densely populated major city in the U ...
and
DC, and introduced a new
United Aircraft TurboTrain between
New York City
New York, often called New York City or NYC, is the most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the most densely populated major city in the U ...
and
Boston
Boston (), officially the City of Boston, is the capital city, state capital and List of municipalities in Massachusetts, most populous city of the Commonwealth (U.S. state), Commonwealth of Massachusetts, as well as the cultural and financ ...
. But the new equipment proved useless without high-quality track to run it on, or a railroad capable of releasing schedules to the ticket-seeking public. In response, the
Nixon administration developed
Amtrak
The National Railroad Passenger Corporation, doing business as Amtrak () , is the national passenger railroad company of the United States. It operates inter-city rail service in 46 of the 48 contiguous U.S. States and nine cities in Canada ...
, which relieved any railroad that desired it of the obligation to operate passenger service.
PC unsuccessfully attempted to
sell-off the air rights to
Grand Central Terminal
Grand Central Terminal (GCT; also referred to as Grand Central Station or simply as Grand Central) is a commuter rail terminal located at 42nd Street and Park Avenue in Midtown Manhattan, New York City. Grand Central is the southern termi ...
, and allow developers to build skyscrapers above the terminal, in order to fund continued operations. The resulting lawsuit, ''
Penn Central Transportation Co. v. New York City'', was decided in 1978, when the
U.S. Supreme Court ruled that PC could not sell Grand Central's air rights because the terminal was a
New York City designated landmark
The New York City Landmarks Preservation Commission (LPC) is the New York City agency charged with administering the city's Landmarks Preservation Law. The LPC is responsible for protecting New York City's architecturally, historically, and cu ...
.
In May 1974, the bankruptcy court concluded that the railroad of operations of PC could never provide enough income to reorganize the company. In the Regional Rail Reorganization Act of 1973, the federal government nationalized the Penn Central to save it. For two years, the
United States Railway Association sorted through the assets of PC (and six other bankrupt railroads: EL, LV,
Reading
Reading is the process of taking in the sense or meaning of Letter (alphabet), letters, symbols, etc., especially by Visual perception, sight or Somatosensory system, touch.
For educators and researchers, reading is a multifaceted process invo ...
,
Lehigh & Hudson River Railway
The Lehigh and Hudson River Railway (L&HR) was the smallest of the six railroads that were merged into Conrail in 1976. It was a bridge line running northeast–southwest across northwestern New Jersey, connecting the line to the Poughkeepsie ...
,
Central Railroad of New Jersey and
Pennsylvania-Reading Seashore Lines) to decide what could be reshaped into a viable railroad. Then, on April 1, 1976, the Penn Central transferred those rail operations to the government-owned Consolidated Rail Corporation (
Conrail).
Facing continued loss of market share to the trucking industry, the railroad industry and its unions asked the federal government for
deregulation
Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a r ...
. The 1980
Staggers Act, which deregulated the railroad industry, proved to be a key factor in bringing Conrail and the old PC assets back to life. During the 1980s, the deregulated Conrail had the muscle to implement the route reorganization and productivity improvements that the PC had unsuccessfully tried to implement between 1968 and 1970. Hundred of miles of former PRR and NYC trackage were abandoned to adjacent landowners or
rail trail use. The stock of the subsequently-profitable Conrail was refloated on
Wall Street
Wall Street is an eight-block-long street in the Financial District of Lower Manhattan in New York City. It runs between Broadway in the west to South Street and the East River in the east. The term "Wall Street" has become a metonym for ...
in 1987, and the company operated as an independent, private-sector railroad from 1987 to 1999.
Corporate survival
The
Pennsylvania Railroad
The Pennsylvania Railroad (reporting mark PRR), legal name The Pennsylvania Railroad Company also known as the "Pennsy", was an American Class I railroad that was established in 1846 and headquartered in Philadelphia, Pennsylvania. It was named ...
absorbed the
New York Central Railroad
The New York Central Railroad was a railroad primarily operating in the Great Lakes and Mid-Atlantic regions of the United States. The railroad primarily connected greater New York and Boston in the east with Chicago and St. Louis in the Mi ...
on February 1, 1968, and at the same time changed its name to Pennsylvania New York Central Transportation Company to reflect this. The
trade name
A trade name, trading name, or business name, is a pseudonym used by companies that do not operate under their registered company name. The term for this type of alternative name is a "fictitious" business name. Registering the fictitious name ...
of "Penn Central" was adopted, and, on May 8, the former Pennsylvania Railroad was officially renamed the Penn Central Company.
The first Penn Central Transportation Company (PCTC) was incorporated on April 1, 1969, and its stock was assigned to a new
holding company
A holding company is a company whose primary business is holding a controlling interest in the securities of other companies. A holding company usually does not produce goods or services itself. Its purpose is to own shares of other companies ...
called Penn Central Holding Company. On October 1, 1969, the Penn Central Company, the former Pennsylvania Railroad, absorbed the first PCTC and was renamed the second Penn Central Transportation Company the next day; the Penn Central Holding Company became the second Penn Central Company. Thus, the company that was formerly the Pennsylvania Railroad became the first Penn Central Company and then became the second PCTC.
The old
Pennsylvania Company, a holding company chartered in 1870, reincorporated in 1958 and long a subsidiary of the PRR, remained a separate corporate entity throughout the period following the merger.
The former Pennsylvania Railroad, now the second PCTC, gave up its railroad assets to Conrail in 1976 and absorbed its legal owner, the second Penn Central Company, in 1978, and at the same time changed its name to The Penn Central Corporation. In the 1970s and 1980s, the company now called The Penn Central Corporation was a small conglomerate that largely consisted of the diversified sub-firms it had before the crash.
Among the properties the company owned when Conrail was created were the
Buckeye Pipeline and a 24 percent stake in
Madison Square Garden
Madison Square Garden, colloquially known as The Garden or by its initials MSG, is a multi-purpose indoor arena in New York City. It is located in Midtown Manhattan between Seventh and Eighth avenues from 31st to 33rd Street, above Pennsyl ...
(which stands above Penn Station) and its prime tenants, the
New York Knicks
The New York Knickerbockers, shortened and more commonly referred to as the New York Knicks, are an American professional basketball team based in the New York City borough of Manhattan. The Knicks compete in the National Basketball Associa ...
basketball team and
New York Rangers
The New York Rangers are a professional ice hockey team based in the New York City borough of Manhattan. They compete in the National Hockey League (NHL) as a member of the Metropolitan Division in the Eastern Conference. The team plays its ho ...
hockey team, along with
Six Flags Theme Parks. Though the company retained ownership of some rights-of-way and station properties connected with the railroads, it continued to liquidate these and eventually concentrated on one of its subsidiaries in the insurance business.
The former Pennsylvania Railroad changed its name to
American Premier Underwriters
American Premier Underwriters is a property and casualty insurance company that was established as the Pennsylvania Railroad in 1846. It was formerly known as the Penn Central Transportation Company and it currently owns non-rail assets. The comp ...
in March, 1994. It became part of
Carl Lindner’s
Cincinnati
Cincinnati ( ) is a city in the U.S. state of Ohio and the county seat of Hamilton County. Settled in 1788, the city is located at the northern side of the confluence of the Licking and Ohio rivers, the latter of which marks the state lin ...
financial empire
American Financial Group.
Grand Central Terminal
Until late 2006,
American Financial Group still owned
Grand Central Terminal
Grand Central Terminal (GCT; also referred to as Grand Central Station or simply as Grand Central) is a commuter rail terminal located at 42nd Street and Park Avenue in Midtown Manhattan, New York City. Grand Central is the southern termi ...
, though all railroad operations were managed by the
Metropolitan Transportation Authority
The Metropolitan Transportation Authority (MTA) is a public benefit corporation responsible for public transportation in the New York City metropolitan area of the U.S. state of New York. The MTA is the largest public transit authority in t ...
(MTA). The U.S.
Surface Transportation Board
The Surface Transportation Board (STB) of the United States is a federal, bipartisan, independent adjudicatory board. The STB was established on January 1, 1996, to assume some of the regulatory functions that had been administered by the Interstat ...
approved the sale of several of American Financial Group's remaining railroad assets to Midtown TDR Ventures LLC, an investment group controlled by
Argent Ventures,
in December 2006.
The current lease with the MTA was negotiated to last through February 28, 2274.
The MTA paid $2.4 million annually in rent in 2007 and had an option to buy the station and tracks in 2017, although Argent could extend the date another 15 years to 2032.
The assets included the of rail used by the
Hudson and
Harlem Lines, and Grand Central Terminal, as well as unused
development rights above the tracks in
Midtown Manhattan
Midtown Manhattan is the central portion of the New York City borough of Manhattan and serves as the city's primary central business district. Midtown is home to some of the city's most prominent buildings, including the Empire State Buildin ...
. The platforms and yards extend for several blocks north of the terminal building under numerous streets and existing buildings leasing air rights, including the
MetLife Building
The MetLife Building (also 200 Park Avenue and formerly the Pan Am Building) is a skyscraper at Park Avenue and 45th Street, north of Grand Central Terminal, in the Midtown Manhattan neighborhood of New York City. Designed in the Internation ...
and
Waldorf-Astoria Hotel.
In November 2018, the MTA proposed purchasing the Hudson and Harlem Lines as well as the Grand Central Terminal for up to $35.065 million, plus a
discount rate of 6.25%. The purchase would include all inventory, operations, improvements, and maintenance associated with each asset, except for the air rights over Grand Central.
The MTA's finance committee approved the proposed purchase on November 13, 2018, and the purchase was approved by the full board two days later. The deal finally closed in March 2020, with the MTA taking ownership of the terminal and rail lines.
Heritage
Few railroad historians and former employees view the mega-railroad's brief existence favorably, and the company has little presence in the
railroad enthusiast
A railfan, rail buff or train buff (American English), railway enthusiast, railway buff or trainspotter (Australian/British English), or ferroequinologist is a person who is recreationally interested in trains and rail transport systems.
Rail ...
press.
The preservation group ''Penn Central Railroad Historical Society'' was formed in July 2000 to preserve the history of the often-scorned company.
As part of
Norfolk Southern Railway
The Norfolk Southern Railway is a Class I freight railroad in the United States formed in 1982 with the merger of Norfolk and Western Railway and Southern Railway. With headquarters in Atlanta, the company operates 19,420 route miles (3 ...
's 30th anniversary, the railroad painted 20 new locomotives utilizing former liveries of predecessor railroads. Unit number 1073, a SD70ACe, is painted in a Penn Central Heritage scheme.
See also
*
Alfred E. Perlman - PC President
*
Stuart T. Saunders
Stuart Thomas Saunders, Sr. (July 16, 1909 – February 7, 1987) was an American railroad executive best known for his tenure with Penn Central.
Biography
Saunders was born in McDowell, West Virginia, and reared near Bedford, Virginia. He graduat ...
- PC Chairman & CEO
*
History of rail transport in the United States
History (derived ) is the systematic study and the documentation of the human activity. The time period of event before the invention of writing systems is considered prehistory. "History" is an umbrella term comprising past events as well ...
*''
Penn Central Transportation Co. v. New York City'' (1978 Supreme Court case)
References
Further reading
*
*
*
External links
*
*
*
*
{{DEFAULTSORT:Penn Central Transportation Company
Railway companies established in 1968
Railway companies disestablished in 1976
Former Class I railroads in the United States
Defunct Connecticut railroads
Defunct Delaware railroads
Defunct Washington, D.C., railroads
Defunct Illinois railroads
Defunct Indiana railroads
Defunct Kentucky railroads
Defunct Maryland railroads
Defunct Massachusetts railroads
Defunct Michigan railroads
Defunct New Jersey railroads
Defunct New York (state) railroads
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Defunct Rhode Island railroads
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Railroads in the Chicago metropolitan area
Railroads transferred to Conrail
Predecessors of Conrail
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Conrail
Companies based in Philadelphia
1968 establishments in the United States
Companies that have filed for Chapter 11 bankruptcy