Santa Fe's Financial situation at the time of the merger

OK, I'll fully admit that when I was 21 in 1996, I didn't really pay attention to the whys and hows of the BNSF merger, but I remember being under the impression that under Haverty, ATSF was doing quite well and had recovered from the issues with the failed SPSF merger.

I recently read someone on another board mention that Santa Fe was a mess under Krebs (in response to another poster suggesting BN merged in part to get Krebs and the management team)

Can anyone give me a nickle tour of the Financials of BN and Santa Fe at the time and clarify this?

I suppose this could go in the Fallen Flag board, but since it's directly related to the founding of the company...

 

The Santa Fe, under Haverty's watch was doing well and was described as, The Biggest Little Giant, in the railroad world. In the failed merger between ATSF and SP, the Santa Fe board voted out Haverty and welcomed on board Krebs. Krebs moved over from SP to take the helm and shepherd the ATSF. It was in the transition period things began to fall apart for the ATSF. Krebs was no savior and problems began to develop in the routing and shipping departments. BN did approach Krebs, asking him to come over to BN as their president. His response was only if he could bring his Santa Fe. Which I think was the answer BN was looking for. They needed a hot little route into Southern California and this appeared to be and was the best option available.

It's my opinion that Santa Fe could of been a stand alone railroad in the ever changing world of railroads. Although, I personally opposed the merger of the BN with the Santa Fe, it turned out to be a viable and profitable link up. Of course no one bothered to ask me.

You can do your own research and most likely you will find references to those things I've mentioned here.

That's it in a nutshell.

A quick and simple summary.

 

As I understand it, Krebs was in charge of Santa Fe Pacific while Haverty was in Charge of ATSF Railway, so they did work together. Rumor has it Krebs was a shrewd operator and that's part of why Haverty left.
Rumor also has it that Grinstin never intended to have the ATSF Brass completely take over, but again, Krebs was an operator and Grinstin planned to leave in the near term anyway.
A simplistic look at the 2 would be that ATSF was Cash Poor, because its traffic was 50% intermodal, but it was making money and had a brand new computer system that they sold to other companies. BN was Cash Rich, partially because of the Land Grant Holdings (which took over a 100 years to be profitable) and it's traffic profile, but saw intermodal as the future. So they bought the country's number 1 intermodal railroad


The discussion that generated this thread is actually fascinating. The board has a slightly different demographic though and thus a slightly different focus.

Perhaps the core of the discussion right now is currently revolving around Railroad mergers and in particular the Northern Routes Merger.

Apparently, assuming the information provided is accurate. The notion of the BN merger was to consolidate on GN which appeared to be the lower cost option given the route profile. Consolidation being a good thing, because NP was "poaching" GN traffic, but it turned out that NP had done a better job upgrading it's route versus GN with 132lb rail and was slightly better about tie replacement, so in fact the High Line was more expensive to operate and nearly doomed the business.

Another interesting Meta aspect of the discussion is that a lot of people on the internet discussing the economics of railroads have no idea how regulated railroading worked and so much of their commentary has little bearing on a discussion of Railroading in the 1970s.

 

Most of your information is correct. Disclaimer: To the best of my recollection.

I don't believe Haverty and Krebs worked together... except for a short period of time after the announced merger between SP and the Santa Fe. During this transition time Krebs, still headed up SP while Haverty was in charge of the ATSF. It was alleged that SP did benefit from the merger. Your guess how is as good as mine.

I believe though, both had computer systems - home made, that were ahead of their time.

After the FCC denied the merger directing them to separate. The Santa Fe board, let Haverty go and promoted Krebs. Most of this done behind closed doors.

Contrary to some reports SP was in good shape due to Krebs, foresight. However, after each railroad returned to their own corners, both railroads saw rail traffic drop off and things took a turn for the worse. Truck competition and the fact that many manufacturing plants Ie., Car assembly for GM, Ford, Toyota, Nissan and Chevy moved out of California. Due to over taxing and the fretful tree huggers. Truck farming literally went to truckers as they could reach the eastern sea board ahead of the trains, delivering a fresher product. Never mind Sony, Panasonic, RCA and others moving to other states or nations to have their products assembled.

After BN and ATSF merged most of the cash profits from the ATSF was used to rebuild the northern routes. Once that was completed the focus was once again put back on the ATSF routes to double track and add trackage Ie., Through Cajon Pass.

After the ATSF and BN became BNSF or one railroad, SP after much discussion with Anschutz merged with the D&RGW. No longer land locked to just Colorado. Odd point of trivia perhaps: UP didn't want the D&RGW and had said so in previous periodicals and news bulletins. Later when Anschutz negotiated a merger with UP...the D&RGW came as part of the package.

Today, the products coming into the ports up and down the Pacific seaboard have benefited the railroads and much of the traffic has moved to containers and piggy backs. Should this traffic dry up or drop off the railroads will most likely be hurting.

Now right about here, I want to grumble about the whole thing. Aw what the heck...it is, what it is. GRRRRR! And it's all said and done. It's over!

 

Well, Haverty was around well after the SPSF merger fell through, because he was the one that introduced the Superfleet. It wasn't till the 90s that he left and Krebs and he had to have worked together. SP was bought by Rio Grande, not the other way and SP was spun off of Santa Fe Pacific.
As for UP, my understanding was that UP was happy with the Railroad it had and was happy to not gobble up C&NW, but When BN made an offer on ATSF, it saw that as a threat and made a counter. This raised the price BN paid for Santa Fe and in the end, UP was forced to fully absorb the C&NW.
Anshutz meanwhile had failed to completely turn SP around. They were pulling up track and deferring maintenance. The fact was that SP generated too much of UP's bridge traffic to ignore, so they had no choice really but to merge.

Again, I'm no expert and I wasn't there. I'm just piecing together what I've heard. One things for sure, if you took a BN, SF, SP and UP employee say, a midlevel person, put them all in a room and asked them to write up what happened. You'd never get an agreement out of them.

 

There's more to any story when you start digging.

Haverty and Krebs may have worked together through a short transition period after the SP and SF split off. Where I differ with you is The Superfleet was already in place before the SPSF failed merger just not as obvious in the public's eye. It was started by Haverty, with the old FP45's. The GP60's that joined ranks along with others, had been ordered out by Haverty, prior to the SPSF, announced merger. Krebs was obligated to see it through.

I believe it was during the time between the SP and D&RGW merger that the residing president of SP, began to deffer maintenance and started running shorter trains. It was during this time period that California saw serious looses to it's tax base due to the exiting of many manufacturing plants and car assembly plants. It's been a real mess in California, ever since. I think I touched on this in an earlier post here.

You mentioned this in your posting and you are correct. Anschutz and the now residing president, formerly SP's president was unable to turn things around. When the traffic falls off...well, what's a guy to do. There was talk of shutting down the coast route and splitting it in half. Amtrak objected and the route was kept open...barely. The SP kept Tennessee Pass open and the MoDoc while competing with UP for Coal Traffic. The Wisconsin Central ended up getting into the mix although, I don't recall how...at the moment. Later, seemingly out of spite...UP closed the MoDoc and Tennessee Pass. I think the Siskiyou was already sold off and belonged to private parties.

At one point Haverty's future looked a bit uncertain. This didn't last long as KCS, took a look at him and you can see for yourself the results of that union.

I might suggest there has been a lot of hype written by Trains editors, that isn't correct and some that is. Some of which you may have heard or read. Nothing of course is as simple as I've summed it up. I'd give anything to know what really happened behind closed doors and via personal communications.

I had friends that worked for the ATSF and I was getting the Santa Fe employee news... that kept me advised. Keeping in mind that not everything that comes down the grapevine is reliable and or correct. Some of it designed to deliberately mislead....

I can appreciate your interest.

I hope my recollections helped.

Good to chat with you....again!

 

The FP45s came out of the Paint shop in June of 89

SFSP was denied in 1987 and SP was sold in october of 1988

Haverty Was the Santa Fe President from 1989 (date unspecified by Wikipedia) to 1991 before being replaced by Krebs. Haverty apparently had his own company from that point to 95 when he came on at KCS. It's unclear if he was affiliated still with Santa Fe. He'd been a Santa Fe guy since 1970 though.
Krebs was apparently CEO of Santa Fe Pacific after it sold off Southern Pacific. So they in fact did work together for the entire time with Haverty reporting to Krebs.
Prior to Haverty was Swartz who was also only in the job for 2 years.

It's the assumed fact that Haverty was the one that came up with the Super Fleet.
Certainly he was responsible for the J.B. Hunt deal which actually is what turned the Superfleet from words into money, so it makes sense that he would have been responsible for both. I obviously don't know.
The timing seems such that he could have. It doesn't take that awfully long to paint a couple FP45s.

 

If you are trusting Wikipedia, for your information. That's almost as bad as reading Utah Rails. Trust me these aren't good sources to hang your hat on. They've been written by rail fans and typical of most, don't have the facts 100% correct. Ie., FT's, The T stands for 2,700 horsepower. In a FT? Think about it.

The timeline was never important to me as much as what happened under the leadership of specific individuals. What I do know is Haverty, left the Santa Fe as the acting President and officially it was Krebs that answered to Haverty, up until such time. Krebs in the meantime got his foot in the door with the Board and in essence...you are correct as to who was running the Santa Fe, covertly.

I've never been one to worry about dates and times as much as I've been interested in what happened and under who's leadership Ie., What was tried, what was learned and is it worth repeating?

I pulled out a Trains magazine dating back to this time and your account is very close to theirs. I don't believe the time line is correct with regard to the Super Fleet. These locomotives were plying the rails before the announced merger between SP and ATSF. Perhaps no more then a year or two. It was in the transition period most of the newer locomotives arrived on the ATSF property. Still under Haverty's presidency and/or perceived authority. The credit belongs to him and him only.

I won't argue the point...further...seems a bit mute at this point anyway.

Repeating myself: There is a lot of misinformation out there and time lines that aren't at all accurate or correct. I would have to go back through my Santa Fe periodicals, the local papers (talk about inaccurate information) the Trains (wig wags, which in the lingo of the "Rails" is a "Tattle Tale") are accounts of this adventure but also full of errors. Some acknowledged in later issues and recanted in others. A little hard to collect everything that went on. Never mind that I'm doing this off the cuff...how many years after all the heated debates. I'm a fallible human being and as such...well...I could be wrong. Just throwing it out there as I remember it. Having no interest in perpetuating the nonsense of that which was written at the time.

You can make me look back if you desire...heck...go for it. Too late, I beat you to it.

 

Well, the merger was announced in 1983, so there's really know way the Superfleet existed then.

The 991/199 (I assume there was an 891/198 Train as well)train which was one of the trains that got Superfleet engines did predate the paint and the Super C existed in the 60s and 70s and inagurated with FP45s. Certainly the Super C was the spiritual predecessor of the 991/199 et al and the Superfleet in general.

 

It's interesting, apparently, the BN merger percolated for the better part of 20 years and planning for which lines to consolidate on was pondered for at least the better part of a decade. It begs the question then, did they proceed from a false assumption that with it's less curvature and grades, the highline had to be better without looking at any of the other variables at play?
Maybe in 1960 the Highline did make more sense, but the acts taken in the 60s reversed this?

Certainly prior to the current financial Crisis, Stampede was being reasonably utilized and MRL certainly puts plenty of traffic over the former NP.
Consolidation east of there may have made more sense. It sounds like if nothing else, the Twin Cities and Duluth/Superior benefited from Yard Rationalization.

On a sidenote, I've read that one of the problems with the Milwaukee is that it didn't hit as many major population centers.

Also, I remember in 2007 didn't the state of Washington Float the idea of rebuilding Snoqualmie in order to increase capacity?

Certainly, the PacNW is dominated by BNSF north of Portland.
A world where SP could have merged with Milw would certainly have been interesting. Neither company was exactly Financially sound in order to make such a thing work though.

 

ATSF, SP, BN, SPSF and then BNSF.

That be true!

Question: Which merger? SP and ATSF or ATSF and BN? I think you are referring to the SPSF. At one point Haverty knew the SP merger would be dissolved. At this point he ordered back the Red and Silver War bonnets. It was understood that Krebs, wasn't quite on board with ATSF and there was a question as to whether or not he would remain with SP. There was considerable lag time that took place. Krebs did eventually leave the SP to join with the ATSF with a future eye on the presidency. At least that's how I saw it and heard it from a number of ATSF resources.

As far as SP not having the resources or was on a poor financial footing with regards to the comment about the Milwaukee. I'm not sure where that concept came from.
SP was a predominant player in the stock market and in property holdings here in California and elsewhere. The concern was that Milwaukee was basically a railroad to nowhere. As you mentioned it didn't go through a lot of major cities. When the railroad was built it was done much like any other...in hopes major population centers would grow and build up around it. They were a railroad to late with a costly route to expensive to maintain.

Historically, SP on the other hand did buy up everything it could get it's hands on in the South. It's always been a major player as a freight hauler.

What almost killed the railroads in California was indeed the loss of freight traffic, formerly generated or created here in CA. As already noted, in two of my postings. Up till then they couldn't get enough trains running east to accommodate the loads available. They had no interest in merging...it didn't benefit them to do so. It was a virtual foot race to see who could pull the most freight into and out of CA.

I've got to close down my part in this.

As always, you've managed to create a very interesting discussion. Good to swap old war stories with you....YoHo! Is that what Santa originally said at Christmas?laugh:

 

The Southern Pacific Railroad was cash poor. There's a reason they curtailed new loco purchases prior to the Anchutz buy out.
They had Sprint, but I'm not sure just how much cash could have been generated had they spun it off sooner given that they needed to wait for Ma Bell to get taken apart and settled before they had solid value there.
Ticor also was a huge drag on the bottom line.
Even after the SPSF merger fell through, they were cash strapped pulling up rails and sending the cars to Greenbriar to create the Golden West lease fleet. In the 70s I don't think they would have had the cash to take on Milw's debt.

And yes, Milw went nowhere...except, it went to Tacoma and it went to Chicago. Having a route directly in to Chicago was a long time SP dream and it could have come earlier.
Also, one has to wonder if Milw could have been a player in the Powder River Coal game. Certainly part of that boon exists in Montana.
I agree that that pairing would have had it's issues.
but given the nature of the BN and it's constituents, it was the only alternate available to be purchased. BN had no interest in giving up NP or GN. Considering their logic was to consolidate routes which were poaching traffic.
Traffic which Milw picked up when the lines merged.

Of course, the Pacific extension didn't make it through to Staggers. One wonders what could have happened had it lasted.

On a similar note, one has to wonder if Rio Grande and SP had merged a decade earlier, would that have impacted the Rock?
Again, SP wanted a route in to Chicago...

 

The people I've read who command my attention (you being one of them ) oft point out that it was the graingers that were in a competition that was driving down profitability.

I've also had unrelated discussions about the beginnings of each of the northern Transcons. I've read from a fairly reasonable source that the NP is a road that shouldn't have been built when it was. It cost the Government dearly and was a horrible financial pit, because it was a land grant railroad. There was no demand for it the way their was for the more southernly lines.
The upshot being that the government should have waited for GN and Milw to do the work.
NP wasn't even really able to realize much value on the grants until relatively recently AND it drove down the value of the government owned lots to boot.

Of course decades and leadership and traffic changes later, the NP was the better route, but getting to that point.


I've always wondered why nobody every complained when Milwaukee shut down lines west that it left a virtual monopoly in Washington.
Yes, UP and SP had trackage rights, but You can't tell me they originated anything close to equal traffic into and out of Seatac.

Sorry this thread is kinda going all over western Railroading. What can I say, it's an interesting subject.

 

I don't know enough of the Histories of the lines in the PacNW, I assume at some point Steven's Pass had similar restrictions? When were the tunnels widened?

in 2010, or for that matter, the preceding 30 years, It likely doesn't make sense to widen the tunnels, but certainly such things happen if it will improve revenues and capacity.

I would assume that during the height of the capacity crunch a few years ago, it was at least studied.

 

I should clarify that I'm using poaching as a short hand to describe my perception of the BN management team's perception, not as a neutral observer would or should. I'm trying to be in the mind of those people who created the merged company and what they are thinking. I've heard it described that the NP was "poaching" traffic form the GN and that's why GN wasn't profitable. And then after the merger, Milw picked up traffic due to the fact that BN couldn't handle it due to the bad decision to make the high line THE line.



I agree it's an overly negative term. Also, I didn't mean to undermine the places Milw did go, but again, I'm trying to see it from the minds of executives at the time, or our perceptions of such.
In this case, it's hard to distinguish what they were genuinely thinking and what we, the outside observers along with time have attributed to them.

which is why I made the thread.
All in all an interesting subject.