Santa Fe, SP to Show a Profit, Schmidt Says : Sees Combined Units in Black by First Month

The combined operations of the Santa Fe and Southern Pacific railroads will be profitable from the first month after their merger is approved, Santa Fe Southern Pacific Corp. Chairman John J. Schmidt said here Wednesday.

Schmidt said in an interview before addressing local securities analysts that, even though Southern Pacific had a loss on railroad operations in the first quarter, lower capital expenditures and operating expenses of the combined railroad will put it in the black.

Schmidt also said that the company is willing to risk a strike in order to gain concessions from its unions that it feels are necessary for the railroad’s survival.

He reiterated previous statements that restrictions on the merger being sought by unions and competitors would negate the financial benefit of the merger and the company would scuttle it instead and sell one of the railroads.

The Interstate Commerce Commission is now conducting hearings on the proposed combination and is required to rule on the proposed merger by October, 1986. Schmidt said the company expects a decision by the end of this year.

Merged Since 1983

All non-railroad operations of Southern Pacific, the former San Francisco-based parent of Southern Pacific railroad, and Chicago-based Santa Fe Industries, parent of the Atchison, Topeka & Santa Fe Railway, have been merged since December, 1983.

Schmidt said the combined company already has trimmed its staff by more than the 11,300 jobs that it had said would be eliminated in the merger.

The company’s total employment has already dropped about 14,000 to about 63,000. Employment at the two railroads has dropped about 7,600, partly through attrition and implementation of a hiring freeze but also because of a slowdown in freight traffic due to economic woes in agriculture, lumber and chemicals.

First-quarter 1985 earnings dropped to $61.6 million, a 42% decline from the comparable 1984 period. Profits of the Santa Fe railroad fell by 52%, while the separate Southern Pacific railway operations had a $26.3-million loss.

“We are not merging out of strength, but rather of weakness,” Schmidt said. And he said that, in order to survive, the merged railroad may have to take the lead in seeking further concessions from its union members, even if that risks a strike.

Schmidt also said the company again is considering spinning off some of its other assets into limited partnerships or trust arrangements. In addition to the railroad, the company has vast real estate holdings, as well as forestry, pipeline, mineral and other operations.