Railroads Plan Broad Cutbacks : 7,900 Jobs Targeted at Santa Fe Southern Pacific
Santa Fe Southern Pacific Corp., hurt by a continuing drop in rail freight and mounting competitive pressure, announced a massive cost-cutting plan Thursday that includes elimination of up to 7,900 jobs and a $914-million write-off, one of the largest in U.S. railroad history.
The cutbacks, which would take place over several years, would affect about 16% of the company’s workers nationwide and probably would result in hundreds of jobs lost in Southern California at the company’s lines, the Southern Pacific and the Atchison, Topeka & Santa Fe Railway. Elimination of jobs will be accomplished through layoffs, attrition, early retirement and one-time payments to employees who leave voluntarily.
“It’s a reflection of what’s happening in today’s environment,” said Isabel Benham, president of Printon, Kane Research, a New York railroad consulting firm. “Railroads have to be more efficient if they’re going to survive.”
The two railroads, which together employ nearly 7,000 workers in Southern California--including more than 4,000 in the Los Angeles area--will also cut thousands of miles of unprofitable track and other equipment and facilities.
Chicago-based Santa Fe Southern Pacific said the cuts are part of a planned restructuring effort and are unrelated to its bid to merge the two railroads. That bid was unexpectedly rejected by the Interstate Commerce Commission in July, although Santa Fe Southern Pacific has asked the ICC to reconsider. The company must file its formal request for reconsideration by Dec. 8.
If the merger is reconsidered and approved--a possibility considered unlikely by industry analysts--Santa Fe Southern Pacific Chairman John J. Schmidt said “additional restructuring costs will be recorded at that time.” The firm would not specify how large those merger-related cutbacks would be.
The $914-million pretax write-off, which would be taken in the fourth quarter, is the latest of several massive write-offs announced over the last year by major railroad firms struggling to compete against truckers and other shippers. The competition has eroded railroads’ share of intercity freight traffic and caused them to cut thousands of jobs, freight cars and miles of track.
Numerous Write-offs
Nearly every major railroad company--including Burlington Northern, Union Pacific and CSX Corp.--has taken a big write-off in the last year. Santa Fe Southern Pacific executives had told industry analysts earlier this year that the firm would take a write-off of between $500 million and $1 billion this year, said Graeme Lidgerwood, railroad analyst at First Boston Corp. in New York.
One Wall Street analyst speculated that the large size of the write-off could indicate that Santa Fe Southern Pacific has become more pessimistic about winning ICC approval of the merger. “This suggests they are gearing up to operate the railroads without a merger,” the analyst said.
Analysts, however, discounted the possibility that the write-off is aimed at coaxing the ICC to approve the merger. “I don’t think it’s a pressure tactic at all,” said Richard Fischer, analyst at Merrill Lynch & Co. “They’re just doing what everyone else has done.”
A merger of the two lines would create the nation’s second-largest railroad in terms of track mileage, following Burlington Northern.
Santa Fe Southern Pacific was formed in 1983 from the merger of the parent companies of both railroads. Although the merged company was allowed to combine its substantial real estate, oil, gas and other non-rail holdings, it has operated the two railroads separately, pending ICC approval of the merger.
Sale Expected
In a 4-1 vote, the ICC rejected the combination as “anti-competitive,” noting that the routes of both lines overlap in many areas of the Southwest, including California. Santa Fe Southern Pacific is expected to sell one or both of the lines if the merger is not approved.
Santa Fe Southern Pacific said the $914-million write-off would result in a loss for the year. In this year’s first nine months, the firm earned $123.9 million on revenues of $4.26 billion. Although the Santa Fe Railway has been profitable, the Southern Pacific has not, recording an operating loss of $13.8 million so far this year.
The company said $313 million of the write-off stems from the Santa Fe Railway and $601 million stems from the Southern Pacific Railroad.
The Santa Fe Railway expects to sell or abandon about 3,100 miles of track, including line segments and yards, for a charge of $103 million, and dispose of about 7,900 freight cars and 200 locomotives for a charge of $44 million, the parent company said. In addition, about 4,100 Santa Fe Railway jobs will be cut or relocated, resulting in a charge of $166 million.
The Southern Pacific expects to sell or abandon about 3,100 miles of track for a charge of $273 million and dispose of about 9,800 freight cars and nearly 400 locomotives, at a charge of $120 million. About 3,800 Southern Pacific jobs will be cut or relocated, resulting in a charge of $208 million.
2,400 Jobs Cut
Both railroads have been cutting jobs through early-retirement programs and through a buy-out plan under which employees leave the company in exchange for a one-time payment, in some cases as high as $50,000. Since January, Southern Pacific has cut about 1,800 jobs, and Santa Fe has cut about 600.
Spokesmen for Santa Fe Southern Pacific said it was too early to specify which employees and track would be cut under the restructuring. “We have some ideas, but they are not with enough specificity to say publicly,” Santa Fe Southern Pacific spokesman Robert E. Gehrt said.
Gehrt did say, however, that the track cutbacks would primarily involve shorter lines, as major railroads are increasingly relying on long-haul main lines, like the line from Los Angeles to the Gulf Coast. If that is the case, analysts speculated that much of the cutting at Southern Pacific would be in California, where it operates many branch lines. Many Santa Fe branch lines are in Kansas, Oklahoma and other Midwest states.
Southern Pacific’s major operations in Southern California include switching yards in Colton and City of Industry and division headquarters in Los Angeles. Santa Fe’s major Southland operations include switching yards in Barstow and Vernon, a locomotive repair and servicing facility in San Bernardino and regional headquarters in City of Commerce.
Cuts Called ‘Drastic’
Leonard Foster, general chairman in Fremont, Calif., for the Brotherhood of Locomotive Engineers, which represents about 2,000 Southern Pacific employees, called the job cutbacks “drastic” but added that there is not much the union can do about it. The company has been making working conditions so “undesirable” that several hundred employees have been taking the $50,000 payments and leaving, he said.
Santa Fe Southern Pacific stock rose 37.5 cents to close at $33.75 in New York Stock Exchange trading Thursday.
