Will SP Have the Strength to Be on Its Own Again?

In a California corporate context, the plight of Southern Pacific is sufficient to elicit sympathy from Ebenezer Scrooge. For in its June 30 decision to let stand last year’s rejection of a Southern Pacific-Santa Fe merger as anti-competitive, the Interstate Commerce Commission has renewed a government vendetta against the only major railroad conceived and headquartered in California.

Southern Pacific came of age under the tutelage of America’s great railroad entrepreneur, Edward H. Harriman, who aligned the system with his Union Pacific. It was Harriman who double-tracked the line over the Sierra Nevada, tunneled a direct entrance into San Francisco and bridged the Great Salt Lake. The commission interpreted this record as reckless ambition, and severed the SP-UP unification on the eve of World War I.

Remember “the friendly Southern Pacific”? That slogan and a beyond-the-call-of-duty performance in meeting the logistics of two-ocean World War II helped the railroad dampen the reputation that it had incurred from Teddy Roosevelt’s denunciation of Harriman as an “undesirable citizen” and from Frank Norris’ novel, “The Octopus.” Ironically, a loss of power caused SP’s second confrontation with public opinion and the commission. During the late 1950s, sooner than most railroads did, SP recognized that the competitive realities of an America bridged by jetliners and the interstate highway system endangered the solvency of an iron horse encumbered by depots every seven miles, commuters, branch lines to Endsville and empty Pullmans.

But Washington regulators rebuffed SP in its attempts to quit the passenger business, take over the parallel Western Pacific and shuck off such plagued subsidiaries as Northwestern Pacific and San Diego & Arizona Eastern.

Other lines, resentful of the clout of what had been for generations the country’s No. 1 line in mileage and No. 3 in revenues, attacked the aging, ailing lion. Santa Fe reneged on a gentlemen’s agreement to share its rails over Cajon Pass, forcing SP to lay its own track. Union Pacific’s acquisition of Western Pacific nullified its historic connection with SP. Southern Pacific failed in its attempt to create a coast-to-coast Sunbelt system through a merger with Family Lines. Meanwhile, roundhouses elsewhere were being restructured on a scale that dwarfed SP’s ambitions. When passenger trains threatened to swamp a fragile merger of the Pennsylvania and New York Central railroads with red ink, Congress spent $7 billion to bankroll Conrail, whose rails engulfed the Northeast like spaghetti. Simultaneously, the ICC was finding the courage to sanction a Burlington Northern consolidation and a Union Pacific expansion that effectively controlled railroading throughout the northern two-thirds of the West.

It took two courtships for archrivals Southern Pacific and Santa Fe to file for a marriage of necessity in 1983. A Santa Fe Southern Pacific Corp. assumed the non-rail assets of the partners, and a perfunctory petition to merge the railroads was filed with the ICC. The humiliation of SP under the palm of its younger, upstart competitor was deepened by Santa Fe’s characterization of its unlikely partner as near-bankrupt. What could an elderly ICC, staggering in the twilight zone of deregulation, do but endorse a Big Three (Southern Pacific-Santa Fe, Burlington Northern and Union Pacific) in the West to complement the existing Big Three (Conrail, CSX, Norfolk Southern) in the East? Who could fear any railroad when freight trains accounted for less than a third of intercity ton-miles and no railroad was by the commission’s own figures revenue-adequate?

Next square: no deal. Did the commission rebel over a perception that it was being taken for granted? Did it voice a Last Hurrah? Was it genuinely frightened by the prospect of so much track in California and, to a lesser degree, Texas under one banner? Possibly yes. Regardless, the vote was 4-1, no. And after a bemused Santa Fe Southern Pacific Corp. granted the enemy, tiny Denver & Rio Grande Western and big Union Pacific, access to California over its rails from Texas and Utah . . . why, the vote was still 4-1, no.

So now, for the umpteenth time in this century, the ICC has denied Southern Pacific, and its owner must locate a benign Scrooge. Both Kansas City Southern (a small but iconoclastic carrier between its namesake city and the petrochemical-rich states on the Gulf of Mexico) and Burlington Northern have expressed interest. Some would suggest that SP should simply become a toll road, letting anybody with a train and a charge card use its rails. Visionaries glimpse a golden opportunity for the creation of true transcontinental railroads if Southern Pacific or Santa Fe goes onto the auction block and attracts one of the Big Three in the East.

And a few traditionalists, and doubtless an army of SP people, must hope that the railroad can find the strength of soul to go it alone again--as the ICC obliged it to do in 1913.