Conrail's Profitability:

Framework for Analysis

PAD-78-52: Published: Apr 10, 1978. Publicly Released: Apr 10, 1978.

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When the Consolidated Rail Corporation (Conrail) began operations in April 1976, financial projections made by the United States Railway Association (USRA) assumed that the $2.026 billion appropriated for Federal loans and purchases of stock would be all of the Federal financial assistance that the railroad would need. USRA's Final System Plan (FSP), prepared as a basis for Federal funding decisions, forecast that the railroad would become profitable in 1979. Information about Conrail's current operations were compared with the forecasts developed when Federal funding decisions were being made; experience to date was compared with FSP projections of: output and inflation in the economy as a whole; tonnage carried by Conrail; total Conrail revenues, expenses, and deficits; and Conrail freight revenues and expenses per ton.

The FSP projections depended on two fundamental assumptions: (1) Conrail would maintain traffic until 1979 while the infusion of Federal funds permits repair and renovation of the physical plant; and (2) while repairing and renovating the physical plant, Conrail would reduce the rate of increase in unit costs below the rate of increase in the Consumer Price Index. Actual Conrail performance has been different from that forecast. Losses in 1977 were larger than in 1976 rather than smaller; tons of freight carried by Conrail were below projections although the national economy has performed better than expected; and increases in costs per ton carried have been much more than forecast. Unless changes occur in current revenues and unit costs, the Conrail system, as currently designed, will not become profitable.

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