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Is This Any Way to Run a Railroad?

You think you've got problems? Amtrak's got an overpaid workforce. Its trains and tracks are falling apart. Worse, the carrier's balance sheet is a flat-out mess.

It is, in sum, a nearly impossible to-do list. But judging from his efforts so far, Smith has what it takes to defy long odds: steadiness, belief, and a certain imperviousness to the Coliseum crowd. Some observers say his first year on the job could be used as a case study for grace under fire. Says Coston: “I can’t imagine a tougher job than being CFO at Amtrak.”

Mr. Smith Goes to Washington

David Smith is used to tough jobs. In 1986, the Northwestern University–trained MBA took over as vice president of finance at troubled steelmaker LTV Corp. Over the next nine years, the home-spun, low-key finance manager helped guide the company through a highly publicized bankruptcy and restructuring, ultimately setting the company on a solid financial footing.

In 1995, Smith left LTV and accepted the post of finance chief at the Tennessee Valley Authority. During his tenure at the TVA, he refinanced nearly all the power producer’s $24 billion debt portfolio, paring about 25 percent from debt-servicing costs. Once, Smith even convinced then–Tennessee senator Fred Thompson to broker an 11th-hour deal that enabled the TVA to retire a $3.3 billion Federal Financing Bank loan facility ahead of schedule. Officials at the FFB were so thrilled by the unexpected loss of revenue that they acknowledged the repayment by sending Smith a terse, handwritten note on a piece of crumpled notepad paper. The letter, now framed, hangs on Smith’s office wall in Union Station in Washington, D.C.

The White House, no doubt, would be pleased if Smith applied a similar brand of financial discipline to Amtrak, a quasi-government corporation that has steadily lost money ever since its creation in 1971. The Administration’s vision of the carrier is based loosely on Japan’s passenger rail system, which was privatized in 1987 (see “A Model Train?” at the end of this article).

Under the plan, the railroad would be split into three distinct companies. One would operate the Northeast Corridor (NEC) network, which accounts for half of Amtrak’s passenger revenues. Another company, under the Amtrak DBA, would compete against private and public-authority carriers for intercity routes. The third company would maintain rail infrastructure on the Northeast Corridor at the behest of the states. “The President has threatened to veto significant appropriations for Amtrak without reforms such as this,” insists Mark Yachmetz, associate administrator for railroad development at the Federal Railroad Administration (FRA).

Smith understands that Amtrak isn’t exactly in a position to argue. “We’re not financially self-sufficient,” he says, “and, realistically, we probably never will be.” But in the past, the railroad’s management has doggedly resisted changes to its business model. Smith and Gunn, however, seem more receptive to restructuring the carrier’s operations. In 2004, Amtrak exited the mail and express cargo business. This year, the company commenced a plan to create a wholly-owned subsidiary out of the NEC infrastructure.

The plan did, however, mimic President Bush’s proposal to set up a matching federal/state grant system for the upkeep of trains and tracks — a system that would relieve Amtrak of a mighty load. In the carrier’s $1.8 billion subsidy request for
fiscal-year 2006, about 40 percent of the money is earmarked for capital-asset investments.

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