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• 1. Corporate History
• 2. Operational and Financial Performance
• 3. Government Funding and Financial Future

APPENDIX A
AMTRAK's Crown Corporation Model

AMTRAK was created by the U.S. Congress in May 1971 to provide intercity passenger rail services; it is the only company that provides such services in the contiguous U.S. Today, AMTRAK serves 40 routes covering 516 stations in 44 states with more than 200 trains in operation every day over 24,000 miles of track, 730 miles of which it owns. Only one of these services, the Metroliner in the North East Corridor (NEC), is profitable in the sense that it meets all of its operating expenses and makes a financial contribution to overhead and capital. AMTRAK carries about 20 million passengers a year and another 48 million commuters under contract with some of the nation's largest (municipal/regional) commuter agencies. The railroad's total revenues amounted to US$1.67 billion in fiscal year 1997, including passenger-related revenues of US$1.03 billion and commuter operating and reimbursable revenues of US$333 million, with other revenues making up the difference.

Despite these impressive numbers when compared to VIA Rail, AMTRAK, nevertheless, recorded an annual operating deficit of US$762 million in fiscal year 1997. The company's US$4.5 billion in assets include more than 1,500 bridges, 16,396 pieces of catenary (overhead electrical) equipment, more than 300 locomotives and 1,700 passenger cars. The average age of the passenger fleet is 18 years, while the average age of its locomotives is 13 years, but the latter will soon drop to 3 years when the latest batch ordered is delivered and older units are retired.

1. Corporate History

Until 1971, passenger rail service in the U.S. was provided by independent railroad companies as part of their common carrier obligation. Although closely regulated by the Interstate Commerce Commission, as well as various state regulatory bodies, the growing operating deficits related to passenger services of these railroad companies, which was estimated to be in the hundreds of million dollars, permitted the carriers to seek and receive authority to discontinue them. As a direct result, the passenger train was disappearing in the U.S. at such a fast pace that most experts forecast its extinction by 1975. So, in 1970, to ward off this possible fate, the U.S. Congress passed legislation in the form of the Rail Passenger Service Act, which directed the Secretary of Transportation to designate which passenger routes would be retained.

The new Act allowed each railroad then providing intercity passenger rail service to voluntarily transfer that service to a new corporation, the National Railroad Passenger Corporation (AMTRAK), provided that the railroad company handed over cash or equipment as the quid pro quo. All but 4 carriers complied immediately in 1971 by transferring what at best can be described as their

tired and aging fleet of locomotives and coaches, as well as by loaning 20 employees to the new railroad. By 1976, the four hold-outs also transferred their assets to AMTRAK. This Act also conferred preferential access to passenger trains over freight trains, with this access compensated on an incremental cost basis, along with the right to provide mail and express package rail services.

Legislation was again passed in 1973 and 1976 to give AMTRAK the authority to acquire its own track system - the 621 miles of the NEC right-of-way - from the bankrupt Penn Central, plus other stretches of track, stations, yards and facilities across the country. These transactions made AMTRAK a de facto operating railroad responsible for dispatching, engineeering and maintenance. Between 1982 and 1989, AMTRAK finally completed the acquisition of its employees (train and engine crews).

2. Operational and Financial Performance

AMTRAK has a strategic plan that would see it become operationally self-sufficient by 2002. That is, the railroad company is in the process of implementing a plan that would have revenues (operational and others) cover its operating expenses and, thus, would be free of federal government operating grants by 2002. AMTRAK would then be reliant only on federal government capital grants. This so-called "glidepath" to operational self-sufficiency includes dividing the company into three business units: the NEC, the West and Intercity divisions, as well as redesigning its activities that offer the greatest potential for service quality improvements and cost reductions.

Table 1 provides a snapshot of AMTRAK's financial performance in 1997. These results generally reflect the financial results obtained throughout the past decade, excluding its historical poorest showing between 1994-95. For example, the operating loss of more than US$700 million in 1997 translates into an operating ratio (operating expenses/operating revenues) of about 1.5, a number relatively unchanged throughout the 1990s. However, the federal government's appetite to fund these operating shortfalls appears to be waning. Clearly, the operating grant has been declining at a much faster pace than these operating deficits over this period.1

Table 1
AMTRAK Financial Performance by Division - 1997

	Intercity	NEC	West	Corporate	Total
Revenue Expenses	$515.1 801.1	$931.4 1,053.2	$204.5 284.1	$22.7 297.3	$1,673.7 2,435.7
Operating Loss Federal Operating Grant Other Federal Contributions	(286.0) 22.5 98.1	(121.8) - 83.6	(79.6) - 23.2	(274.6) - 16.6	(762.0) 222.5 221.5
Net Operating Loss Noncash	(165.4) 90.9	(38.2) 146.0	(56.4) 14.2	(258.0) (3.5)	(318.0) 247.6
Budget Result	($74.5)	$107.8	($42.2)	($261.5)	($70.4)

Source: Amtrak, Annual Report 1997, p. 32.

3. Government Funding and Financial Future

The federal government will have invested in excess of US$19 billion in AMTRAK through 1997, including US$2.1 billion in 1997 under the Amtrak Reform and Accountability Act. In addition, the Taxpayer Relief Act of 1997 authorizes operating and capital grants for 1998 through 2002. These grants decline from US$1.138 billion to US$955 million in 2002, reflecting gradually reduced operating grants. Significant components of the Act also include the repeal of the requirement for AMTRAK to operate a federally mandated basic route system for passenger service, authorization for AMTRAK to negotiate changes in how it contracts out certain labour functions, significant liability reforms and replacement of the existing Board of Directors. Furthermore, the Act provides for the establishment of a Reform Council, responsible to Congress, to review, evaluate and recommend changes to improve AMTRAK's financial performance. The Council is required to provide quarterly reports to Congress; if, at any time after two years after the enactment of the law, the Council finds that AMTRAK will not meet the goal of operating self-sufficiency by 2002, plans for AMTRAK's restructuring or liquidation will begin.

AMTRAK is in the process of re-engineering its business, which includes the decentralization of the corporate structure into individual business units. It was felt that such a restructuring would benefit the bottom line since it would bring decision-making "closer to the train platform." More specifically, the reorganization would: (1) focus on product line and service delivery accountability and "ownership" to enhance the level of customer service; (2) facilitate decision-making centered on the customer, empowering employees to make those decisions at the point of customer contact; and (3) develop and enhance relationships with major partners, such as state and local governments, commuter agencies, freight railroads and others.

In terms of reducing costs, AMTRAK intends to pursue greater efficiencies. One area it has been looking to improve is its fleet management procedures and, recognizing that rolling stock sitting in yards does not produce any revenue, has adopted a "run through" system. For example, a train arriving on its overnight run in Chicago from Washington would ordinarily rest in the yard for servicing for 24 to 36 hours. That train now continues on that afternoon as the Southwest Chief, AMTRAK's daily service to Los Angeles. The train will then be serviced there and, one day later, will begin its return to Chicago and Washington. Not only is this system more cost effective, it reduces the combined equipment allotment and provides more flexibility with its fleet, this system cuts down on the number of maintenance facilities by locating them at one of the end points.

However, as reported by the General Accounting Office (GAO), AMTRAK's ability to reach operational self-sufficiency by 2002 will be difficult given the environment in which it operates. AMTRAK is relying heavily on capital investments to support its goal of eliminating federal operating subsidies.

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1 Actually, the operating deficit, excluding noncash items such as depreciation charges, has increased from US$496 million in 1988 to US$514 million in 1997. However, the federal government's operating subsidy and mandatory payment has declined from its historical peak of US$542 million recorded in 1995 to US$444 million in 1997, representing a decrease of 18.1% in just two years, compared to an operating deficit, excluding noncash items such as depreciation charges, that declined from US$554 to US$514 million, representing a decrease of 7.2%.