New-York tribune., 1921-11-06
Regrouping of Western
Carriers Regarded as
Fairer Than I. C.. C.'s;
Would Group Many and
Have Only ii Systems
By William E. Hooper
TIME plan of railroad consolida-
tion prepared by John E. Old

TIME plan of railroad consolida-
tion prepared by John E. Old
ham, Of Merrill, Oldham &
Co., Boston, and published by the
Investment Bankers Association,
rests on the assumption that the only
essential difference between weak
and strong railroads, in so fur as the
larger roads is concerned, is a diff
ference in the capitalization of the
companies.
10 prove this assumption Mr. Old
ham divides the larger railroads of the
country as between strong and weak
roads, basing his division on the pay
ment or non-payment of dividends In
Group A he places tbs large roads
which are paying dividends and classes
them as strong roads. In Group b he
puts the non-dividend paying roads and
classes them rs weak. In addition he
deals with two other classes of weak
roads, the short line railroads and the
New England railroads. Under this
method of division it is found that 40
per cent OF pre-war traffic was handled
by strong roads, 25 per cent by weak"
large roads, 10 per cent by the smaller
and short line roads and 3 per cent by
the New England railroads.
Same Characteristics
Mr.. Oldham's basic contention is
that the strong roads and weak roads
handle similar traffic; that the proper
ton of income which is obtained from
different classes of traffic is about the
same; that the rates are substantially
the same, and that the proport ION of
revenue expended for operating Grams
portat1on) expenses, mantes,an ce
charges and disbursement to security
holders is about the same, and were
both weak and strong large roads CAPT
talized on the basis of their gross earn
ings there would be little difference in
the rate of return earned on the CAPT
talization of either. The difference be-
tween the weak and the strong roads is
that with the strong roads the aggre-
gate par value of all obligations and
stock is $4.07 per dollar of gross oper-
ating income and that the par Of all
obligations and stock Of the weak roads
is S7.03.
Granting that Mr. Oldham's division
of roads as between weak and strong is
a correct one, and that his method of
arriving at maintenance charges does
not invalidate his argument. the figures
bear him out. The ton mile rate and
the passenger mile rate of the two
groups are much the same--8.l2 mills
per ton mile for the strong roads
S.19 mills for the weak roadsSand 2.06
cents for both weak and strong roads
per passenger per mile. The only de-
cided difference in character of traffic
is the difference in the proportion of
agricultural products and of manufac-
lures. Of the total tonnage of the
strong roads 1872 per cent is furnished
by products Of agriculture and 1902
per cent for the weak roads. On the
strong roads manufactures furnish 1873
per cent of the total tonnage and on
the weak roads 1872 per cent.
On the strong roads operating ex-
penses and taxes, excluding mainte-
nance, consume Ali per cent Of gross
revenue and on the weak ROADS 43e
per cent. Now, however, Mr.. Oldham
to arrive at his rate OF return OF
capitalization, assumes that the weak
roads spend as much for maintenance
per dollar of gross revenue as the
strong roads. This, Of course, is not
in accordance with the facts, but Mr.
Oldham's argument is that the facts
do not invalidate the point he is try
| ing to prove. In other words, that
the weak roads could spend as much
on maintenance as the strong roads
and if, they could do it it is fair tc
assume that they do so for purpose
Of determining the rate of return or