Evening star., 1936-08-21
LONG-TERM RAIL
FINANCE PROBLEM
Competition and Improved
Methods May Hold Fate
of Carriers.
Spe cial Dispatch to The Star.


NEW YORK, August 21.-An in
vestor, to which a bond salesman re-
Gently offered new railroad 81 per
cent issue with 60-year maturity.
made this remark: Both ! and my
heirs will be dead in 1896. So why
should I buy a bond that does not ex-
pire until then? And what will the
status of the railroads be in 60 years
with motor trucks and pipe lines stead
lily taking freight business from them,
and the motor bus and airplanes cut
ting into their passenger trafic?"
These questions have frequently
been asked. OF course, the private
investor seldom buys a bond expect
ing to carry it to its due date. If it
goes UP he may sell 1t and put the
proceeds into some other good market
possibility. If it goes down and stays
down he is quite likely to sell it and
take his loss. It was rather a naive
idea of the investor that he or his es-
tate would be compelled to keep it
until its maturity. The life insurance
companies do this. So they are not
much bothered by the ups and downs
OF a long term bond.
Question More Difficult.
The other point-that of future
competition-is not SO readily an
swered. Just now the statements Of
the carriers make good reading for
their stock and bond holders. Freight
Is moving in the greatest volume since
1880. The June reduction in passen-
ger fares in the East has stimulated
a larger amount of travel than the
Eastern systems have enjoyed since
1929. Benefits from this have also
been realized by the Western lines.
which reduced fares two years ago.
For the present, therefore, the COM
petitive factors do not loom SO large
or seem SO formidable as they did in
1884 and in 1885, when the carriers,
as a whole, failed to earn their fixed
charges.
1t does seem, however, that, in
bringing out new issues, the railroads
might follow more closely the policy
adopted by the public utilities in their
refunding operations the last 18
months and keep their maturities
down to 80 or IS years as maximum.
A few of the 1886 railroad loans have
even bridged the twentieth century
and made their due dates well into
the twenty-first century.
It is less than a quarter of a CEN
tury since motor competition began
to affect railroad earnings and to COM
pei a complete readjustment in pas
senger equipment to meet it. And not
over 10 years since the receipts OF the
airlines on the coast-to-coaSt, the
New York Washington, New York
Boston and New York-Miami routes
first caused the passenger traffic OFF,
cials of the steam roads many anxious
days and nights.
Trends Alter Values.
With the momentum of transpor-
tation in all of its phases increasing,
what may be the chief medium of
travel. say in 1896. when the particu-
lar bond issue mentioned above falls
due? Or even in 1866? One Of the
great problems of those who are at
tempting to reorganize railroads, such
as the Missouri Pacific, Rock Island.
Chicago g. Northwestern and the New
Haven, is the fair disposal of parts of
each system that were money-mak-
ers 25 years ago and now are not
worth their salt to the proprietary
company.
It is obviously to the advantage Of
the railroad in borrowing today to get
the current low, long-term rates for
money, and for as extended period
as its bankers will permit. 1t is not
so certain that the investor will get
as good deal as the borrower. He
cannot overlook the steady run of
spectacular events in the world of
transportation.
Copyright. 1867