Evening star., 1938-05-22
Number Cannot Meet Big
July | Commitments
Without Help.
EMERGENCY MEASURE
RUNS INTO OPPOSITION
Figt Over Wage Reduction Blocks
Action-Bondholders Still
Refuse Concessions.
Bv CHARLES F. SPEARE.
,e cial DiSnafch to The Star

NEW YORK. May 2l.-There IS not
much encouragement for effective Fed
eral relief for those railroads that
cannot much longer maintain their
credit without it.
The final figures Of earnings OF Class
/ roads for the March quarter. issued
this week, show 20 per cent drop In
gross and 10 per cent in net operating
income. Twenty prominent systems
had cash at the end of March Of $780,
100000, compared with about $2l5.-
OOO,O0 IL months before This was
drawn down further In April. and is
being reduced in May.
Before the Is: of July. large COM
mitments in the form of interest pay
ments and moderate equipment ma
turtles are due, which number Of
the roads cannot meet unless they have
Federal assistance.
There is not much likelihood Of any
helpful rise in revenues in this period.
in spite Of heavier loadings for the
Western and Southwestern grain car
riers.
Bill Faces Opposition.
The emergency railroad bill in Con-
gress has run into opposition from
members of the Senate. who refuse to
support motions for loans to pay fixed
charges when the railroads are de-
manding IS per cent reduction in
the wages of their employees
The publication recently of the in
creased salaries of presidents and other
railroad executives has not aided the
cause for greater Government LIBERAL
ity in the matter of lending. especially
where the beneficiaries Of higher salar-
les are identified with systems operat-
ing at deficit.
The Senators. including Wheeler,
McAdoo. Wagner and La Toilette, who
oppose loans when wages are facing a
reduction. have logical, though essen
TALLY political argument. in assert
ing that the employe should not be
penalized so that the interest of the
bondholder be maintained. They are
more interested in political relation
ships with labor than with the in
veStor.
Bonds In Jeopardy.
What. as common-senSe policy,
should be adopted. is to encourage the
bondholders to accept reduction In
his interest when such interest is in
jeopardy. The present writer has
urged this for the last several years
wherever. as in the case Of the Balti-
more e. Ohio, Southern Railway and
Erie. large proportion OF the bonded
debt carried S per cent or higher
coupon rate. To have done so would
have preserved for the institutional
and private investor substantial por-
ton of his principal at no great sacri-
flee in income.
But a contract" says the creditor,
''is contract. When buy per
cent bond. l expect it will pay at
that rate, and the courts cannot force
me to accept one at 3 per cent"
Reward Of Sacrifice.
True. but 3 per cent rate amply
covered Is more to be desired than one
at per cent but not earned. Had
Erie bondholders two years ago made
the sacrifice, it is quite likely that
the property would now be free Of the
courts and its present per cent bonds
selling in the Sos instead Of below 20.
A cut to an average Of 3 per cent on
he great mass of Baltimore & Ohio |
ponds would have eased this road out
# its present embarrassment. and at
/ much smaller sacrifice than creditors
# the Missouri Pacific, Chicago &
Rock Island, New
Iaven and other overcapitalized sys-
ems are being asked to make to effect
reorganizations.
It is not too late for some such con-
.ession to be made; in fact, rather
ardy acceptance of the plan has been
,iven by the life insurance companies,
which long resisted it. One cannot
,ave much faith, however, that it will
uceed in time to prevent other rail-
Dad mortalities. When these occur,
10th the railroad employe and the
abroad bondholder will realize the
'alue of making concessions when
conditions In the trans
,ortaiton business exist.
tCopyright. 1938..by the North Americ an
Newspaper Alliance, IncD