"Too Much Debt"

In the black Depression year of 1932 a committee of railroad men headed by Baltimore & Ohio's fatherly Daniel Willard asked the 21 railroad unions to accept a voluntary pay cut. After three weeks' talk, the unions agreed to a 10% cut. Three years later, with recovery thundering down the tracks, employes' pay was restored to the 1932 level; last year it was raised another 7 1/2%. Last week, facing a crisis considerably worse than 1932, the railroads again asked the 21 unions to accept a pay cut. Snapped Chairman George Harrison of the Railway Labor Executives Association: "I never heard of such a silly thing in my life as the attempt to reduce purchasing power at the same time the President is pouring out $4,500,000,000 in an attempt to increase buying power. They are not going to get one cent from us. ... We won't give them the whiskers from yesterday's shave!"

When President J. J. Pelley of the American Association of Railroads reluctantly indicated that in this event the roads might be obliged to negotiate for a pay cut through the mechanism provided by the National Mediation Board, Labor spokesmen cracked back that the unions "would stop at nothing short of a nationwide strike" to maintain their present wage scale. As George Harrison well knows, the Railway Labor Act's detailed procedure of negotiating wages takes months & months. And even President Roosevelt admits the roads cannot wait long for financial aid. Said he fortnight ago in passing along the railroad problem to Congress: "Some immediate legislation is, 'I believe, necessary at this session, in order to prevent serious financial and operating difficulties between now and the convening of the next Congress."

If anyone doubted the President's view, he had only to consider: 1) the preliminary reports on gross revenues of 89 Class I roads in March, which showed a drop of 25.8% from March 1937, and 2) last week's action of the Atchison, Topeka & Santa Fe. Having lost $4,000,000 in the first two months of 1938, against a profit of $468,000 for the same period in 1937, the Santa Fe announced it would defer payment of 2% interest on its 4% adjustment mortgage bonds of 1995. This was no default because the interest is not due until November 1 and then only if earned, but the Santa Fe has made a practice of paying part of it on May 1. When last week it said it would fail to do so for the first time since 1896, the whole market for railroad bonds reeled.

Other red lights along the nation's trackage last week:

P: The Interstate Commerce Commission by a vote of 6-to-5 refused to allow the Eastern roads to raise their basic passenger fares from 2-c- to 2 1/2-c- a mile.

P: The New York Central applied to the ICC for permission to pledge certain securities with New York banks as collateral for a loan of $20,000,000 "for corporate purposes, including the maintenance of adequate working fund."

P: RFC Chairman Jesse Jones announced that RFC had agreed to lend $14,000,000 to the Southern Pacific subject to ICC approval to meet equipment trust maturities and $778,000 to the Lehigh Valley largely for freight car repairs, that Baltimore & Ohio officials were "confident" they could "get through" 1938 without defaulting on any obligations.

P: This week Senator Burton K. Wheeler, chairman of the Senate Interstate Commerce Committee, will begin conferences with the roads, preliminary to concocting emergency legislation. Said he last week apropos of RFC : "The trouble with loans is that they are either disguised subsidies or they increase the very difficulties we are trying to overcome. The railroads already have too much debt. More debt would not seem to be the cure. If the Government stops making foolish loans, a few overcapitalized systems will fall of their own weight and be reorganized. Some have belonged there for years and the sooner they go, the better for the economic health of the country."

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