Troubled Scarlet Woman

Railroads are rich in history if not money, and none has been quite so colorful as the Erie Lackawanna. Decades ago, investors commonly called it the "Scarlet Woman of Wall Street" because its stock was manipulated and fought over in some celebrated battles between Jay Gould, Jim Fisk, Commodore Vanderbilt and Daniel Drew. Later, the road became known as the "Route of the Phoebe Snow" because of a famous ad campaign that boasted about its clean passenger trains.

Last week the road of the Scarlet Woman and Phoebe Snow was knocked over by Tropical Storm Agnes. Floodwaters damaged 135 miles of track in upstate New York. Directors saw the disaster as the last straw for the cash-starved line and filed for bankruptcy. President Gregory Maxwell hoped that by putting off all debt repayments, the Erie could rework its "unwieldy and overburdening debt structure."

Indeed, partly because of the manipulations of robber barons who controlled it in the bad old days, the line is often cited as having more debt per mile than any other U.S. railroad. Last year Erie persuaded its creditors to stretch out some debt payments. Its deficit shrank from $8.9 million in 1970 to $2.1 million last year, but losses mounted again this year due to sluggish steel shipments. Through a series of subsidiaries, Erie is controlled by the wealthy Norfolk and Western Railway. Investors are now wondering what will happen to another line controlled by the N & W, the money-losing Delaware and Hudson. If it went into receivership, it would have plenty of company: of the nation's 68 major railroads, six are in bankruptcy, and the Interstate Commerce Commission officially lists 17 others as teetering on the brink--including the Delaware and Hudson.

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