Show Railroads Watching Outcome I of Receivership Chicago for Chicago j Milwaukee St. St Paul Lines Electrification and Roller Bearings Dealings Discussed By Econos li s mist Over-Extension Over and Bad Crop Years Blamed For Decline Special Dispatch MINNEAPOLIS August 12 Rog 12 Rog Roger er W W. Babson arranged his trip to the Pacific coast so s to return by the Milwaukee road This is the only transcontinental line which has been thrown into receivership rec during the thelast thelast thelast last 20 O years ears In his Interview today t y Babson describes the history and out out- outlook outlook look l k for this property His com corn complete Jete statement is as follows HISTORY TEACHES LESSON LISSON J The original owners of or the Chi Chi- Chicago Chicago cago Milwaukee St St. Paul were of the most conservative conser type Consid- Consid crabe crable English money was as invested In Inthe Inthe inthe the undertaking and the roads road's s credit up to 15 years jears ears ago was the very high high- highest highest est st the common stock selling idling around OO a share five fl T years jears cars ago wealthy healthy men liked to own a railroad whether they knew anything about railroading or not This desire was probably prompted bj by b the same in instinct In- In instinct which makes a toy train ct- ct to a small boy boj statistics show in fact that the primary primar differ differ- difference difference ence between a man and a boy is the of his toys Now certain certain tain men who had made a lot of mon mon- money moncy money ey cy In connection with ith oil and copper decided to buy bU the Milwaukee rail rail- railroad railroad railroad road and they did old After purchasing it they decided to build through to the Pacific Pacific coast Sitting in their of offices of- of offices flees in New York these men ordered this difficult and e 1400 mile extension from the Missouri river to to Seattle and Tacoma as they would order a n steak for dinner According to leports reports some of the these e directors would give ghe more thought to studying a menu card than a railroad map Soon after the extension e. e was was- built these men saw they had made a mis mis- mistake take It If it takes courage and indicates indi indi- indicates indicates cates good judgment to sell at a loss and get out of a bad thing these men certainly had both courage and good judgment Soon after this the stock started on its great decline and the of the dear public became the owners Milwaukee road The common stock fell from to 3 and the preferred which heretofore was vas considered of the highest grade railroad invest invest- investments investments ments fell from to 7 7 Finally in 1925 1925 a receiver was appointed for the property Since that date Kuhn Loeb L Co and other bankers have been working on a plan of reorganization reorganization which is now awaiting the the-ap the ap- ap approval pro al of the interstate commerce commission This plan provides pro 1 for lor raising new money by an assess assess- assessment assessment assessment ment on the stockholders although these stockholders are to be given some bonds for their new income 2 a radical reduction in the fixed charges for at least five years jears and 3 provision for a new prior lien is- is isSue issue Sue to provide for future financing This reduction in fixed charges is 15 being be being be- be being ing accomplished by giving income bonds to all old bondholders except the holders of underlying liens hens There There- Therefore fore ore most of the bondholders are to get in place of their present hold hold- holdings tings ings gs an Income bond which will probably probably ably sell in the when received This is the present state of the prop prop- property property property erty and surely it carries a lesson to toa very a very business man namely because you jou ou have been successful in some industry in industry in- in industry remember your jour our success may largely have been due to luck and that you jou ou probably will not be so 60 suc- suc successful in your jour our next venture Also in this competitive age remember it itIs Is very cry difficult to make a success in ina Ina a business in which you jou have not been trained I say this because I see so many men lose after they are fifty years cars of age money which they make before this age When you jou retire from business retire and Invest only Jn n high-grade high securities Dont Don't t go Into any new enterprises MILWAUKEE'S MILWAUKEE S TROUBLES TROU LES Former owners of the road claim that the extension to the coast was the real cause of their troubles They Insist that If the war had not come on on when it did and if the politicians had ad not Instituted a campaign of rail rall railroad railroad road persecution everything e would have ha come out all aU right A study of the situation however shows that there were other contributing causes For Instance this extension was built with the idea that Alaska was to have Development and that Seattle was to become the greatest seaport for ori ori- oriental oriental trade Instead of this happen happening happen happen- happening ing the Alaska bubble b broke and Se Seattle Se- Se attic attle fell flat Added to this disappointment disappointment there followed a series of very bad crop years throughout the northwest Then the troubles in Chi Chi- China China China na and the business depression in Japan have greatly retarded the de de- development development In the orient while the decline in Montana copper production has been a severe blow as the road had great hopes when building into Butte All these things thi gs added to the fact that the road was owned by so- so called widows and orphans and op operated op- op operated operated by absentee ownership probably probably probably ably were factors In its downfall It It moreover must be recognized that the Milwaukee operates In a avery avery very nry highly competitive territory When the Milwaukee was extended to Seattle from St St. Paul and Minne Minne- Minneapolis Minneapolis apolis both the Northern Pacific and the Great Northern were ere serving the territory and were operating splendid splendid splendid did trains from frond the Twin Cities to Se Seattle Se- Se Seattle attle Tacoma and Portland More More- Moreover Moreover over rates In the northwest were ab abnormally ab- ab abnormally normally low and three-quarters three of the extension operates through rath rath- rather er barren country count The minority bondholders believe belle that thit these low rates were the cause of the tile receiver receiver- receivership receivership receivership ship and that the interstate int state commerce commission should allow all three of ot these northwestern roads an increase As proof of their contention they the show that the Northern Pacific and Great Northern have ha-e to a certain ex extent ex- ex extent extent tent without any expensive exten exten- extensions extensIons extensions suffered as has the Milwaukee kee While hile riding on the Milwaukee cast to Spokane the Northern Pacific tracks were in sight of our train for about 00 miles while at points in Montana the tracks of the two rail rail- railroads railroads railroads roads are arc so close together for stretch stretch- stretches es that they would serve serre as a double track system stem Some day this territory may need three trunk lines but it certainly did not when the Milwaukee was extended to the coast On the thc theother theother other hand when judging the Mil Mil- Milwaukee Milwaukee waukee ve we e must not think merely of ot the Pacific coast extension for the road still has its original lines in Wis Wis- Wisconsin Wisconsin Minnesota Iowa and South Dakota which should be more valuable valuable valuable able th than m ever everIS IS SUCCESS SUCCESS' The Milwaukee is known kno for having hav- hav having ing ng the worlds world's longest electrified railroad rail rail- railroad railroad road operating electrically miles through the mountains between Har Har- Harlow Harlowton lowton low ton Mont and Seattle which are aie miles apart This means that there Is 15 a gap of or less than miles which is not electrified eJ d. d This short CI d stretch Is directly west of Spokane Power is 15 purchased from the Montana Power company for the eastern end and from the Washing- Washing Washington ton on Water Power company for the western end Direct current motors are used and these serve sene as brakes when the train goes down declines By this means of braking the electric locomotives generate about 10 per cent of the current consumed I rode across the tie continental divide in one of these mammoth electric locomotives costing over each or z bout four times the he cost of a modern steam locomotive locomotive tive While in the cab I could not help being Impressed with the case of control the freedom from jar and the many other advantages of electric power especially if used in a country which suffers little from snow and I winter Moreover I believe that the roller bearings bearings' arc are useful In eliminating eliminating eliminatIng ing stopping and starting Jars with witha a steam locomotive As to whether or not the electrification electrification electrification cation of railroads except on lines with a dense traffic trac Is economical I Iam Iam Iam am not prepared to say sa The gen gen- general general general eral Impression is that the copper interests in- in In who had a large ownership In n the property at the time of the extension hoped to make a demon demon- demonstration demonstration demonstration by the Milwaukee road which would force all transcontinental lines lanes to x electrify likewise over the moun moun- This has not come to pass as ashe the he oil locomotive is at present very cry economical Furthermore road main main- maintenance maintenance maintenance costs are considerably in ic- increased creased by the overhead electrical construction which also disfigures the scenic view slew from the observation cars With this electrical work already in installed In- In Installed stalled however it is the most economical method of operation I should not be surprised to see the gap of miles with some of the reorganization money mon y Certainly Certainly Certainly the present management is wise in advertising this unique feature It It is difficult now to say Just when the Milwaukee will wm come back but it itIs Itis itis Is sure to come 1 ck ek some day daj da At Atthe Atthe Atthe the moment the situation largely de depends de- de depends depends upon what Washington does in connection with the money which the Milwaukee owes the government go and the freight rates which it is allowed to charge With a a. 4 per cent in interest in- in interest Interest terest rate on the government loan and fair freight rates interest could be b paid on the income or so called so-called called adjustment bonds after the new company The Chicago Milwaukee St. St Paul 6 Pacific assumes control next January The crop situation which I will wm refer to in detail next week is better in the Milwaukee ter ter- territory territory ter- ter territory than it has been for years Alaska is 15 slowly coming back not only as a summer playground ground but with great potential timber and min min- mineral mineral mineral eral resources Business with the ori ori- orient orient orient ent entill will ill revive as soon as the Chi Chi- Chinese Chinese Chinese nese revolution subsides and the Jap Jap- Japanese Japanese Japanese anese business depression is over Moreover an increase In the price of copper would help business The now registers 7 per cent above normal thus conditions arc are generally satisfactory The road now has excellent equipment on its best and as soon as it omits carry carry- carrying ing tourist sleepers and day coaches on these trains and cuts out certain unnecessary stops it can give the best sen service ice between Chicago and the coast of any of the transcontinental lines except the Union Pacific Of Of course during a railroad re receivership re- re receivership receivership discipline necessarily be becomes be- be becomes becomes comes lax and lose their In Interest In- In interest terest not knowing what is going to happen This is evident In many ways For instance although on a atrain atrain atrain train with marvelous equipment our Pullman had no water in the morn morn- morning mornIng morning ing when passengers wanted to shave and prepare for tor the day daj As soon as os the receivership ends c. c such things will wm never happen A new life will then possess all I saw a ticket agent smoking smokIng smoking ing while selling tickets but these same things occurred on the Union and Atchison when they were in receivership Then even their seemed seem d indifferent to the thereal thereal thereal real Interests of the company Of course cour this will all be changed as soon I as the Interstate commerce commis commis- commission commission commission sion approves the reorganization plan and the new company assumes con con- control The receiver is doing the best ho he can under present Conditions When this change docs does take tale place and conditions are once more settled I I. I believe elleve the new Chicago Milwaukee St. St Paul Pacific will slowly but steadily come back to its former position po position po- po position as ope of the very best rail rail- railroads railroads roads in America Copyright 1927 Publishers' Publishers Financial Bureau |