Sunday, May 20, 2007

Creative Financing

No, it’s not a euphemism for graft, although it can be.

Such financing can be used to bolster the incentive for small- to mid-sized cities to install Passenger Rail.

Some of this depends on having a financially vital manufacturer that is capable of delivering turnkey Passenger Rail systems. An example would be Bombardier, but there are certainly others and there should be ample incentive for more to enter the field.

Some of railroading’s earlier examples of creative financing involved freight rail. When the writing was on the wall – writing that said that rail was dead or a nationalized system was inevitable without some form of deregulation, creative managers convinced customers to build and own the car fleet. These fleets subsequently have carried higher volumes of bulk commodities at lower prices for more customers than the old system where the railroad built, owned, and maintained the fleet.

Some possibilities for Passenger Rail---

Cradle to Grave without Rail: The manufacturer offers to build, operate and maintain all of the heavy equipment necessary to haul passengers by rail. The city or other political division already owns the tracks or has the rights to use them for passenger service. The city does not pay for the equipment up front, but signs a long-term contract whereby the manufacturer retains ownership and gets all the benefits of ownership. If the manufacturer can’t bank its own deal, a commercial bank holds a hefty mortgage, but cities have taxing power and are unlikely to default on obligations. The incentive to the city is low or no up-front payment and lower overall costs. This is attractive because the city can get the system up and running and the economic benefits can flow before costs start to increase. The equipment is likely to last longer than the contract, and the city can always extend, buy new, or negotiate a buyout to suit its needs if the desired result is obtained. In the worst case scenario – nobody rides – the city is not stuck with a system it can’t use. The manufacturer can always move the equipment to another route.

Cradle to Grave with Rail: This is still a viable scenario but it is less attractive because land can’t be moved and tracks and signals are not as easily moved as locomotive’s, cars, and shop equipment. We could see this as an incentive to get short, elevated rapid-transit routes established in small cities using either conventional rail, monorail, or maglev. If some manufacturer could develop a well-engineered modular right-of-way structure for this, it would be a plus.

Freight Rail Participation: True or False: It is impossible to get the freight railroads back into the passenger business. We think the answer is False. All of the current stable of Class Ones have a history that goes deep into Passenger Rail. The corporate culture knows and remembers that passenger trains once bought both shippers and public good will. But corporate inertia is hard to overcome, and sales departments may not be willing to admit that a passenger train or two could make a sale with a shipper where nothing else has worked. It is ironic that the very prosperity that could make it possible for Freight Rail to finance new Passenger Rail also could make it impossible to fit a passenger train into the flow of traffic. Look at the resistance to on-time Amtrak by most of its Freight Rail partners.

The solution could be mixed trains. Freight Rail would only have to subsidize or finance new coaches, sleepers and lounge/diners. Many railroads run scheduled freights or a near equivalent. And there is at least one operations theory that holds that scheduled freight is better for railroads, shippers and crews. Why not tack at least one passenger car on each freight. A kind of national stand-by ticketing could be used. It wouldn’t surprise us if potential riders wouldn’t mind the wait even for an unscheduled ride.

What about stations and amenities? you ask. Well, that’s where public, private or volunteer creativity comes in. If the railroads could just see it in their hearts to let us build some stations on their property, civic groups and municipalities could see a wealth of benefit for their respective areas by operating stations the way the government(s) now operate airports. Creative ideas are welcome. The fear of litigation for premises accidents is a negative. In fact it is a negative for all forms of creative interest by civic groups and non-profits. Until we get the lawyers out of the equation, none of this may really work because of the high cost of liability insurance.

Special Trains and Rental Fleets
Despite naysayers, the demand for Passenger Rail exists. Some of this demand is not constant, as for daily rides to work, but sporadic, as for vacations, special events, and special seasons or circumstances. Some companies make a decent dollar on vacations rail cruises. It has always been an uphill climb, again partly because of insurance costs. Special events are also their province, but specialty cars for special events do not exist. An example of special seasons would be fall color tours or ski trains, and an example of special circumstances would be disaster evacuations and troop transport into evacuated areas.

Creativity would involve having and maintaining a fleet of cars for all occasions and the permission to run them when and if the circumstances warrant. The freight railroads would have to be compliant, but they would gain payments for use of their track and possibly crews.

But the USA is not the only place where passenger trains run! We tend to be provincial about this, but we are guessing that a good ride on a German railcar is equal to a good ride on an American car. We are also willing to bet the farm that there is a huge worldwide supply of stored or sidelined passenger cars that could be brought up to the right condition to run anywhere on North American railroads. Bring them in, position them strategically around the country, and start advertising their availability, and you just may find that there are large groups of people that can find something to do with them in a creative way.

Financing this would be difficult, but does anybody know the number for any banks in Dubai? Sounds like this would be just their cup of tea.

©2007 - C. A. Turek -

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