Burlington Northern Santa Fe Corporation
Burlington Northern Santa Fe Corporation
Sales: $8.41 billion (1997)
Stock Exchanges: New York
Ticker Symbol: BNI
SICs: 4011 Railroads, Line-Haul Operating; 6719 Holding Companies, Not Elsewhere Classified
Burlington Northern Santa Fe Corporation is one of the great success stories in the history of American railroad. Merging Burlington Northern, Inc. and Santa Fe Pacific Corporation in 1995 gave rise to one of the largest railroad networks on the North American continent, with more than 34,000 route miles across 28 states and the Canadian provinces of British Columbia and Manitoba. The company’s railroad networks extend over a vast distance, from the Pacific Northwest and southern California seaports to the Midwest, Southeast, and Southwest, and from the Gulf of Mexico up to the flatlands of Canada. With more than 44,000 employees, the Burlington Northern Santa Fe Railroad transports large amounts of coal, grain, chemicals, forest products, metals and minerals, consumer goods, and automobiles.
Burlington was founded in 1849 in the small town of Aurora, Illinois, and its early fortunes were linked with the burgeoning midwestern railway industry and the growing nearby city of Chicago. In the years from 1845 to 1848, swarms of settlers began to push west, lured by vast tracts of arable land and the promise of gold in California. By 1848 Illinois had already become the largest grain producer in the nation, requiring links with established eastern markets as well as with developing western settlements. The state’s promise was reflected most clearly in Chicago’s explosive growth as a railroad center. In 1847 Chicago had not even a single mile of railroad, but by 1854 it had become the railway capital of the United States.
Astutely anticipating Chicago’s ascendancy, Aurora businessmen in 1848 proposed the construction of a railroad to connect with the Galena and Chicago Union Railroad, thus linking Aurora not only to the hub of the Midwest but also to the markets of the East. The State of Illinois charter for the Aurora Branch Railroad was signed into law on February 12, 1849, by Governor Augustus French. It authorized 12 miles of track to connect with the Galena Railroad. The Aurora commissioners immediately issued stock, selling more than a quarter of the total issue in nine days, and elected five members to its board of directors with Stephen F. Gale as its president.
Construction of the Aurora Branch progressed swiftly. By August 27, 1850, six miles of rail were laid; by October 21 of the same year the fledgling railroad began regular service to Chicago. The company encountered stiff competition from the beginning. In 1850 the U.S. Congress ceded 2.5 million acres of public land in Illinois for the construction of a railroad throughout the length of the state. Eager to promote the railroad industry, the Illinois legislature in turn granted numerous charters to new rail firms during its first session of 1851. Potential routes then crisscrossed the state, some quickly materializing and threatening to cut off or supersede the Aurora Branch.
To safeguard their young firm, Aurora directors moved to consolidate with three other new lines: the Central Military Tract Railroad, Peoría and Oquawka Railroad, and Northern Cross Railroad. The move was financed by eastern interests bent on profiting from the developing Illinois railroad industry. In January 1852 Boston financiers bought enough stock to elect John W. Brooks, who represented Boston interests, to the Aurora board.
Chauncey Colton, a promoter of the Central Military Tract, met with Elisha Wadsworth, an Aurora director, and James Grimes, a Peoría and Oquawka director, proposing to consolidate their three lines into one through-route between Chicago and the Mississippi River. John Brooks in turn persuaded John Murray Forbes, the leader of the Boston group, to fundthe consolidation. In 1852 the respective charters were amended to accommodate the territorial changes, and the Aurora Branch officially changed its name to Chicago and Aurora Railroad Company. Eventually, Northern Cross, which extended southwest from Galesburg, Illinois, joined the group. The original 12-mile Aurora branch now reached from Chicago through Aurora and Galesburg to Burlington, Iowa and Quincy, Illinois, two small towns on the Mississippi River, thus fulfilling the intent of Colton’s original plan. In 1855 the Chicago and Aurora again changed its name, this time to The Chicago, Burlington and Quincy Railroad Company (CB&Q). By 1864 the various segments of the system had been united into a single corporate entity under the control of the Chicago, Burlington and Quincy, which became the parent company.
CB&Q received its impetus from the urgent expansion and stiff competition of the young railroad industry rather than from a single visionary leader. In the first few years presidents rapidly succeeded one another. In 1851 director Elisha Wadsworth followed Gale as president, but exactly a year later, Gale was re-elected to succeed Wadsworth. In 1853 an easterner, James F. Joy, was elected president, reflecting the enlarging interests of the Boston financial group in the future of the company. In 1857 John Van Nortwick became president, holding the post until 1865, the longest term of any president to date. For each of these men, running the railroad was only one of many responsibilities; CB&Q was not to have a full-time president until 1876.
Van Nortwick guided the firm through the financially rocky years of the late 1850s. With Boston capital supplementing local dollars, the railroad had established a solid financial footing by 1852. The panic of 1857, however, wiped out earlier successes. Wheat and corn crops were abnormally small in 1858 and 1859, providing little for railroads to haul. In the company’s fiscal year 1858-1859, tonnage moved by CB&Q amounted to only three-quarters of the previous year’s haul, and the number of passengers carried was 20 percent less than the preceding year. Revenues in 1858 were only 60 percent of what they had been in 1857. Bonds and a mortgage were issued to cover outstanding bills. A portion of the income from these sources, however, was earmarked to repay old bonds. One million dollars was set aside to cover the cost of a new entry into Chicago, and a sinking fund was established to liquidate the debt on or before its maturity, bespeaking a prudent approach to financial management that guaranteed CB&Q’s future. By fiscal year 1860-61 total revenues were up 38 percent.
The Civil War and Late 19th Century
The Civil War closely followed the lean years of the late 1850s, and the wartime economy launched CB&Q’s full economic recovery. The company’s primary wartime challenge was to manage the increased traffic in goods and people. The railroad’s physical plant and facilities were enlarged and adapted to meet this demand. During the war years the company doubled its supply of freight cars and improved its roadbed, track, and terminal facilities in Chicago, Aurora, and Galesburg. Revenues and profits increased with the traffic. For the fiscal year ending April 30, 1863, CB&Q experienced a 90 percent rise in net income.
Expansion and improvement continued in the postwar years. From 1864 to 1873, CB&Q track and traffic increased fourfold. Technical improvements kept pace. In 1867 the firm laid its first steel rails, replacing iron ones. During the 1870s and 1880s the route was expanded in Iowa, Nebraska, and Illinois, and preparations were made to reach farther toward the Pacific. The push west generated intense competition among railroad companies. Although revenues increased 2.5 times in the first postwar decade, traffic climbed more quickly. After guiding CB&Q through the financial panic of the late 1850s and the Civil War, Van Nortwick resigned as president in 1865, and James Joy was re-elected. Following him, James Walker was elected president in 1871 and Robert Harris became president in 1876.
As the railroad industry expanded in the 1870s, it also experienced increased government regulation and labor unrest. In the early 1870s most of the states on the Burlington route, as CB&Q’s network was called, passed stiff regulatory measures known collectively as the Granger Laws. Such laws fixed passenger fares and freight rates, providing that the latter be based on distance rather than the quantity or nature of the commodity shipped. In 1874 under Walker’s leadership, CB&Q challenged the constitutionality of Iowa’s Granger Laws. In 1877 the Supreme Court ruled in favor of Iowa. This suit was only one of many of the Granger cases. Together, these cases established the precedent of government intervention in and regulation of businesses that provided public services.
In 1877 in solidarity with railroad workers nationwide, CB&Q workers struck in Chicago, Galesburg, and Iowa. In Chicago, President Harris discontinued freight service but kept passenger lines open. Charles Perkins, vice-president of CB&Q, refused to do the same in Iowa; acting independently, he completely shut down the Iowa leg. His disagreement with Harris over labor relations provoked corporate struggles that eventually moved Harris to resign. John Forbes, the eastern financier who had funded the original Aurora Branch, took over as president in 1878. Remaining in Boston, he joined forces with Perkins, who became the western partner in this two-man leadership team.
Together, Forbes and Perkins developed a highly efficient corporation. In 1881 Forbes resigned and let Perkins take over as president. Under Perkins, leadership was consolidated in the president’s hands, ending the power shifts between board and president that had characterized the first 30 years of CB&Q’s existence. Perkins’s 20-year presidency was marked by periods of financial success in the 1880s and financial downturn in the 1890s. These years were punctuated by ongoing contests both with the government and with labor.
Our vision is to realize the tremendous potential of The Burlington Northern and Santa Fe Railway by providing transportation services that consistently meet our customers’ expectations.
The early and middle 1880s were years of general economic improvement with small fluctuations. Because CB&Q’s freight was primarily agricultural, it was vulnerable to changing crop yields, and in 1881, for example, net income declined after a poor season. The 1883 crop was excellent, however, and net income rose to $8.7 million, the highest company income in the 19th century. In that year CB&Q was among 17 railroads serving Chicago, yet it carried 41 percent of all corn received in the city, 34 percent of all rye, 33 percent of all wheat, and 21 percent of the oats, and delivered more livestock than any other company. The year 1887 was the firm’s best to that time in terms of traffic hauled and gross earnings.
Technical improvements also contributed to CB&Q’s success in the 1880s. In 1886 and 1887 company engineers improved the air brake, previously devised by Westinghouse for use on heavy freight trains. The better brake allowed higher train speeds and the railroad instituted its fast mail coach in 1884. In general technical developments permitted rapid expansion. In 1882 Burlington completed a through line to Denver and, in 1886, to St. Paul-Minneapolis, Minnesota. All told, from December 31, 1880, to December 31, 1890, CB&Q track increased in length from 2,771 miles to 5,160 miles.
In the late 1880s another episode of labor unrest compromised some of the early successes of Perkins’s tenure. On February 27, 1888, CB&Q engineers struck, beginning a walkout that lasted until January 4,1889. Labor finally capitulated to management, but not without damage to the company. After the hugely successful 1887, fiscal year 1888 was disastrous. Freight revenue dropped by more than 17 percent from the previous year, while operating expenses increased by the same percentage. By year’s end there was a net loss of almost $250,000.
Perkins was concerned about increasing government regulation. In 1887 President Cleveland signed the Interstate Commerce Act, a measure that Perkins strongly opposed as a restraint to the continued viability of the railroad industry. Along with the Chicago and Northwestern and the Union Pacific railroads, CB&Q tested the constitutionality of Nebraska’s Newberry Law, passed in 1893, which established maximum rates on all freight transported in the state. This time, the U.S. Supreme Court decided in favor of the railroads.
In the 1890s circumstances coincided that reversed the financial successes of the 1880s. Increasing competition and regulation, economic depression following the panic of 1893, and rising taxes combined to decrease net income for the eight years following 1888; during those years it was only 60 percent of what it had been from 1881 to 1887. Improvements in physical plant were kept to a minimum, reflecting CB&Q’s usual conservative fiscal policy. From 1889 to 1896 new acquisitions fell well behind the national average. In 1898 John Forbes died, closing the founding era.
The 20th Century
By the mid-1890s CB&Q’s corporate structure had become large and unwieldy. Most of the smaller railroads it had acquired were independently owned and operated, affiliated with CB&Q only through lease arrangements or stock ownership. In 1899 Perkins financed the purchase of most of the companies, greatly simplifying the corporate structure of the Burlington system. Meanwhile, E.H. Harriman, chairman of the Union Pacific Railroad, and James J. Hill, chairman of the Great Northern Railroad a controlling voice of the Northern Pacific, were both looking longingly at the entire Burlington network. CB&Q still controlled the Chicago traffic, the major prize that had eluded both of these men. For their part, Perkins and other CB&Q executives recognized the need for a link to the Pacific Northwest with its rich supplies of lumber. In April 1901 Hill agreed to purchase two thirds of CB&Q stock, and CB&Q became a subsidiary of the Great Northern and Northern Pacific Railroads. Although Perkins completed the negotiations for sale, he resigned from his post in January 1901. George Harris, second vice-president of CB&Q, succeeded Perkins as president.
The period preceding World War I was a time of smooth and regular expansion for CB&Q. Because Hill made few changes in management and operation, CB&Q was, for the most part, unaffected by the purchase. Harris continued as president, and the entire firm simply became one efficiently functioning unit of a larger system. In 1910 Harris resigned and was followed by Darius Miller. When Miller died suddenly in 1914, Hale Holden, general counsel for CB&Q, became president. CB&Q’s primary challenge after 1901 was to fill in the gaps in its rail network. From 1901 to 1915, trackage increased by 1,373 miles, 17.2 percent, to a total of 9,366 miles. These years made up the last great period of expansion; in 1916 the firm reached its peak mileage.
Financial performance during this period reflected smooth and steady development. Both freight and passenger revenues climbed during the prewar period but more steeply in the earlier than in the later years. By 1908 total revenues were up 56.8 percent over 1901, but by 1915 were only 82.2 percent over 1901. In the same period, operating expenses also increased. Because Hill had modernized track and physical plant after the acquisition, 1908 expenses showed a 72.5 percent increase over 1901. After 1908, however, the effect of modernization was reflected in reduced operating expenses. By 1915 the increase over 1901 was only 86.4 percent.
CB&Q began to feel the effects of World War I before the United States was directly involved. In 1916 traffic, revenues, and operating expenses all increased. When the United States declared war in 1917, the U.S. government authorized the formation of the Railroads’ War Board, a committee of five top railroad executives, including Hale Holden. The board monitored the flow of rail traffic and managed railroad personnel to maximize efficiency for the war effort. In late 1917, however, the government took complete control, regulating compensation rates as well as traffic flow. Each railroad was guaranteed an annual compensation equal to its average annual operating income for the three years ending June 30, 1917. For CB&Q this amounted to $33.3 million.
During these years the company’s haulage of livestock and agricultural products increased substantially and it set all-time records for transporting coal. The U.S. government relinquished control of the railroads on March 1, 1920, one day after passage of the Transportation Act. The act modified what had been a policy of encouraging competition among railroads; passage of the new plan permitted any mergers or acquisitions that met Interstate Commerce Commission (ICC) standards for approval and exempted railroads from antitrust laws to the extent necessary to permit these combinations. The law gave railroads broad leeway in devising policies generally, although the ICC had the final say in how the companies carried out these policies.
During the 1920s CB&Q focused on two broad tasks: testing the new industrywide regulatory policy and reorganizing its prewar plant and traffic. In response to the new Transportation Act, Holden urged the railroad industry to follow the act’s mandate and initiate policy. Hill and Holden and other officials were themselves formulating a new financial arrangement between the CB&Q, the Great Northern, and the Northern Pacific. In 1930 the ICC rejected the proposal, and the group remained in its original 1901 configuration.
Physical plant improvements and technical innovations characterized CB&Q’s internal development during the 1920s. For the first time in the firm’s history, there was no net growth in railroad mileage. The number of locomotives and cars actually decreased. Carrying capacity increased, however, because of technical improvements. Throughout this decade CB&Q consistently made money; although passenger revenues declined, operating expenses also declined, and income remained steady.
Hard Times During the Great Depression
Early in 1929 Holden resigned to become chairman of the Southern Pacific. Frederick E. Williamson was chosen to replace him as president. Soon afterward the stock market crashed. CB&Q felt the effects immediately. By March 1930, as the Great Depression engulfed the economy, gross revenue was less than in any comparable month since 1919. Overall in 1930, business decreased more than 12 percent compared with 1929. By June 1932 the number of employees had dropped to 23,135, a decrease of more than 7,000 since June 1931. In the first quarter of 1933 CB&Q fell short in meeting fixed expenses by $1.5 million. In the second quarter of that year, however, stimulated in part by New Deal legislation, the firm began a slow recovery. In May it not only met its expenses but also showed the first increase in gross revenue over the corresponding month in the previous four years. In 1931 Williamson resigned to become president of the New York Central, and Ralph Budd, president of the Great Northern, was chosen to replace Williamson as president of the CB&Q.
New Deal legislation that aided the railroad industry included 1933’s Emergency Transportation Act, which sought to eliminate duplication of services and promote financial reorganization of railroads. New Deal legislation, however, also helped labor, and in 1934 the National Railroad Board of Adjustment was established to settle labor disputes over rates of pay, work rules, and working conditions. Two other measures passed in 1935, the Railroad Retirement Act and an accompanying pension act, cost CB&Q $1.44 million in addition to the funds already paid into the company’s existing pension plan.
The railroad industry also suffered during the 1930s from the effects of stiffening competition as the number of passenger cars, trucks, and airplanes increased. CB&Q met that competition with technological advancements, especially in the area of passenger service. In 1934 it introduced the Zephyr, the first diesel-electric locomotive, which often cut travel times in half.
Resurgence During World War II
In 1940, even before the United States entered World War II, the government began to mobilize resources for a wartime economy. Rather than follow World War I practice and nationalize the railroads, the Roosevelt administration worked through such existing organizations as the Interstate Commerce Commission and the Association of American Railroads. The government did appoint an advisory commission to the revived Council of National Defense; Ralph Budd was appointed commissioner of transportation to this board.
By 1941 CB&Q had emerged fully from the Depression. Net income in that year was $10.4 million—in excess of $10 million for the first time since 1931. Wartime traffic and income continued to soar. Although miles of track actually were reduced during the war, CB&Q improved its traffic control and communications and modernized many of its facilities, rising to the demands of a wartime economy. From 1940 through 1945 CB&Q increased the amount of freight and passengers by 88 percent and 179 percent, respectively, over the previous six-year period. Net income for the years 1942 through 1945 was 98 percent of total net income for the years 1929 through 1941.
In the immediate postwar period the U.S. economy continued its prosperous trend. The railroad industry, however, was faced with stiffening competition from the airline and automobile industries, its wartime successes curtailed by rising operating and compensation costs. Although CB&Q’s total operating revenues did not decrease in the years 1945 to 1949, total operating expenses increased nearly 14.5 percent during the same period. The company met these challenges primarily by concentrating on passenger rail improvements.
In 1949 Ralph Budd resigned as president to become chairman of the Chicago Transit Authority. Harry C. Murphy was appointed as his successor. During Murphy’s tenure, which lasted until 1965, CB&Q continued to face rising wage costs and competition from other forms of transportation. To counter these challenges, the firm ceased operating 343 miles of underused track between 1950 and 1963. In addition, from 1949 through 1963, CB&Q spent more than $430 million to improve plant and equipment, resulting in higher efficiency for handling freight and passengers. During these years the firm maintained its reputation for innovations in passenger service. From 1949 to 1963, a period when the number of passengers declined on other railroads, the number of passengers on CB&Q increased 10.2 percent. Net income during these years ranged from a high of $33.8 million in 1950 to a low of $12.5 million in 1960.
In the 1960s CB&Q, the Great Northern, and the Northern Pacific proposed to merge into one corporate entity. Murphy resigned in 1965, before the ICC could rule on the proposal. L.W. Menk succeeded him as president and chairman. In 1966 Menk resigned to become president of Northern Pacific and was succeeded by William J. Quinn.
In 1968 the ICC approved the merger plan under the name Burlington Northern Inc. In March 1970 the three firms and two smaller railroads formally consolidated, and Menk became president and chief operating officer of the new company. Burlington Northern in 1970 sought to acquire the Missouri-Kansas-Texas Railroad (Katy) but subsequently dropped its bid without comment. Industry observers speculated that the Katy’s debt load may have discouraged Burlington Northern or that the ICC would have been unlikely to approve the merger.
In the early 1970s Burlington Northern diversified into natural resources management, focusing especially on coal development. It also added an air freight subsidiary. Management structure changed in the 1970s; Menk became chairman and chief executive officer, with Robert Downing, Norman M. Lo-rentzsen, and Richard Bressler, serially, filling the dual posts of president and chief operating officer.
In 1972 Burlington Northern and Union Pacific sought joint control of Peninsula Terminal Co., a switching line in Portland, Oregon, but the U.S. Supreme Court reversed the ICC’s approval of the plan. The following year brought merger negotiations between Burlington Northern and Chicago, Milwaukee, St. Paul & Pacific Railroad. The ICC rejected this merger plan. In 1980, however, Burlington Northern succeeded in acquiring the St. Louis-San Francisco Railway.
By 1978 the company had record profits, still in large part from the railroad division. In 1982 Bressler became chairman, president, and chief operating officer. He streamlined existing operations by selling the air freight unit and unsuccessful segments of the railroad and by continuing efforts to develop the company’s coal, timber, and gas reserves. In 1983 Burlington Northern acquired El Paso Natural Gas Company, a diversified energy concern that specialized in producing natural gas, and in 1985 it bought Southland Royal Company, producer of oil and gas. Initially these moves profitably supplemented Burlington’s development of resources on its own railroad land. In June 1988, however, the company suddenly reversed its diversification trend and announced the spinoff of the energy resources operation as Burlington Resources Inc., an independent public company. The spinoff enabled Burlington Northern to avoid pending legal claims that remained against the former El Paso Natural Gas Company, which had been sued for breach of contract, and to recover from falling energy prices. Burlington Northern also sold its trucking subsidiary, Burlington Motor Carriers Inc., in 1988. The buyer was an investor group that included the subsidiary’s top management.
Bressler continued as chairman of Burlington Northern and Burlington Resources, while Gerald Grinstein, who had been vice-chairman of both companies, became Burlington Northern’s president and chief executive officer in 1989. Bressler retired in 1990, and Grinstein assumed the additional post of chairman. In the early 1990s Burlington Northern was focused on its railroad business, the company’s historic strength. It was seeking increased flexibility in its labor contracts in an effort to improve efficiency and was investing in track improvements and new rolling stock.
History of the Santa Fe Pacific Corporation
In the early 1990s Santa Fe Pacific Corporation (SFP) was a holding company for subsidiaries engaged in transportation, mining, and petroleum products transmission. One of its wholly owned subsidiaries was the Atchison, Topeka and Santa Fe Railway Company, one of the nation’s major freight railroads, serving 12 states. Another subsidiary, Santa Fe Pacific Minerals Corporation, had significant coal mining operations and was a large producer of precious metals. Santa Fe Pacific Pipelines, Inc., the third subsidiary, transported gasoline, diesel, and jet fuel.
The Early Period
The history of SFP began with a railroad. In 1859 Cyrus K. Holliday founded the Atchison and Topeka Railroad Company. The Kansas drought hit immediately thereafter and the company foundered. Through the early 1860s the company searched for funding and land grants. The company name became Atchison, Topeka and Santa Fe Railroad (ATSF) in 1863, but the first train movement did not take place until 1869, on a line of about 26 miles from Topeka to Burlingame, Kansas. The ATSF became the pioneering railroad of the southwest portion of the United States. The East had fairly reliable railroad service by 1860, but the West was still largely untouched. The ATSF started in eastern Kansas and ultimately reached Santa Fe, New Mexico, paving the way for the growth of towns and commerce. The company was built upon faith in the prospects of the West and Southwest.
By 1873 the company had more than 130 miles of track. In 1875 the road expanded eastward toward Kansas City. The first train entered Las Vegas, Nevada, in 1879, and Albuquerque, New Mexico was entered in 1880. ATSF acquired the Sonora Railway in 1882. Hardships in the southwestern United States were crippling the Gulf, Colorado and Santa Fe Railroad in 1885. ATSF absorbed that company, thus stretching to Houston, Texas, and the Gulf of Mexico. Other smaller additions to the ATSF were being transacted through the company’s subsidiary—the Chicago, Kansas and Western Railroad Company. Many of these branches were not completed until 1887.
The company also worked to protect its presence in California. In 1886 ATSF purchased from the fading Chicago and St. Louis Railway a right of way into Chicago. After rusted tracks were replaced and bridges built, train service began in 1888. In 1890 the company purchased the St. Louis and San Francisco Railway and the Colorado Midland Railway. In 24 years the ATSF had grown from the Topeka ground-breaking to a system of 9,300 miles, linking Lake Michigan, the Gulf of Mexico, and the Pacific Ocean. It served Chicago, Dallas, Denver, St. Louis, Los Angeles, Kansas City, and San Francisco.
During this time the company’s growth was characterized by quality construction. It was the creation of railroad men, not financiers, and lines often were built ahead of traffic, leading the way for trade and settlement. ATSF absorbed and repaired dozens of bankrupt lines along the way.
The company suffered some setbacks around the turn of the century. In 1889 the California boom stalled, and passenger business dropped. During the financial panic of 1893, banks and rail empires crashed. Crop failures and dropping rates due to competition between 1889 and 1895 had weakened the company. Its troubles compounded by purchases and upkeep, the ATSF was pinched financially. The company went into receivership and in 1895 the financially troubled system was sold to Edward King, representing a reorganization committee, for $60 million. The company was reincorporated as the Atchison, Topeka and Santa Fe Railway Company, and reorganization began with the sale of the two lines acquired in 1890. Other unprofitable lines were sold and business picked up. By 1898 the company’s line had been trimmed to about 7,000 miles. The new president of the reorganized company was Edward P. Ripley.
Growth in the New Century
Pruning continued, but the company revitalized enough to purchase the unfinished San Francisco and San Joaquin Valley Railway in 1899. The line was operative by 1900. Numerous short lines also were acquired. In 1901 the Santa Fe, Prescott and Phoenix Railroad was purchased, giving ATSF exclusive presence in Arizona, then a promising area. By 1902 the company had added almost 1,000 miles to its reorganized line. Careful purchase and expansion continued as ATSF extended through Arizona, New Mexico, northern California, and Texas.
Between the company’s inception and 1917, passenger travel rose 600 percent. The railway was operated by the U.S. government between 1917 and 1920, because of its strategic importance during World War I. Between 1920 and 1929 the ATSF concentrated on maintenance and improvement of equipment and lines. There were ups and downs in operating revenue as the postwar economy surged and faltered in the regions serviced by ATSF, but the decade overall was a good one. The company in 1928 purchased the Orient Line, a system that included about 300 miles of line in Mexico.
The Depression and World War II
During the Great Depression the company’s business suffered. In 1935 the company started a track-improvement program between Chicago and California to institute a new fast schedule. At the same time the first diesel-electric locomotive was being built. By 1938 ATSF was running two of the new diesel-electric trains between Chicago and the West Coast. The trains were much faster and more economical than their predecessors, a boon to both passenger and freight services. While the number of passengers dropped, travel distances had increased. Freight traffic was hit hard by the Depression. To offset this, the company reduced operating costs by increasing efficiency, primarily by equipment replacements. ATSF also began branching into other forms of transportation. It bought bus operations and acquired a system of truck lines. In 1935 it purchased the Southern Kansas Stage bus lines. The motor-carrier companies that ATSF acquired were consolidated into the Santa Fe Trail Transportation Company in 1937. By the decade’s end ATSF owned 15 diesels and 44 motor coaches. By 1940 a freight-handling system was coordinated between the company’s truck operations. Just as ATSF was enjoying economic recovery, World War II broke out.
The Postwar Boom
With the war came a surge in traffic, both passenger and freight. War halted the delivery of needed new locomotives, but availability was resumed right after the war. Despite the strain, the line and equipment survived the record-breaking traffic. The result was the development of an automated system of centralized control. In 1946 the company established the Santa Fe Skyway, Inc., offering air freight service to round out its business with shippers. Complete transportation integration was prevented by the Civil Aeronautics Board and the ICC. The skyway was discontinued in 1947. Truck and bus operations continued, covering 12,000 and 9,400 miles, respectively, by 1949.
In another postwar development, the ATSF returned its attentions to improving equipment and methods. Streamlined train use was expanded. The 1950s were marked by the complete phasing out of steam locomotives; by 1954 ATSF was entirely dieselized. During the 1950s many railroads began de-emphasizing passenger service as a result of the growth of air travel and the improvement of highways due to U.S. President Dwight Eisenhower’s Interstate Highway Act. In contrast, ATSF, whose reputation had been built on passenger service, applied itself to upgrading passenger travel, buying passenger rail cars and developing high-quality, high-speed service.
Growth and Expansion
In the late 1950s and early 1960s the company pursued greater diversification that led to the creation of separate companies involved in pipelines, energy resources, and trucking. In 1968 Santa Fe Industries Inc. (SFI), a new parent company, was established as the holding company for these separate enterprises. Also in 1968 SFI inaugurated the fastest freight train in the world. During this time ATSF began to enter a new market segment—the intermodal truck-train-container business—which allowed freight to be shifted from ships to trucks to trains more fluidly. In the early 1990s 60 percent of its trains were intermodal and 40 percent of the railroad’s revenues came from intermodal operations.
The shift in emphasis was auspicious; by the late 1960s railroads lost mail contracts to jets and thus lost the main revenue subsidizing passenger service. In 1968 ATSF’s losses on passenger service necessitated the sale of trains. It was a prelude to turning passenger service over to Amtrak in 1971. This marked the end of an era for ATSF and the start of a new focus on freight service.
In 1972 SFI sought and found resources in its underused acreage in New Mexico and Arizona: tons of coal. Diversification made sense, and the company committed to mining the coal itself in 1982. The following year John Schmidt took over as chairman and CEO, and Southern Pacific Company (SPC) agreed to merge with SFI, creating an umbrella holding company—Santa Fe Southern Pacific Corporation (SFSP), with $11 billion in assets. The merger application was filed with the ICC in 1984. At the time of the merger, SPC was not performing well. The company had diversified into industrial parks and office complexes. SFI had diversified into transportation, natural resources, and real estate. The ATSF and SPC were then the two least profitable of the major U.S. railroads. Joining forces would shorten routes, create economies by cutting overlaps, and eliminate competition with each other. Other major railroads were moving to merge in the early 1980s, making the ATSF and SPC merger necessary for survival.
While awaiting ICC approval, SPC’s rail business could not be operated by SFI, so SFI looked to SPC’s real estate to generate income. In 1983 real estate income supplied nearly a third of SFSP’s revenue. Development projects became a new source of income. Its natural resource division also contributed significantly to operating profits.
ICC hearings continued through 1985 and into 1986. SFSP suffered from being unable to run 40 percent of its business—the Southern Pacific Railroad. Placed in trust, the railroad deteriorated. Then the ICC ordered divestiture of either the Santa Fe or Southern Pacific rail operations, claiming the merger would create a monopoly on some important routes. By 1986 SFSP’s major businesses—transportation and fuel—were suffering, and real estate earnings also were down. In 1985 SPC contributed one third of SFSP’s real estate earnings, which accounted for nearly half of the company’s operating profit that year. In 1987 the ICC refused to reconsider its rejection of the merger. SFSP reported a net loss of $138 million for 1986. Schmidt resigned as CEO, and the company underwent drastic restructuring, beginning with the sale of unprofitable businesses. Robert Krebs filled the CEO seat.
Six subsidiaries were put on the block, including three pipeline companies, a leasing company, a building contractor, and the Santa Fe Pacific Timber Company. Raiders circled the troubled company, aided by the October 1987 stock market crash. By the year’s end SFSP announced the sale of SPC’s rail business to Rio Grande Industries, for $1 billion. SFSP’s net income was $373.5 million for 1987.
To discourage takeover, the company underwent a $4.7 billion leveraged recapitalization. Despite restructuring and the sale of subsidiaries the company remained highly diversified: in addition to being the seventh largest U.S. railroad, it held the second largest petroleum products pipeline, remained one of the largest real estate operations, and oversaw the sixth largest domestic oil and gas company. In 1988 ATSF had 12,000 miles of track. Undeveloped holdings included urban and agricultural land in 15 states and oil and mineral holdings. Income from continuing operations for 1988 was $146 million. After accounting for discontinued operations, however, the company showed a net loss of $46.5 million.
Further setbacks came in 1989. In addition to slowed shipments because of the recession, the company received a $1.04 billion verdict in a federal antitrust case brought by Energy Transportation Systems, Inc. (ETSI) in Texas. ETSI was a coal-slurry pipeline company that accused SFSP of blocking a project. The settlement was adjusted to $350 million in 1990.
The company name was changed to Santa Fe Pacific Corporation in 1989. Hard times in the industry produced greater cooperation between companies; SFP reached agreements with Burlington Northern Inc., including sharing a rail terminal.
Early in 1990 SFP sold a 20 percent stake in its real estate subsidiary. Selling assets continued to reduce the company’s debt. SFP made public a portion of its Santa Fe Energy Resources, Inc. unit in 1990 and spun it off completely by year’s end. SFP Realty changed its name to Catellus Development Corporation, which also was spun off as an independent company in 1990.
Survival in the 1990s
SFP continued to experience difficult times during the early 1990s. Although management had decided on a strategy of selling off assets to bolster revenues, unexpected events hastened the company’s decline. Railway congestion around Houston and in places such as Phoenix and South California significantly delayed the timeliness of SFP deliveries, with the consequence of declining revenues. Soon SFP was looking for a potential candidate with which to merge its operations and, luckily, management found Burlington Northern a willing suitor.
The merger had significant benefits for both railroad companies. For SFP the advantages were obvious: capital to stabilize its worrisome financial condition; access to trackage and new shippers; an agreement to improve its carriers; and the potential for long-term growth. Burlington Northern likewise was given new opportunities, including access to trackage and new shippers throughout the SFP railway system; a vastly improved competitive position throughout the Western United States due to the merger; more access to the Gulf coast petroleum belt; a single line route from British Columbia to San Diego, California, which management had wanted for some time; and a projected net annual increase in revenues of more than $500 million.
Gerald Grinstein, the chairman of Burlington Northern, and Robert Krebs, the president of SFP, managed the details of the merger in both an amiable and efficient manner. The relationship between the two men cannot be discounted in assessing the merger, since it appeared that the congeniality that flowed between Grinstein and Krebs filtered down to the actual merger operations. Nearly everything went smoothly and according to plan, and within a few short years the new Burlington Northern Santa Fe Railway was the envy of the railroad companies.
By the end of 1997 the company counted more than 34,000 route miles and had a total of 5,000 locomotives and 90,000 freight cars in service, with a little more than 44,000 employees. Burlington Northern Santa Fe Railroad had become the largest transporter of low-sulfur coal in the entire world, the largest transporter of grain throughout the United States, the largest transporter of aircraft parts, beer, and aluminum in America, and had hauled enough coal in 1997 to generate almost ten percent of the country’s entire electrical output.
Robert Krebs replaced Grinstein as the head of BNSF, but continued to lead the company into a period of stabilized prosperity. Revenues increased to $8.4 billion in 1997, and the company’s rail also increased significantly. During the same year BNSF’s work force increased by 1,000 employees, with more people expected to be hired during 1998 and 1999. The merger between Burlington Northern and Santa Fe Pacific has been one of the great railroad success stories of the late 20th century.
Atchison, Topeka and Santa Fe Railway Co.; Burlington Northern and Santa Fe Railway Co.; Central California Traction Co.; Havelock Car Shop; SFP Pipeline Holdings Co.; Western Fruit Express Co.
“As BNSF Nears Start-Up, Management Team Takes Shape,” Railway Age, October 1995, pp. 20-21.
Marshall, James, Santa Fe: The Railroad That Built an Empire, NewYork: Random House, 1945.
Overton, Richard C., Burlington Route: A History of the Burlington Lines, New York: Alfred A. Knopf, 1965.
_____, Milepost 100: The Story of the Development of the Burlington Lines, 1849-1949, Chicago, 1949.
Waters, L.L., Steel Trails to Santa Fe, Lawrence: University of Kansas Press, 1950.
Welty, Gus, “Managing the Mega-Mergers,” Railway Age, November 1997, pp. 33-35.
_____, “Matchmakers Rob Krebs, Jerry Grinstein,” Railway Age, January 1996, pp. 31-33.
Zeller, Wendy, and Kathleen Morris, “A Desperate Effort to Clear the Tracks,” Business Week, March 2, 1998, p. 46.
—Lynn M. Voskuil and Carol I. Keeley
—updated by Thomas Derdak