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Finally, if Conrail should not be sold in the near future

and the Congress decides to continue USRA's Conrail monitoring function, then the Association will require an appropriation of

$3 million for Fiscal 1986. An appropriation of that magnitude will provide for the approximately 30 full-time employees who are essential if USRA is to responsibly carry out its statutory CONRAIL

duties as detailed in the Northeast Rail Service Act.

STATEMENT OF L. STANLEY CRANE, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

FUTURE OF CONRAIL

Senator ANDREWS. Next we would like to hear from Mr. L. Stanley Crane.

Mr. CRANE. Thank you, Mr. Chairman and Senator Lautenberg.

I would like to discuss with you Conrail's future. I believe that the course the Department of Transportation has set for the privatization of Conrail is wrong, and my belief was reinforced on Monday, when the U.S. Railway Association released their report stating that Conrail would earn, and I quote, “a modest but solid profit as an independent entity while paying industry scale wages, State taxes, and labor protection expenses during the 4-year period 1985–88," and that included a recession cycle.

USRA's conclusions contradict assertions made by the DOT that Conrail cannot survive without a savior, namely, the Norfolk Southern (NS). In my opinion Conrail does not need the DOT savior.

Conrail, acting as an independent entity, has taken and will continue to take the actions necessary to bring the company continuing profitabilty.

I would like to discuss a couple of other key issues. First, Conrail management's public stock offering proposal. Two, the DOT plan for NS to acquire Conrail and its unprecedented request for immunity from judicial review. Three, why an NS takeover of Conrail would be destructive to competition and to employment.

And four, the very large tax benefits to NS as a consequence of a possible takeover of Conrail which benefit NS beyond the purchase price.

ADVANTAGES TO MANAGEMENT STOCK OFFERING Let me begin by telling you why I think Conrail's management stock offering approach is a better way. An independent Conrail with an independent management and an independent board of directors accountable to a broad base of stockholders, like any other major national company, has the greatest incentive to serve the long-term interests of shippers and communities, and to demonstrate the willingness to make investments and commitments required to maintain service.

Our company's record over the last 4 years demonstrates a strength resulting from significant contributions made by Conrail's employees who made Conrail viable and efficient. Continuing cooperation will be the cornerstone of our future success.

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We believe that a public offering of stock is in the best interest of our constituencies and the Nation for it leaves intact the structure which has produced the success we have enjoyed.

OPPOSITION TO NORFOLK SOUTHERN SALE

I would also like to discuss for a few minutes why the DOT proposal is unique, and why I believe it has potentially dire consequences. Economically it is extraordinary because it would create the largest transportation company in the United States with combined revenues of nearly $7 billion and possessing 60 percent or more of the NortheastMidwest rail market for chemicals, grain, automobiles, metals, scrap, and auto parts.

It is of extraordinary legal concern, because DOT has asked the Congress to exempt the transaction from every municipal, State, and Federal law, including antitrust laws, and to immunize it in its future implementation of judicial review permanently despite the fact that no independent administrative agency has scrutinized the transaction in the public area.

In order to address its very anticompetitive problems in the DOT plan, the Justice Department proposed divesting lines from the merged NS-Conrail to small, undercapitalized regional railroads.

The Justice Department's analysis is seriously flawed, because it apparently ignored real movements of traffic and looked instead at com. petition within counties. Rail traffic just doesn't move in those patterns.

But even the anticompetitive effect of the plan on county competition was enough to lead Justice to conclude that standing alone, the merger would violate every existing merger standard.

Therefore, Norfolk Southern proposes to divest those lines and the acquisition or rehabilitation of which would require tens of millions of dollars to go for the transportation industry, one of the conveyees, and Pittsburgh and Lake Erie, which between them lost $75 million over the last 3 years, will acquire lines whose traffic density in many cases is less than one-twentieth of the volume carried by the lines to be retained by the Norfolk Southern-Conrail giant.

I do not really believe anyone believes that this solution creates competition. The effects of this questionable transaction on employment appears to be equally devastating. Hays Watkins, chairman of CSX, told the Senate Commerce Committee on February 28 that the merger would cost thousands of jobs on his railroad.

BRAC's Richard Kilroy said some 10,000 jobs would be lost. Others have estimated equally heavy losses. Norfolk Southern in return has said that only 1,200 Conrail-NS jobs would be eliminated.

The history of railroad mergers and their consequences for employment should serve as guidelines for reality. One thing is clear. An independent Conrail will preserve the greatest number of jobs.

TAX ADVANTAGES OF NORFOLK SOUTHERN TAKEOVER Another aspect of the Norfolk Southern takeover plan that needs further investigation is the financial benefits and tax advantages which Norfolk Southern will receive in acquiring Conrail.

Such tax advantages could have a net cash benefit to Norfolk Southern over a 5-year period of hundreds of millions of dollars more than the $1.2 billion purchase price, and I do not believe that is in the best interests of the taxpayer.

DOT says it is, because it advocates the takeover of Conrail by NS. Four years ago DOT proposed that Conrail be broken up and sold off in pieces. That prescription was wrong then. Today DOT proposes to merge Conrail into Norfolk Southern, ignoring the Nation's basic economic policy of competition.

I believe that prescription is just as wrong. Conrail can stand on its own. That was confirmed by the USRA report, the agency Congress created to report to it on Conrail. That agency has done an excellent job. It should continue to provide guidance to the Congress as the sale process proceeds.

Thank you, Mr. Chairman.

PREPARED STATEMENT

Senator ANDREWS. Thank you, Mr. Crane. We have your complete statement and it will be made part of the record.

[The statement follows:)

STATEMENT OF L. STANLEY CRANE

Good morning, Mr. Chairman and members of the committee. Thank you for this opportunity to discuss Conrail's vital importance as a transportation company for the nation.

Today I'd like to address four areas:

1)

Conrail management's proposal for a public offering of stock to return the company to the private sector;

2)

Conrail's new labor agreements with 16 of its unions to return their members to industry-scale wage levels;

3)

The DOT proposal for a Norfolk Southern acquisition of Conrail, the unprecedented immunity from judicial review that the DOT proposes to grant the transaction, and why it will be destructive to competition,

4)

Huge tax benefits to NS as a consequence of a possible takeover of Conrail.

Let me begin by telling you why we think the public offering approach is best.

First, we believe an independent Conrail, with independent management and an independent Board of Directors accountable to a broad base of stockholders, has the greatest incentive to serve the long term interests of shippers and communities, and to demonstrate a willingness to make the investments and commitments required to maintain quality service.

The public stock offering approach to return Conrail to the private sector ensures such a corporate structure, and will permit Conrail to be managed for long-term financial viability.

The record of Conrail over the last four years provides the support for a public offering. The strength of Conrail today is the result of significant contributions made by Conrail employ

Both management and union workers cooperated to make Conrail a strong, viable and efficient railroad. That cooperation, extended into the future, is one of the principal reasons the level of confidence in the success of Conrail can be so high.

The reason I emphasize the confidence in Conrail's future is that attacks on the public offering usually begin by questioning the long term financial viability of the company. So long as management working with its union employees has the flexibility to meet the demands of the marketplace and can respond to the economic cycles like any other company, there should be no concern for the future. The Department of Transportation would have

ees.

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