(The following article by Eric Durr was published by the Albany Business Review on June 19.)
ALBANY, N.Y. — The Delaware & Hudson Railway will be restructured by its parent corporation, Canadian Pacific Railway, CPR President and CEO Rob Ritchie announced June 18.
CPR will restructure its northeastern United States operations to “create a more cost-effective and flexible railway network,” the company’s statement said. The railroad has begun to talk with “a number of interested parties” about ways to generate higher traffic volumes and larger earnings, the Canadian Pacific statement said.
Canadian Pacific’s northeastern New York rail network operates as the Delaware & Hudson, or D&H. The D&H dates back to 1829. Canadian Pacific acquired the railroad, once headquartered in Albany, N.Y., in 1991.
The restructuring is part of Canadian Pacific’s effort to increase productivity, which also includes job reductions.
Canadian Pacific is talking to a number of “parties” about ways to make its northeastern United State’s operations–which run from Washington, D.C. north through Albany to Montreal– more profitable, said company spokesman Lee Cocolicchio.
“We are in discussions right now with a number of parties and we are interested in the ideas those parties bring to the table and we are not going to form any preconceived notions that we are going into those dicussions with, ” he said.
Cocolicchio would not say whether the ideas being discussed involve the sale of all or part of the D&H network, or what kind of companies Canadian Pacific is talking with. The talks are confidential, he said.
The D &H generates revenues of about $111.6 million, Cocolicchio said.
The D& H is a “break even” operation in terms of revenue, Cocolicchio said, but the CPR loses money when capital costs are added in.
CPR will write down its investment in its D&H operations by $75 million (Cdn) after tax to more accurately reflect the current fair value of the operations and the impact of restructuring, a company statement said.
CPR wants to stay in the northeastern United States but needs to make money, Cocolicchio said.
“We are looking for value creation. We want to hear creative suggestions from other parties,” Cocolicchio said.
“We believe our Northeastern U.S. network has additional earnings potential and we are prepared to take the measures necessary to make it a success,” Ritchie said.
CPR will take a special charge of approximately $113 million in Canadian currency after tax in the second quarter of 2003 to recognize the cost of these initiatives and the write-down to fair value of under-performing assets, Ritchie announced during a conference call.
Overall, Canadian Pacific is “not satisfied with the current rate of progress toward our long-term financial objectives,” Ritchie said in a written statement.
“This situation has been exacerbated by the unexpected rise in the value of the Canadian dollar added to sustained high fuel prices. We are accelerating existing plans and taking additional steps to improve productivity and address investments that aren’t performing to expectation.”
Canadian Pacific will eliminate 820 jobs between this year and 2005. The reductions will occur across every area of the business, the railroad said.
Some of those jobs may be in the D&H, Cocolicchio said, but where the layoffs will occur has not been determined.
“Our investments in technology and assets have allowed CPR to make substantial improvements in productivity,” Ritchie’s statement said. “However, we are continuing our drive for productivity improvement to meet our financial objectives. We will continue to provide the level of service our customers expect with a safety standard that has made CPR a North American leader in train safety.”