(The following story by Whit Richardson appeared at Mainebiz.com on May 17, 2010.)
BANGOR, Maine — If Bob Grindrod, president and CEO of Montreal Maine & Atlantic Railway, was a more superstitious man, he would say the railroad he took over in January 2003 was cursed from the day the purchase and sales agreement was signed.
On that “infamous day” of Jan. 9, around noon, the papers were signed transferring the assets of the Bangor & Aroostook Railroad, which was in bankruptcy at the time, to MM&A. A few hours later, Great Northern Paper, the BAR’s largest customer, filed for bankruptcy. “If you think that was a coincidence, I have a bridge in Brooklyn I’d like to sell you,” Grindrod says on a recent morning in a conference room at MM&A’s headquarters in Hermon.
At the time, Great Northern Paper’s paper mills in Millinocket and East Millinocket represented 45% of the railway’s traffic, Grindrod says. The loss of its largest customer tapped MM&A’s reserves. The roughly $10 million MM&A brought to invest in the company “went down the drain to keep the railroad alive while Great Northern was flat on its back,” he says.
It took several months before the mill in Millinocket was back up and running under new ownership, and an additional year before the second mill was back on line. But the level of traffic from those mills never reached pre-bankruptcy levels.
Fast forward to present day, after a downturn in the lumber market, the housing and credit crises, the recession, the closure of more mills, and MM&A is on its knees, bleeding money and seeking approval from the federal government to abandon 233 miles of track — roughly half the mileage it purchased in 2003 — that run between Millinocket and Madawaska, including eastern branches connecting to Houlton, Presque Isle and Caribou. Unlike a mill that can shut down for a few months to cut costs, when a railroad company goes deep into the red, abandonment is the only option, Grindrod says. “We can’t pick up and move assets where the business is better. We’re nailed to the ground here.”
The company in August 2009 made public its intent to abandon the tracks, and hinted that it wanted the state to step in and buy them. It wasn’t until February that the company filed its formal request to abandon the tracks with the federal Surface Transportation Board.
Grindrod says the company has done everything it could to keep the lines open, including laying off 35% of its employees (reduced from 325 to 205), enacting across-the-board 15% pay cuts, “Herculean efforts” to attract more customers, deferring an estimated $19 million in maintenance expenditures and reducing service to lower operating costs. But the economy, the reduction in shipments and resulting decreases in service created a vicious cycle that caused the company to lose $4.5 million last year on the lines. “An abandonment is a last resort,” he says. “We want to find a different solution, but having MM&A continue to manage the railroad and absorb the losses is not an acceptable solution.”
Faced with what would be a blow to northern Maine’s economy, the state has made it clear it does not want the lines abandoned, the tracks ripped up and sold as scrap. “The loss of rail service in Aroostook could be catastrophic for many Maine companies and communities,” Gov. John Baldacci said last month in a press release. “It’s clear that the state must act.”
After a failed attempt to secure federal funds to buy the tracks, which the state believes have a net liquidation value (the market value of an asset minus the costs associated with its disposal) of roughly $20 million, legislators pushed through a bond measure that includes borrowing $7 million, as well as using roughly $3.5 million from a transportation bond passed last year, to buy the tracks. The state would also use $7 million from its rainy day fund and look for the shippers on the lines to chip in $3 million. As this issue of Mainebiz goes to press, the state and MM&A are in closed-door negotiations in an attempt to find a fair and equitable price for the tracks. While the state pegs the value at $20 million, Grindrod says MM&A believes the value is closer to $27 million. Baldacci has appointed a task force, chaired by David Cole, commissioner of the Maine Department of Transportation, to oversee the state’s purchase and management of the tracks.
Assuming voters approve the bond, it seems likely that by the end of the summer the state will own the tracks and search for a way to keep freight service available to the 20 or so shippers who use the service. It’s possible that the state would lease the tracks to a third-party operator, and there’s been some discussion among private companies of forming a rail cooperative and bidding for freight that runs along the rails.
In any case, the state, the shippers and representatives of northern Maine say the tracks are crucial to the businesses that use them. The state estimates roughly 1,700 jobs are at risk if rail service is lost. The other, more intangible, losses are that of economic development potential. Losing rail as a transportation option hobbles the area’s ability to attract new business with remote markets, and the competitiveness of existing businesses that use rail for affordable delivery of products.