Amtrak was formed in 1970 by the U.S. Congress in order to ensure that rail service would remain an “integral part of the national transportation system.” Amtrak has become the main provider of all passenger rail services in the U.S. and as of 2002 Amtrak has become completely self sufficient and is no longer allowed to use federal subsidies to cover their operating expenses. In order to become self sufficient Amtrak has developed a high-speed rail service, called Acela, which is projected to bring in revenues over $100 million a year. The Issue
Due to the Amtrak Reform and Accountability Act passed by Congress in 1997 the corporation is now forced to “eliminate its reliance on federal subsidies by 2002.” This poses a very serious and detrimental problem for Amtrak as they have never been profitable in the past 30 years since the company’s inception. This has caused the firm to be very creative and develop some innovative and profitable solutions. The leading solution to their economic problems is a radical new business plan which focuses on the creation and development of a high-speed rail service. In order to launch this new service Amtrak needs to purchase the necessary equipment at a total cost around $750 million. The firm has been able to secure almost half of this amount from investors, but the issue remains of how to finance the remaining $267.9 million that is needed. Options
Amtrak really has two main options to fund their new Acela line. The first is to borrow money from investors to fund the purchase and the second is to lease the needed equipment from a financial institution like BNYCF. They currently have an offer from a bank to borrow the money and acquire more debt or to take out a leveraged financial lease with BNYCF. In a financial lease Amtrak would obtain the needed funds from BNYCF and make semi-annual payments until the lease was paid off and at the end...