Case 37

Topics: Acela Express, High-speed rail, Rail transport Pages: 9 (2394 words) Published: July 8, 2013
National Railroad Passenger
Corporation ("Amtrak"):
Acela Financing
On April 30, 1999, Arlene' Friner. CFO of Amtrak, instructed her treasury staff to review a leventged-lezise proposal from BNY Capital Funding LLC (BNYCF). Several weeks earlier, Amtrak and its adviser, Babcock & Brown Financial Corporation, had invited financial institutions to submit lease-financing proposals for Amtrak's planned purchase of locomotives and high-speed train sets.' The equipment would be utilized on the "Acela" line, Amtrak's new brand that was designed to differentiate Amtrak passenger trains and service in the Northeast Corridor.from the existing sery ice.2 Acela, scheduled to begin service in late 1999, promised to offer faster trip times and premium service (Exhibit 1). Friner and her staff had gone over the proposals and agreed that BNYCF was among those that offered the best terms. Now, she had to decide whether Amtrak should finance the equipment purchases using BNYCF's leveraged-lease proposal or borrow money and purchase the equipment on its own. Company Background

In 1970, the U.S. Congress created the National Railroad Passenger Corporation (Amtrak) to ensure that "modern, efficient intercity plissenger-rail service would

S..
remain an integral part of the national transportation system."3 The government mandated Amtrak to take over the rail-passenger operations of private railroads. Since then, Amtrak had become the primary provider of passenger-rail service in the United States. Amtrak's national network provided service to more than 20 million intercity passengers and operated 516 stations in 44 states. Historically, Amtrak had received annual subsidies from the federal government. In 1997, however, Congress passed the Amtrak Reform and Accountability Act (ARAA), which stipulated that Amtrak eliminate its reliance on federal subsidies by 2002. After 2002, no federal funds could be used for Amtrak's operating expenses. This represented a formidable challenge, as Amtrak had never been profitable in its 30-year history. (See Exhibits 2 and 3 for Amtrak's historical income statements and latest balance sheet.) Thus, to meet Congress's goal of operating self-sufficiency by 2002, Amtrak developed a radical new business plan, the centerpiece of which was a high-speed rail service that was projected to bring in net annual revenues of $180 million by fiscal-year 2002.4 Acela

In its Northeast Corridor, which served routes from Virginia to Maine,5 Amtrak branded this new high-speed rail service "Acela": Acela is designed to be more than high-speed trains—it is a brand representing a new way of doing business. Acela was designed to bring high speed and high quality to Northeast Corridor passengers. The Acela service will offer faster trip times, comfortable amenities, and highly personalized service. Acela is the latest and boldest step by Amtrak to change its rail service into a more customer-focused, commercially driven, premium transportation service .° The Acela trains, designed to operate as fast as 150 miles an hour (241.35 kilometers an hour), promised to reduce travel time significantly. For instance, the trip from Washington, D.C., to Boston, which currently took 7 hours and 30 minutes, would take 5 hours and 50 minutes on the high-speed trains.? The first high-speed trains, the Acela Express, were scheduled to begin service between New York City and Boston in late 1999, while the New York–Washington leg would be added within a year. The full high-speed service was expected to be in place by the fall of 2000.

The Equipment
To operate the Acela Regional Service as planned, Amtrak needed to purchase 15 dual-cab, high-horsepower electric locomotives and 20 high-speed train sets. Each train set consisted of one first-class coach car, one bistro car, three coach cars, one end coach car, and two power cars. The estimated total cost for all the equipment was around $750 million: Aggregate

No.CostCost...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Cold Case Investigation Essay
  • Case Management Essay
  • Case Process Research Paper
  • Essay about Kensington Tablet Cases Make Holiday Shopping a Snap
  • Essay about Case Study Worksheet GE
  • Diversity Makes Good Business Case Essay
  • Making the Business Case: Multiple Choice Questions Essay
  • Just for Feet Audit Case 5-7 Essay

Become a StudyMode Member

Sign Up - It's Free