Something equally intriguing may be emerging for regional railroad Wheeling & Lake Erie (W&LE), which, between short interregnums of well-publicized investor focus, has operated inconspicuously, reliably and profitably in the shadow of Class I juggernauts. A new savvy capitalist—FTAI Infrastructure Inc.—is betting big bucks that this normally wallflower model of efficient railroading still has special promise.
The $1 billion-plus purchase of W&LE announced earlier this month adds considerably to FTAI’s already fully loaded balance sheet and must gain Surface Transportation Board approval, but under less stringent standards than apply to Class I railroad transactions. Our focus here, however, is W&LE’s storied past and investor-intended future.
W&LE was twice Railway Age’s Regional Railroad of the Year. Admired still among her charms is 800 miles of track spreading though Maryland, Ohio, Pennsylvania and West Virginia that allow interchanges with CN, CSX, Norfolk Southern and scores of short lines. But that’s readily available information.
The mystery is what FTAI discovered in its due diligence causing it to coo to W&LE, “I heart you.” Think location, location, location, as W&LE operates smack dab in the space of America’s densest network of manufacturers and assemblers—a rich porridge of intermodal traffic. Geography also fed previous investors’ enraptured wants of W&LE.
George Gould Sought Her Hand
Among the most famous to be smitten by W&LE was railroad baron Jay Gould’s son, George Jay Gould I, who, by continuing his father’s control of W&LE into the early 20th century, came darn near assembling the nation’s first true transcontinental railroad—a coveted unbroken ribbon of rail operating between Baltimore and San Francisco under unified management. Gould’s stable of railroads that gave heft to his transcon quest also included Denver & Rio Grande, Missouri Pacific, St. Louis-Southwestern, Texas & Pacific, Wabash, and Western Maryland.
But between Pittsburgh and Connellsville, Pa., was a 60-mile gap blocking Gould’s anticipated transcon. The missing piece was tiny Pittsburgh & West Virginia Railway (P&WV) that connected with W&LE and seemed ripe for W&LE acquisition on behalf of Gould. But when a severe business downturn occurred in 1907, Gould’s rail empire and transcon dream crumbled. W&LE survived, but it was not until 1990—after W&LE changed hands repeatedly—that W&LE acquired P&WV.
The Alphabet Route
W&LE resurfaced as a belle of the ball in 1931 when entrepreneurial minds collaborated to provide shippers an alternative to the direct single-line service of major railroads Baltimore & Ohio, New York Central, and Pennsylvania between East Coast cities and Chicago and St. Louis.
Eight railroads—W&LE included—thumbed their collective noses at the ongoing Great Depression and Leviathan Class I’s with which they commenced battle. They collaborated to form a competitive steel-wheel on steel-rail expressway they creatively named the Alphabet Route.
It began in Boston on New York, New Haven & Hartford Railroad (NYNH&H), with cars transferred to Lehigh & Hudson River Railway at Maybrook, N.Y., which interchanged them at Allentown, Pa., with Central Railroad of New Jersey (CNJ), which had originated cars at the Port of New York.
The growing train handed over to Reading Railroad (RDG) at Bound Brook, N.J.—Reading having originated additional cars in Philadelphia. Western Maryland Railroad (WM), which originated traffic at Baltimore, took the growing train from Reading at Shippensburg, Pa., west to Connellsville, Pa., and an interchange with P&WV, which hauled the train to Pittsburgh Junction, Ohio, for interchange with W&LE.
W&LE then moved the train to Bellevue, Ohio, and interchange with New York, Chicago & St. Louis (Nickel Plate Road, NKP), which served both Chicago and St. Louis. The Alphabet Route operated in reverse, eastbound.
The Alphabet Route was Precision Scheduled Railroad on steroids, and it worked.
The acronyms on waybills defined the Alphabet Route: NYNH&H-L&HR-CNJ-RDG-WM-P&WV-W&LE-NKP. And going east, NKP-W&LE-P&WV-WM-RDG-CNJ-L&HR-NYNH&H.
Even though flags of some of the original participants fell, the Alphabet route operated successfully (successor railroads taking the place of those that disappeared) into the early 1980s when mergers and partial economic deregulation reshaped the industry. W&LE never faltered.
Enter Robert R. Young
Railroad baron and industry maverick Robert R. Young—who in 1929 acquired control of rail holding company Alleghany Corp. from the equally notable Otis and Mantis Van Sweringen brothers—recognized in 1947 that W&LE held a strategic place among Alleghany’s larger holdings, including Chesapeake & Ohio; Erie; Nickel Plate; and Pere Marquette.
As an intermediate step toward the unified transcontinental railroad that eluded Gould and others before him, Young proposed merging those properties—then operating independently—under his unified control. The relatively minuscule, but advantageously located and perennial money-making W&LE again was a pivotal connection.
Nickel Plate’s preferred stockholders scuttled the deal, with the mercurial Young divesting Alleghany of Nickel Plate and W&LE, leading in 1949 to independent Nickel Plate leasing the barely 500-mile long and connecting W&LE. Following Nickel Plate’s 1964 acquisition by Norfolk & Western Railway (N&W), and N&W’s subsequent merger with Southern Railway to create Norfolk Southern, W&LE reemerged independent under new private ownership—and through acquisitions grew in size to today’s some 800 miles.
What Now?
For investors, railroads are inanimate objects of trade, with buying bulls convinced of better times approaching, and selling bears the opposite. To bullish FTAI Infrastructure, W&LE is as beguiling as found by Gould and Young.
While the featured event being watched these days is a Union Pacific-Norfolk Southern marriage—intended to become the transcon neither George Gould, Robert R. Young or others could effectuate—the so-far unknown intentions of FTAI Infrastructure merit near equal attention.
A glance down another historical byway reminds us how a former crop of major railroad CEOs giggled at then-Kansas City Southern CEO Mike Haverty for shelling out more than $1 billion for an extensive Mexican track concession. “Mike’s folly” proved no laughing matter to once derisive competitors.
A sensible wager is that FTAI Infrastructure is not intending to be a passive investor; and word from Wall Street is that other infrastructure funds, flush with cash, have eyes on the industry.
Railway Age Capitol Hill Contributing Editor Frank N. Wilner is author of “Railroads & Economic Regulation,” available from Simmons-Boardman Books, 800-228-9670.
