UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF PENNSYLVANIA
May 2, 1974
In the Matter of READING COMPANY, Debtor. In Proceedings for the Reorganization of a Railroad Bky
The opinion of the court was delivered by: DITTER
MEMORANDUM AND ORDER NO. 607, and DECISION REQUIRED BY THE FIRST SENTENCE OF § 207(b) OF THE REGIONAL RAIL REORGANIZATION ACT OF 1973.
The Reading Company is a railroad that has been in reorganization under Section 77 of the Bankruptcy Act since November 23, 1971. It is one of several northeast railroads that are in grave financial difficulty. In order to ameliorate this situation and to provide essential rail service, Congress passed the Regional Rail Reorganization Act of 1973.
This Act requires that each district court having jurisdiction over a railroad in reorganization decide whether it is reorganizable on an income basis within a reasonable time under the Bankruptcy Act, 11 US.C. § 205, and whether the public interest would be best served by continuing with those proceedings. The alternative is reorganization under the new Rail Act. Pursuant to this mandate, public hearings were held on March 27, 1974, so that all interested parties could be heard. Based on the affidavits, testimony, and documentary evidence offered, I make the following:
FINDINGS OF FACT
1. The Reading Company is a bankrupt railroad presently in reorganization under Section 77 of the Bankruptcy Act.
2. The Regional Rail Reorganization Act of 1973, 45 U.S.C. § 701 et seq., was intended by Congress to provide for:
(1) The identification of a rail system in the midwest and northeast region which will be adequate to meet regional and national rail transportation requirements;
(2) The reorganization of railroads serving that area into an economically viable system; and
(3) The financial assistance and legal procedures to accomplish these purposes at the least possible cost to the general taxpayer.
3. The Act affords certain advantages to those railroads which are reorganized under its provisions as compared to those which are reorganized under Section 77 of the Bankruptcy Act, including:
(1) Simplified procedures for the abandonment of lines which are not profitable to operate;
(2) Federal subsidies to provide compensation for employees whose services are no longer required; and
(3) The possibility of simplified criteria for obtaining interim financial assistance.
4. At least six suits have been brought, however, to challenge the constitutionality of the Act. No decision has been rendered in any of these proceedings.
5. Reading operates 1,138 miles of track in eastern Pennsylvania and New Jersey, provides essential commuter and freight service, and had operating revenues of $ 125,813,000 and assets of $ 315,038,000 in 1973.
6. In each of the last five years, Debtor's rail operation expenses have exceeded its rail operation revenues so that there has been a net operating loss. These losses were partially offset by non-operating income, but when fixed charges consisting of leased-line rentals, interest on equipment obligations, and accrued interest on securities were added, Debtor's net losses have been as follows:
1969 1970 1971 1972 1973
Operating Loss 603 2,309 5,776 12,126 8,677
Other Income 3,204 2,629 481 14 1,520
Fixed Charges 5,921 5,946 6,454 6,094 5,545
Income or (Loss) (69) (6,610) 200 (1,849)
Net Loss $ 3,389 $ 12,236 $ 11,549 $ 20,083 $ 12,702
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