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Railroad Renaissance in the Rockies
Utah Historical Quarterly
Vol. 25, 1957, Nos. 1-4
RAILROAD RENAISSANCE IN THE ROCKIES
BY ROBERT G. ATHEARN
IN THE fall of 1935, the Denver and Rio Grande Western Railroad made public a fact that for some time had been known in financial circles. It was again in difficulty. To old timers in Colorado and Utah this revelation came as no surprise. Economic distress was no stranger to the road's management; the trouble was chronic. In its sixty-five year history bankruptcy was a word that had appeared with timetable regularity. Futile attempts to remain solvent were reflected in the steady deterioration of equipment and roadbeds as officials desperately sought to meet obligations. That the "Dangerous and Rapidly Growing Worse," as it was nicknamed, should now appear in federal court to plea for assistance caused no great stir in Denver. In fact, its absence might have been cause for comment. The great depression had struck down mightier railroads than this and had the little line survived America's deepest economic crisis it would have been newsworthy indeed.
Of considerable interest to the people of Utah and Colorado was the court's appointment of trustees who would guide the insolvent line during its period of financial convalescence. Instead of selecting representatives from the Rio Grande's co-owners, the Western Pacific and Missouri Pacific railroads, or even turning to experienced railroaders for assistance, Federal Judge J. Foster Symes selected Wilson McCarthy and Henry Swan for the trying years ahead. While both men had achieved something of a reputation in their own fields, neither was a railroad man.
Wilson McCarthy, a native of American Fork, Utah, first came to national notice in 1932 when he was appointed by Herbert Hoover as a Democratic member of the Reconstruction Finance Corporation. One of the corporation members later revealed that when the name of McCarthy was presented he asked, "Who the hell is he?" A year later, when McCarthy resigned to enter private practice in Oakland, California, the questioner knew the answer. The former stockman, lawyer, legislator and judge from Utah proved to be an able representative of his region and it was with a good deal of misgiving that his colleagues saw him leave. Bankers from all over the nation wrote to him, expressing their appreciation of his outstanding work and sincere regret at his decision to return to private life. Charles G. Dawes, former vice-president of the United States, then head of the RFC, congratulated the westerner for his part "in the great governmental effort to tide the nation over the most severe economic and financial emergency of its existence" and pointed out that "Upon your Board was centered the hopes of a desperate people." Dawes admitted that the work had been trying and that collectively and individually each member "had a hell of a time."
McCarthy's co-trustee, Henry Swan, was well known in Colorado. As a young Princeton graduate he had worked with the deputy state engineer in western Colorado surveying irrigation facilities in that area. Later he entered the contracting business, rebuilding parts of the Colorado and Southern Railroad as well as the Denver and Salt Lake line. After his marriage in 1907, Swan turned to selling securities, because it promised a less peripatetic existence, and it was in the financial world that he made his reputation. Like McCarthy, he knew little of railroad management, the problems of rail traffic, or the actual details of a business they now proposed to direct. As the two men faced their task they took a long look at the bedraggled Rio Grande and studied the circumstances that led it to such a low estate.
Ironically, it was not financial starvation alone that sent the Rio Grande to the poor house, but also a bad case of indigestion brought on by gorging. During the twenties the future of the road was threatened by an even smaller and less consequential line, the Denver and Salt Lake (locally referred to as the Moffat). While the Moffat actually ran to nowhere, its tracks ending at Craig, Colorado, there was always the danger that it would find funds to build on into Salt Lake City and offer the most direct rail route west. Vague threat came closer to reality when, in 1928, the Moffat Tunnel was completed, eliminating the expensive and weather-plagued climb over Rollins Pass. Encouraged by the reduction in operating cost which resulted from the use of this new facility, the Moffat people proposed to build a feeder line from their main road beginning at Orestod and connecting with the Denver and Rio Grande Western tracks at Dotsero. Once this was effected they could demand of the Interstate Commerce Commission, and probably get, a division of rates on the traffic of the Denver and Rio Grande Western between Denver and Salt Lake City. Then the Moffat could offer service 175 miles shorter between Denver and the Utah capital. No one in the Denver and Rio Grande Western offices needed second sight to foresee the result. Certain ruination lay directly ahead. The only solution was to buy out the potential traffic interlopers.
There was only one difficulty with the purchase plan. The railroad did not have the necessary money. But under the circumstances, with a heavy investment to protect, there remained no choice but to go ahead and plunge. It was not a wild gamble by any means; the Rio Grande had a good deal at stake. In recent years the Moffat line had improved operating results and if the Dotsero Cut-off could be built Denver's dream of a direct transcontinental line would be realized. Rio Grande management saw that if it were to be the beneficiary of this new development fast action was required. Quietly its agents went out in the fall of 1929 and during early 1930, buying up Moffat stock, some of which was purchased in the name of a dummy company. Shortly it was revealed that controlling stock of the Denver and Salt Lake (Moffat) Railroad was in the hands of the Rio Grande.
Just as the purchasers made ready to grasp their prize, they discovered that they held only two of the five voting trusteeships of the Moffat road. The majority of the voting trustees retained a control they could exercise until 1937. The only alternative was to work out a joint trackage agreement with the Moffat people. After considerable squabbling between William R. Freeman, president of the Moffat, and J. S. Pyeatt, president of the Rio Grande, the trackage agreement was signed in June, 1931. One of its stipulations provided that the Moffat road surrender to the Rio Grande its right to build the Dotsero Cut-off. The Interstate Commerce Commission approved this arrangement, provided that Moffat minority stockholders received the same price paid the majority stockholders in the earlier transaction. To guarantee it, about twenty thousand shares of minority stock were placed in escrow in the Colorado National Bank along with an equal amount of Moffat stock owned by the Rio Grande, as insurance that the buyer would fulfill its agreement or forfeit its own stock. The Rio Grande then proceeded with the construction of the Cut-off, through a subsidiary known as the Denver and Salt Lake Western, organized October 17, 1924.
When the time came for the Rio Grande to make good its promise to buy up the Moffat minority stock, in 1934, it was unable to pay. The RFC, which had loaned the Rio Grande over three million dollars with which to build the Dotsero Cut-off as well as seven and one-half millions for the purchase of Moffat stock, now had to pick up the tab. It had secured its loans by taking the Rio Grande's Moffat stock and, thus the RFC, as the actual holder of the stock, was thrust into the railroad business.
Early in 1935, the Reconstruction Finance Corporation announced that it had taken over what a Denver paper called the "first federally owned, controlled and operated railroad in the United States." Not since 1920, when American railroads were turned to private management after World War I, had the government engaged in such operations in the continental United States. Even in wartime it did not presume to claim ownership. Technically, the Moffat line was held in trust until the Rio Grande could pay off ten and three quarters million dollars it owed the federal agency. That such would be the case was not anticipated by observers, who saw little hope for the debt-ridden Rio Grande. The allotted three years, in which it could redeem its purchase, was not enough time and "so the present temporary government ownership and control is considered the same as permanent." While the Denver and Salt Lake did not disappear forever into the maw of governmental control, it would be more than a decade before it was turned over to its bankrupt owner, the Denver and Rio Grande Western.
The RFC's search for a man to head its newly-acquired road was short. Wilson McCarthy's friends in the governmental agency remembered the westerner's fine record at Washington and recommended him for the position. As the year 1934 closed he took up his duties as president of the Moffat, determined to learn all he could about a business that to him was new and fascinating.
By the fall of 1935 it was clear that the Rio Grande could no longer carry the burden it had assumed. Obligations due by the first of the coming year amounted to more than fifty-eight million dollars and there was no means of borrowing enough to make the necessary payments. Faced by a staggering $122,000,000 total debt, there was no alternative but that of bankruptcy.
Not only did the Rio Grande petition the United States District Court for reorganization under Section 77 of the federal bankruptcy act but it also asked that its subsidiary, the Denver and Salt Lake Western, join it in the proceedings. RFC attorneys protested heatedly at this inclusion, holding that the little stretch of road between Orestod and Dotsero, called the Denver and Salt Lake Western, owed it more than three million dollars loaned the Denver and Rio Grande Western to build the Dotsero Cut-off.
Cassius Clay, counsel for the railroad division of the government agency, argued that merely because his organization held a demand note against the D & SLW was no proof that it could not meet its obligations. He did not see how it could also seek refuge in bankruptcy. "The note may not be demanded for ten years," he told the court. "The company has been able to keep up its interest payments and can continue to make payments if the Denver and Rio Grande Western keeps up its lease agreement."
Judge J. Foster Symes, who was to prove himself again and again to be the Rio Grande's friend, listened to the railroad's counsel who contended that the D & SLW had no assets except the new Cut-off and, valuable as that addition was, it was not sufficient collateral to cover present indebtedness. The court ruled that it could seek the same shelter as its owners.
"The object of this bankruptcy act is to give relief," ruled Judge Symes. "Financially embarrassed corporations may come under it without showing insolvency or bankruptcy. To my way of thinking a promissory note payable on demand is a threatening thing when a company has no means of paying it. Bankers regard companies with much demand paper against them as a bad financial risk." The RFC need not worry, he added; its rights would be recognized.
The appointment of trustees to manage the Rio Grande next came before the court. The names of Thomas M. Schumaker, chairman of the executive committee of the Western Pacific, and L. W. Baldwin, president of the Missouri Pacific, were suggested. So was that of J. Samuel Pyeatt, president of the Rio Grande. But Judge Symes, a long-time legal figure of Denver, had other ideas. Once before the Rio Grande had come to his court, petitioning for assistance, and he had then listened to those who suggested outsiders as trustees. And now the road was back again, asking for help. Determined that this would be its last appearance in court, Symes turned to local men. He chose Wilson McCarthy and Henry Swan as co-trustees.
McCarthy, in his short time at the Moffat road, was already eliciting the praise of Denver papers for his excellent management. During 1935 its traffic figures rose sharply as shipments of coal and oil from the company's trade territory increased. The choice of Henry Swan, a highly successful Denver banker, promised bright things for the sad financial condition of the defunct road. It was generally admitted in Denver that the selection of the two men was considered satisfactory by most interested groups, although it was somewhat unexpected.
A true westerner himself, the crusty judge gathered around him a small group of Denver financiers and legal minds to serve as his advisers in the trying years ahead. Regularly he turned to John Evans, a leading Colorado citizen and president of the First National Bank of Denver. Symes relied heavily upon Evans to assist him in the formation of a workable reorganization plan to support his avowed intention to keep control in the West. Evans, whose family long had been prominent in the development of Colorado, now made his own contribution to the state's history by working tirelessly at the formidable task of reorganization.
Faithful to the court's purpose of freeing the Denver and Rio Grande Western from outside control, John Evans encouraged Symes in his struggle against the persistent efforts of eastern capital to again fix in connecting carriers a foreign control upon the line whose past history had been one of bondage. Faced by the immediate necessity of funds to keep the trains moving, McCarthy and Swan appealed to John Evans for financial help. By the early summer of 1936 he had arranged for the purchase by local banks of trustees' certificates amounting to $1,650,000 in order to meet payrolls, honor unpaid current bills and keep the railroad operating. By this means and by selling $450,000 worth of scrap, a total amount of $2,100,000 was raised. Since the railroad was faced by immediate demands for $1,800,000 to meet these payrolls and current bills, it was just a little better than broke when the money was secured.
Upon the appointment of the trustees, Judge Symes publicly promised to formulate a plan that would insure the road against future bankruptcy, guarantee payment of its obligations, and at the same time restore it to a condition that would permit it properly to serve its territory. From the outset, Symes insisted that the road was a western road, drawing traffic from Colorado and Utah, and its management should be composed of local businessmen. Toward the end of the period of trusteeship he expressed clearly the theory upon which he had operated from the start. "The new management should be made up of western men familiar with the problems of customers living in the territory. The control, as in the past, should not be centered in a group of financial institutions in New York City, the officers of which have never willingly ventured west of the Hudson and who set foot for the first time on their property when invited on an inspection trip by the trustees."
When funds with which the work might be carried on were available, Symes gave trustees McCarthy and Swan the green light. Go ahead, he told them; build up the Rio Grande road. The court would stand behind all reasonable requests. W. W. Sullivan, an examiner of the RFC railroad division, estimated that between fifteen and twenty million dollars would be required to put the Rio Grande and Moffat roads into a condition that would permit them to compete successfully with other carriers. Wilson McCarthy agreed, and announced that he and Henry Swan would spend eighteen million dollars on improvements. Six millions would be at once poured into rebuilding of the physical plant. The road, the roadbed, the right-of-way and the rolling stock were to be put in first class condition.
The program was exactly what Symes wanted. The road had been long neglected and so stringent were its former economies that the accusation of physical danger to the passengers found some basis in fact. Its reputation was such that when in 1936 Henry Swan invited a banker friend to return east from San Francisco over the line, with the hope of getting a loan from him, the "Dangerous and Rapidly Growing Worse" sobriquet rose up to confound the trustee. Upon asking for Rio Grande routing the prospective visitor was told by an official of another railroad that it was the most dangerous thing he could do and he was positively risking his life. It was obvious to the court that the first step in restoration of the road was to regain public confidence in it as a common carrier. Symes approved the proposed expenditures. In March, 1936, he authorized the trustees to proceed with modernization and granted their first request to spend $1,700,000.
Money to proceed was obtained by the issuance of additional trustees' certificates and with it the trustees commenced to improve the Rio Grande. Ten thousand tons of heavier rails were purchased at once. Five new passenger coaches and three combination lounge and dining cars—all air conditioned—were ordered. Ten thousand dollars were spent for mechanical devices to help load automobiles on freight cars, and another seventy-eight thousand for creosoting ties.
It was only a beginning. In the spring of 1936 McCarthy promised the people of Colorado, in a speech made at Grand Junction, that in the next few years the Rio Grande would pour millions more into local industry through its purchases of steel, iron, copper, lumber, paint, glass, coal, oil, quarry products, electric energy and other items. There would be no let-up until the once decrepit railroad was in such top condition it could demand and receive its share of transcontinental traffic. Neither of the trustees was a railroad man but both took the position that they had a product to sell and they proposed to merchandise transportation just like any other commodity. In order to carry out such a notion the old shop had to be spruced up, otherwise no new traffic could be enticed. While McCarthy ran the road, Henry Swan went out and laid his case before every financial group known to him, local and otherwise. In a warm letter to McCarthy, Judge Symes made it clear that this was no penny ante game when he remarked, "Henry's got five million more dollars somewhere and as yet I have not been able to drag it down."
Before the trustees had finished, the five million, and more, were "dragged down." Over the objections of five big New York trust companies representing bondholders that held mortgages against the Rio Grande, McCarthy continued his improvement program, spending money, as Time put it, "like a drunken gandy dancer." Ralph Wann, one day to be a director of the road, but at that time on the side of the so-called "insurance group," said that his people feared the road was being "gold plated," or over-built. Symes, Swan, and McCarthy fought back, insisting upon a complete physical rehabilitation and, as Wann later confessed, "the position of the Denver crowd was absolutely correct." During 1937 the court was petitioned for permission to spend over eighteen million in that year alone. As McCarthy explained it, "Our purpose is to improve the Rio Grande consistent with its earning power to a point where it will provide the Intermountain West with a railroad matching the nation's leading carriers." More rails, more freight cars, more shop machinery and tools were wanted. Fifteen new locomotives were required. None had been purchased since 1929. Ine equipment would be expensive. Go ahead, said Symes; buy it. Late in 1938 the court granted the trustees permission to borrow five more millions to retire outstanding trustees' certificates and to proceed with plant improvement.
The move took courage, in the face of economic facts. The same month that Symes indicated his desire to go forward with the reconstruction program, the railroad's annual report was being formulated. It revealed that during 1938 freight revenues decreased nearly 13 per cent, and passenger revenues fell off by 10 per cent. In all departments there were comparable declines. The next year brought little relief. While the downward trend, brought on by a general business recession, halted, no appreciable gains were made. Total revenues were a little more than 7 per cent above those of 1938. McCarthy refused to be discouraged by the cold figures he was obliged to submit in his report. "Business is good," he told reporters. "The outlook for the future is promising and the railroad is getting in line with the trend throughout the nation to have the most modern equipment that can be bought." In a speech at Kansas City he reiterated his optimism to delegates of the American Short Line Railroad Association. "There is real indication that the uptrend is at hand." Certain that they were right, the trustees proceeded, buying four hundred box cars, a hundred automobile cars and fifty gondola cars.
By January of 1940, McCarthy was talking about a "decided upswing in business conditions which has become prevalent throughout the country and which promises to continue." The road planned to spend three million dollars more during the coming year. As before, Symes approved, and again the eastern insurance companies complained bitterly. They wanted the budget reduced by 25 per cent, cutting out such items as the air-conditioning of passenger coaches, the construction of additional signals and other improvements. Judge Symes listened to their objections and then dismissed them.
By the spring of 1940 the trustees were ready to make the major step of converting to a diesel-powered line. Orders were placed and by the end of the following year the Rio Grande possessed fourteen diesel switch engines and two small stainless steel diesel powered passenger trains. The trains were made up of two units, the front car equipped to carry forty-four passengers and baggage, the second containing eight standard sections, two chambrettes, dinette-observation section and rest rooms. They were named the "Prospector," and the cars bore the names of early pioneers of the region. The "David Moffat" and the "John Evans" ran west from Denver while the "Heber C. Kimball" and the "Brigham Young" made the eastbound run from Salt Lake City. Enthusiastic reporters wrote that the trains, moving along the straightways at more than seventy miles an hour, were "floating, rather, it seemed, than riding the rails." Passengers were protected by a "dead man's button" in the cab that automatically stopped the train within fifteen hundred feet should the engineer take his foot from it. The enthusiasm with which the trains were put into service was short-lived. Before many trips were made it was discovered that far from floating along the rails, the under-powered units labored mightily to make the mountain grades. While they proved to be unsuited for use in the Rockies, the small units became popular elsewhere and were the prototype of the modern RDC cars.
Much more successful was the conversion of freight haulage to dieselization. While war emergency passenger traffic was high, it was freight that accounted for a large percentage of the Rio Grande's income. The coming of diesel-electric locomotives to freight trains marked a great advance in efficiency of operation. On the long mountain grades steam engines frequently stopped to dump ashes, clean firebeds, take on coal and water. Diesel locomotives made the pull west of Denver up a steady 2 per cent grade at a uniform speed, eliminating all these stops. Down hill also, there were great savings. Steam driven trains were obliged to set and release their brakes every two or three minutes. Heated wheels and other forms of braking trouble developed. Stops were made every ten to fifteen miles for periods of a quarter of an hour each to allow cooling. These delays added to the time personnel had to be paid, and they blocked the track for other traffic. Braking by diesel, with the traction motors working against the momentum, eliminated problems familiar to railroaders for more than a hundred years.
There were other improvements. As early as 1928 the Rio Grande introduced Centralized Traffic Control to the West when it installed equipment on part of the line near Tennessee Pass. By means of remote control single track was utilized and it proved to be about 80 per cent as efficient as double track. The saving in maintenance and repair was tremendous. So successful was the idea that during the war trustees Swan and McCarthy rushed additions, building up the system until by 1947 the Rio Grande ranked fifth in the United States in miles of CTC track.
The introduction of "off-track" maintenance equipment provided another avenue of economy. Formerly a great deal of time was consumed in delays when work trains stopped traffic, but by the use of bull dozers, ditchers, and derricks on caterpillar tracks repairs were made with a minimum of traffic delay. Actual costs of operation were also much lower. Under the earlier method it required between forty cents and a dollar to move a yard of earth; now the cost was around five cents. By the end of the trusteeship, the company had purchased $338,400 worth of such equipment, an investment it estimated paid off at least a half million dollars annually in savings. Its effectiveness is demonstrated by the fact that in 1945, 71 per cent fewer work train miles were required than in 1929. Meanwhile the road's track was freed for war traffic, and with a train mile density 58 per cent higher than in 1929, the added utilization was indeed welcome.
Not content with the degree of perfection in their work McCarthy and Swan provided for the establishment of a company research laboratory. The move elicited considerable criticism from some of the old hands on the line but when its value was demonstrated beyond question they agreed that again the trustees were right. The origin of the laboratory came out of a problem as old as railroading: the eternal hotbox. Upon investigation it was found that an inferior type of oil was being used; the mistake rectified, hot boxes decreased. From there laboratory scientists proceeded to the investigation of metal stresses, trying to reduce the number of engine side-rod failures and rail breakages. When it was discovered that almost new 112 pound rail developed unexpected kinks, samples were tested in the new laboratory with the result that a new rail was designed. Its thicker web at the top and more steel in the fillet was able successfully to withstand the pounding administered by heavy mountain locomotives. Out of this research came new standards that were adopted by the American Railway Engineering Association in 1946.
By use of the magnaflux, fissures and metal fatigues too minute for the human eye, were discovered. The insides of locomotive fireboxes were studied through polarized glass; so were strains put upon model rails. Result: better and more efficient equipment. "Great strides are being made in equipment studies to decrease weight and increase capacity," said Swan in 1943. "High tensile alloys, extremely light yet stronger than heavier metals, are being perfected, and the fields of plastics, electronics and logistics are rapidly being applied to future rail transportation." He and McCarthy were looking toward the postwar years and the problem of competition with all other carriers during normal peacetime traffic conditions. Their willingness to innovate and experiment put them in position to do so.
Part of the program for stronger growth and a more efficient transportation product was pruning. The principal piece of surgery during trusteeship was the elimination of a 125-mile narrow gauge line running from Antonito, Colorado, to Santa Fe, New Mexico. The change was not effected without complaint. Like marriage, participation in railroad building is sometimes more easily entered than left. Shippers along the road were not interested in the fact that the branch was losing the Rio Grande around fifty thousand dollars a year and needed about a half million in improvements if it were to be continued in use. They at once made the familiar appeal to their senators and "Big Ed" Johnson heard the call. As chairman of the Senate Interstate Commerce Committee he had more than a usual influence in these matters and before long the atmosphere was filled with lamentations about the poor little appendage scheduled for amputation. Along with senators Harry H. Schwartz of Wyoming, Henrik Shipstead of Minnesota, Dennis Chavez of New Mexico, Johnson charged that the Rio Grande purposely had encouraged motor carriers along the line while at the same time wilfully allowing its own service to deteriorate in order to gain approval of the abandonment. They stated openly that the road let perishable freight rot, by contrived delay, making it almost impossible for ranchers to use its service.
Lamentations, senatorial and otherwise, were of no avail. In 1941 the Interstate Commerce Commission granted permission to discontinue service and the so-called "Chili" line bowed out. With it went some of the folklore contributed by the narrow gauge mountain lines of the West. It was said that this was the road on which the conductor, in the caboose, could borrow the engineer's chewing tobacco plug on one curve and return it on the next, so sharp were the turns. These hairpin curves were reputed to be so tight that the road had to hinge its locomotives in the middle in order to negotiate them. Such tales originated in the tortuous character of the track as it wound through rough mountain country, dipping deep into valleys and rising high over skyline passes. Built only to satisfy a charter requirement that General Palmer's original road extend to Santa Fe, the branch had long since ceased to be a part of the Rio Grande's general plan, and its abandonment was regarded as a necessary part of the railroad modernization and reorganization.
Meanwhile, other improvements continued to be made on the main line to make it competitive with other transcontinental railroads. Toward the end of the war a new tunnel was constructed at Tennessee Pass, costing a million dollars. While the apex of the shaft is 10,242 feet above sea level the roadbed grade was reduced from 4 to 2 per cent, allowing trains to handle any size of load. A few months later the Rio Grande was granted the nation's first permit to install radio communications for end-to-end train communications. Not only did it permit cab to caboose contact but train personnel could also talk to dispatchers' offices and wayside stations.
Top: Modern power machinery handles track rehabilitation programs with ease.
Bottom: Use of off-track work equipment avoids delays to trains
Top: Rio Grande's research laboratory has prioneered many railroading innovations.
Bottom: Modern diesel-electric locomotives expedite traffic on Grande train lines.
Pride of Rio Grande's passenger fleet are the stainless steel vista-dome California Zephyrs.
Wilson McCarthy was not satisfied with mere physical improvement of the Rio Grande system. Looking forward to postwar years of keen competition, and demonstrating his belief that the product he had to sell was transportation, he advocated the railroad's entrance into air line service. In the fall of 1941 he told a group of the Association of American Railroads members that such for some time had been his conviction. He predicted that soon all first class mail would go by air. Noting that on the preceding year air liners carried three million passengers, he estimated that when the war was over this figure quickly would reach at least twenty millions. Freight would also fly the air ways. "It is transportation that we are selling," he told his listeners. "And whether you push a pen, whether you are a brakeman, a conductor or a signalman, the whole purpose of it all is to sell something just as the merchant has to sell his stock before it becomes obsolete and shelf worn and out of date."
In July, 1943, the Rio Grande Motorway, Inc., a subsidiary of the D & RGW, formally applied for permission to establish a network of freight and passenger air lines in Colorado and throughout the West. The application stated that at the war's end the railroad company wanted to establish fifteen regular airplane and helicopter lines radiating from Denver. Air, bus, and rail facilities of the line would be so coordinated that passengers might use any or all modes of travel, depending upon their needs or the condition of the weather. Denver papers were extremely pleased over the proposal and one of them gave high praise to the trustees for their "vision to prepare now for the air-age which is bound to follow the war." The Civil Aeronautics Board was somewhat less enthusiastic; it denied the request. While the Rio Grande did not get a chance to ply the air lanes, the attempt underscored McCarthy and Swan's broad and imaginative approach to problems of modern transportation. Once more the public was treated to new and bold thinking y these pioneers of modern business frontiers. The fact that tneir notions of expanding to the clouds did not meet with governmental approval in no way lessened western enthusiasm for the forwardlooking pair of businessmen.
The principal question that must have crossed not only the minds of Judge Symes and the trustees, but that of all those interested in the Rio Grande, was whether the huge amounts of money poured into improvements would pay off. The discouraging years 1938 and 1939 did not provide a rosy picture but there was no abatement in the management's program of improvement and quest for new traffic. Charles G. Dawes, former vice-president of the United States, and a long-time banker friend of McCarthy's, foresaw the prospect of better times noticed by many others when Hitler's legions marched against Poland in September, 1939. In that month he wrote to his friend, saying: "It would seem that the European conflict should stimulate the railroad business decidedly and, I think business in general." While Dawes expressed a distaste for economic stimulation of this sort, he recognized the impact it would have upon American industry and transportation.
Within three months the Denver Post announced that "The Denver & Rio Grande Western Railroad is back on its feet." Rising from what is described as "almost a pile of junk" four years before, the road was said now to be one of the most efficient in the nation." Between 1935 and 1939 over four hundred bridges were rebuilt or repaired and 114 were eliminated. More than two million treated ties were inserted, almost four million tie plates installed and 239 miles of new rail were laid. New sidings now accommodated longer trains, a total of fifteen new and powerful locomotives were in service while 117 antequated engines were scrapped.
While the road's rehabilitation was remarkable, revenues were not yet enough improved to let the trustees rest easy. Income from freight rose over 5 per cent that year while that from passengers declined slightly. The next year showed the first really marked gain when freight revenue jumped more than 21 per cent and returns on passenger transportation increased nearly 17 per cent. McCarthy was extremely hopeful over the turn of events. With a good deal of satisfaction he announced in October, 1941, that the Rio Grande's net income for that month was per cent above that of the same month in the preceding year and higher than any month since 1932. Coal led car loadings for the period, the figure standing at 6,965 or an increase of 2,331 over the previous October.
America's entry into the war resulted in a sharp business upturn for all railroads, and the Rio Grande was no exception. The region it served anticipated the coming boom when in 1941 the government located a thirty million dollar small arms ammunition plant in the vicinity of Salt Lake City and another at Denver. Former Governor Henry H. Blood, of Utah, revealed McCarthy's interest in the establishments when he wrote, "I shall always remember you as being among those who took hold of the Arms Plant Problem when there seemed little hope of its final realization. You stuck to it until success crowned your efforts. This activity will prove to be a wonderful thing for the state of Utah, and I feel we were right in insisting upon receiving from the government some recognition that would put our state in the front in this undertaking."
Newspapers were quick to notice the effect of the new traffic. They noted that the Rio Grande's net operating income for January, 1942, was 161 per cent higher than the same month in the preceding year. By mid-1942 the increase soared to a remarkable 905 per cent. The June figure was higher than that of any month in the road's entire history. By the end of the year Colorado and Utah readers learned that their line was setting new records as war business boomed. Net operating income for 1942 was over seventeen millions, as compared to four and a half millions for the preceding year. During the year almost five billion net ton miles were reported, representing a rise of more than 50 per cent. Aside from a new surge in transcontinental traffic, the establishment of local industries largely accounted for the change. Twenty-eight new industries, including several large government plants, were located along the line during 1942. Over five and a half million dollars of the new income were received for moving traffic to and from industries or government plants newly located in the area.
As the war progressed Rio Grande business made phenomenal increases. Operating revenues, up approximately 29 per cent in 1943, soared to an all-time record of more than seventy million dollars in 1944. The year 1945 climaxed all previous income levels when operating revenues reached close to seventy-five millions. The importance of war traffic was clearly demonstrated by the 1946 figures which showed a return of roughly fifty-one millions. The sharp drop for that year was, of course, expected, but in the decade that followed the war's end even optimists were pleasantly surprised to see operating revenues climb back to near war time peaks and finally surpass them.
Even taking into consideration the artificial stimulus of war time economy, trustees McCarthy and Swan had produced results that amazed long-time acquaintances of the Rio Grande railroad. In the decade between 1935 and 1945 operating revenues jumped from approximately seventeen millions to seventy millions. At the war's end the railroad employed in Utah alone more than 3,200 people and their pay checks could support a population of nearly 13,000 or about as many as resided in a place like Logan at that time.
Under the trusteeship the whole nature of the railroad's service was changed. During the thirties and forties the production of coal and metalliferous ores in Colorado and Utah steadily declined. If the road were to survive it had to find new traffic. The solution lay in developing "bridge traffic" from other major roads that wanted transcontinental connections. Back in 1923, traffic originating on the Rio Grande amounted to 84 per cent of its total; by 1945 the figure was only forty-two. The war, of course, was of major importance. With the Panama Canal under great pressure by the naval and military arms, and motor transport severely limited because of shortages of gasoline and rubber, railroads came back into their own as carriers. For example, the Southern Pacific's passenger revenue jumped from $24,000,000 in 1940 to $124,000,000 in 1943. The St. Louis-San Francisco showed an increase of from $3,000,000 to $23,000,000 in the same period.
The war had another influence. Normally, eastbound traffic on the western railroads is heaviest. The Pacific campaigns equalized this and filled the trains headed west. Judge Symes estimated in 1944 that 60 per cent of the inflated earnings of the Rio Grande in the preceding three or four years was "due to Government and war business both freight and passenger." It was during these years that the trustees demonstrated to the transportation world that their road was not only capable of providing such service but that it could be done competitively with other lines running through the West. It was a lesson not lost upon rivals, as the Ogden gateway suits after the war demonstrated.
The very success of the Rio Grande's recovery from financial chaos brought additional difficulties and prolonged the period of trusteeship. From the outset Judge Symes stood, like Horatio at the bridge, and fought off hordes of bondholders and stockholders who struggled to retain the status of their investments. At one time he held at bay fifty attorneys, representing many more than fifty interests, as they clamored for his court to overrule the Interstate Commerce Commission's plan of reorganization. They contended that the RFC was getting all the best of it; that by freezing out common stockholders the Missouri Pacific and the Western Pacific would lose their joint control of the Rio Grande; that the road should be returned to its original owners because it was not really bankrupt at all. Recent profits tended to support their contention.
The ICC took the position that the Rio Grande ought to merge with the Denver and Salt Lake to form an independent Rocky Mountain system free from outside control. It advocated the abolition of the common stock equity, the cutting of fixed interest obligations from around seventy-two millions to around thirtyseven millions, and reduction of the annual interest from nearly six millions to less than a million and a half. Refund the RFC loan of almost twelve millions, said Commission attorneys, and borrow an additional six millions. By this means various obligations might be retired and necessary new working capital would be available.
Representatives of the mortgage holders—insurance companies and eastern banks—objected vigorously. They said that the railroad was worth $215,000,000 and that at such a valuation everyone, including common stockholders, should receive more equitable treatment. The ICC viewpoint differed, by $40,000,000. Its attorneys argued that the insurance groups had placed a valuation upon the road that was far too high; that wartime profits were not a true test of the railroad's earning capacity.
By the spring of 1941 Judge Symes recognized the impasse that had developed and handed the case back to the Interstate Commerce Commission for further study. Thus far he had held matters in a firm grip, at one time denying the RFC the right to dispose of collateral put up by the Rio Grande against its loans, and on another occasion voicing strong opposition to the payment of fixed interest charges on the ground that the road could not support such a load. Meanwhile, he continued his fight to free the railroad from outside control. Upon returning the reorganization plan to the Commission he explained his position:
John Evans, reporting to Judge Symes his recommendations on the organization, had used almost identical language. Evans told friends, "if I have made any significant contribution to the railroad, it has been through insistence that complete independence offered the only assurance of future growth and prosperity for the Rio Grande." Early in trusteeship he convinced Judge Symes that independence was the only sound policy. Throughout the trying years he had strengthened Symes in his determination to achieve Rio Grande liberation from control by any other railroad or combination of railroads.
At one point Evans went to New York at Judge Symes' request to advise the chairman of the insurance group that Judge Symes had become convinced that "the Rio Grande must be independent of any other railroad, for such control can only be restrictive." Vividly he recalls the meeting. "What do you or any group out there know about the railroad business?" asked the dictatorial easterner, adding, "That railroad can never stand on its own feet; it must be owned by another railroad or it will have no traffic, and we'll fight to the last ditch to prevent independent operation."
"Regardless of how little you feel we know about the railroad business, I fully concur with Judge Symes in his conviction that anything but independence imposes impossible limitations," Evans countered. "I feel you are wrong, and that the Rio Grande will emerge from trusteeship free to pursue its own destiny."
Symes struck hard at the practice of milking the company's profits by its former co-owners. In the interest of the public, and that of all the creditors, he felt that some provision must be made "that will obviate the basic causes that in the past have brought financial disaster to this property." He pointed at the trouble: the application of earnings to fixed charges not earned with the resultant deterioration of the equipment and a consequent inability to make net earnings. Avoiding future difficulties would not be hard, "provided the management, like the trustees, has the single purpose of the prosperity of this particular property in mind and does not permit its earnings and traffic to be used and diverted, as in the past, for the benefit of other properties."
In September, 1943, after seven years of litigation, Symes approved an ICC plan for reorganization. It was the fourth plan con- sidered since bankruptcy in 1935. There had been considerable argument as to whether the Rio Grande should be consolidated with the Denver and Salt Lake road. The Rio Grande and the D & SL continued to maintain separate offices and offer separate service, despite the Rio Grande's earlier attempts at purchase. As a compromise, it was now provided that the roads could be either consolidated or operated separately. What Symes wanted was the end of trusteeship. "This litigation must be terminated," he announced. "This court is not equipped to run a railroad." The remark must have amused Wilson McCarthy. The Judge had done very well at running it. In fact, at one time, he had written to McCarthy, who was absent, saying, "I took over the railroad this morning. Everybody is reporting to me and when you and Henry return I will be very disappointed if you do not find an improvement in everything but the morale. That will probably be all shot to pieces. Reports of first day under my management show all freight and passenger trains on time and no engine failures."
Symes' desire to get the line out of trusteeship was prompted more by the remarkable recovery of the Rio Grande than by his own modesty. While he was willing to exercise control so long as it was necessary, he felt that the time for independence was reached. He had complete confidence in McCarthy and Swan and was entirely pleased by their rehabilitation of the railroad. "When they took it over the railroad was a wreck," he told newspaper reporters. "There were sections of road on which trains could not operate. Today the Denver and Rio Grande Western is doing a splendid job as a transcontinental line doing important war work. The railroad will' go back to private ownership in splendid condition with a working force second to none in loyalty and desire to serve the public. . . ."
But the road was not promptly released from its governmental custodian. The insurance groups fought on, employing every known legal tactic to exercise control, objecting to every cent spent for improvements. Somewhat impatiently, Symes lectured them for their refusal to face economic facts. The security holders had made a bad investment, he said, "and now look to the bankruptcy court to restore value by some sleight of hand or legerdemain, which either never existed or had been wiped out by mis-management." Admittedly in any reorganization, certain of these investors would suffer. "The procedure is not one designed to recoup loses," the Judge scolded. "No security holder is getting what he thinks he should. All have suffered losses. The plan is not the best imaginable—it is the only one of several that have come before the court with the practically unanimous approval of all interested parties."
On November 29, 1944, the plan of reorganization, already certified by the ICC, was confirmed in the Federal District Court at Denver. Those who opposed it promptly took their case to Judge Walter A. Huxman of the United States Tenth Circuit Court of Appeals, who on May 10, 1945, handed Judge Symes a stunning reverse. Huxman explained his decision: "We think any plan which gives senior bondholders their claims in full by substantially delivering the road to them and gives them surplus cash actually on hand and further enables them to receive in addition the excess war profits which are reasonably sure to come is inherently inequitable and unfair, so long as there are classes of creditors whose claims are not fully satisfied."
The case was now appealed to the United States Supreme Court, which, in early June, 1946, rendered its decision. By a vote of six to one, the court upheld the ICC plan, reducing the company's capitalization by more than eighty-eight million dollars, wiping out stockholders and satisfying bondholders with amounts ranging from 10 to 100 per cent. It approved the Rio Grande's request for consolidation with the Denver and Salt Lake as well as the appointment of a five man committee to carry out the reorganization. This committee was to be headed by John Evans, of Denver. Missouri Pacific and Western Pacific attorneys at once filed a petition in Federal District Court, asking that the plan of reorganization be set aside on the grounds that circumstances were altered by a new and unexpected earning power, making the original plan obsolete. Interest rates were down, they argued; the Geneva Steel plant in Utah was now owned by United States
Steel and its operations promised much traffic; and finally national income was up, which in itself altered the former picture.
The bitter rear guard action being fought by opponents to the ICC reorganization plan annoyed residents of the Rocky Mountain region and their irritation was publicly reflected by a Denver editor. "Any delay now in putting the Rio Grande reorganizatton plan into operation is a disservice to the people of Colorado and Utah," he stated editorially. The concern shown was not long lived. In February, 1947, by an eight to one decision, the Supreme Court reaffirmed its decision to return the Rio Grande to private ownership. Justice Stanley Reed, who wrote the majority opinion, overruled a stay order issued November 2, 1946, by the U. S. Circuit Court at Denver.
On April 11, 1947, the Denver and Rio Grande Western emerged from bankruptcy and a twelve year period of trusteeship. A Denver paper hailed it as "Independence Day" for the road which, for the first time in three-quarters of a century, found itself independent and under home management, "being run by outstanding Colorado and Utah men to best serve the public interest instead of the interests of some other railroad or Wall Street powers." On that day the reorganization committee, headed by Evans, held a stockholders meeting at which a new board of directors was elected. To the surprise of no one, John Evans became its chairman and Henry Swan head of the finance committee. Even more appropriately, the new board selected Wilson McCarthy as the railroad's new president.
Before concluding their task as trustees, McCarthy and Swan submitted to Judge Symes an account of improvements on the railroad. Reminding him that at the outset of their task he had instructed them to elevate the condition of the road, the men revealed that they had spent $58,000,000 for additions and betterments plus almost $15,000,000 chargeable to operating expenses incident to improvement. In a dozen years the Rio Grande had built or rebuilt a total of 401 new bridges and had repaired more than that number. More than 1,100 miles of rail were replaced, half of which was with new rail. Nearly 500 miles of track were now operated under Centralized Traffic Control.
New equipment characterized the Rio Grande. Ninety-three locomotives, fifty-two of which were diesel, had been purchased since 1935. The road owned nearly five thousand new freight cars and five hundred more were on order. Also on order were stainless steel passenger cars to fill the Rio Grande's mileage proportion (22.5%) of a new transcontinental train (the California Zephyr) to be operated by the Burlington, Rio Grande and Western Pacific lines between Chicago and San Francisco.
To protect the new trains, and in the interest of economy, other improvements were made. The installation of slide detector fences, the widening of cuts, and the purchase of off-track equipment, meant increased efficiency and more perfectly maintained schedules. Along the track were new and modern depots at nine important cities, improved round-house facilities costing nearly a million dollars, and terminal improvements at all principal terminals.
In addition to such tangible additions the trustees could point to sweeping changes in personnel methods and relations. That indifference no longer characterized Rio Grande attitudes was demonstrated in the care with which new employees were selected, the development of an aggressive, long-range advertising program, and efforts to stimulate local agricultural and industrial development. From a moribund railroad, whose employees frequently gave only the minimum compliance, there had sprung a revitalized business organization staffed by young, imaginative and alert railroaders. It was this that Wilson McCarthy and Henry Swan handed back after a dozen years of careful rebuilding and polishing. Always the trustees refused credit, again and again referring to Judge Symes as savior of the home railroad of Colorado and Utah. For the first time since its founding, the Rio Grande was soundly organized, ready to reap the rewards of independence.
The Rio Grande, with the men who had so successfully molded it from a derelict to one of the most modern railroads in the country at its head, turned its attention to the further development of an area rich in economic potential. How eminently they succeeded is no more eloquently portrayed than in the road's annual reports which reveal a peacetime business surpassing the artificially stimulated wartime traffic by a substantial margin. And as residents of the region watch the "Grande Gold" and black diesels whisk heavily laden bright new freight trains through mountain passes, or stop to admire the shiny California Zephyr as it makes its way, every seat filled, to the Pacific Coast, they are proud, for no longer is their railroad a "bankrupt hunk of rusty junk." The "Dangerous and Rapidly Growing Worse" is no more.
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