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All aboard the mass-transit express? Maybe, but don't expect a smooth ride. An interview with D.J. Stadtler, CFO of Amtrak.
Randy Myers, CFO Magazine
April 1, 2011
President Obama devoted a portion of his January State of the Union address to the subject of high-speed rail transport, and the following month Vice President Biden announced a 6-year, $53 billion plan to invest in it. The Administration's long-term goal is to make high-speed rail service available to 80% of the nation's population within 25 years.
While cheered by rail enthusiasts and mass-transit advocates, this vision faces a funding battle in a Congress desperate to show voters that it can rein in government spending. Some states are rebelling, too; governors in Florida, Wisconsin, and Ohio have rejected $3.6 billion in federal funding for new passenger-rail lines, precipitating a scramble among other state governors eager to take their share.
Amtrak, the $2.5 billion government-owned railroad that carries the bulk of the nation's rail passengers, faces multiple battles of its own, including aging cars and infrastructure, and a continuing reliance on government subsidies. Despite these challenges, Amtrak finance chief D.J. Stadtler, who assumed the post in February 2009 after a career divided between government service and his family's central Virginia engineering firm, says good things are happening at the nation's passenger-rail company.
Amtrak is used to being in the spotlight, but not always in a good way. Do you think things will get better?
We are really excited about the [renewed] focus on rail. We have always felt that rail is the most efficient way to travel. In 2008, when gas prices skyrocketed, people flocked to the trains and we had what at that time was record ridership. Through the downturn in the economy we were able to hold on to that ridership, and in 2010 we had our biggest year ever. So we feel very good about the renaissance of rail.
Also in 2010, because our revenue was higher than expected and we were able to keep our operating costs down, we made the first payment on 130 long-distance, single-level cars that will replace heritage cars that are over 60 years old. This will allow us to add more revenue by carrying more passengers.
From a financial point of view, we've done a good job of becoming more transparent. We're much more open with Congress and the public in terms of how we've performed and what our needs are. For the past two years we've had clean audits — no material weaknesses — an achievement that Amtrak has not been especially known for. So we're proud of that. We think we're moving in the right direction.
What is Amtrak's biggest financial challenge?
Our biggest financial challenge is the deferred maintenance we have in the Northeast Corridor. We run trains every day with equipment that in many cases is older and run harder than any other similar equipment in the country. The older the cars get and the more we run them, the more expensive they are to keep up and maintain. We've got to start replacing that equipment and addressing some of the maintenance we've ignored for years because funding was such a challenge.
So Amtrak's biggest financial challenge is also its biggest operational challenge?
Yes. If we are able to reduce our deferred maintenance, our railroad will have a higher performance level. Our on-time performance will be higher, our reliability will be better, and customers will be happier with their ride.
What are the prospects for making these repairs? In 2009 you reported a $5 billion backlog of capital projects for the Northeast Corridor alone.
It is still right around $5 billion, but we are making progress. We had $1.3 billion granted to us under the American Recovery and Reinvestment Act of 2009, and have been very responsible in putting that money to work. We have 100-year-old bridges that we're replacing, such as the Niantic Bridge in Connecticut, which will make them safer and will mean that we won't have to slow down every time we go over them. But we still have hundreds of other bridges we need to address.
What else are you doing to improve the rider experience?
We have lots of initiatives that are not part of deferred maintenance, like e-ticketing, which we are very close to introducing, and free Wi-Fi Internet service, which is already available on our Acela Express trains in the Northeast Corridor and a few other places. I think we're more focused on the customer than we've ever been.
Is Amtrak's finance organization where you want it to be?
There's always room for improvement. However, I think we have a good mix of folks who have been here a long time and folks who are new and excited to come in and change the culture. We are a company that for years, in the 2000s, struggled year-to-year to know if we were going to stay afloat. We had Administrations that came in and said, "Let's eliminate Amtrak." It was very hard to have a staff that focused on the future when you didn't know how long your future was going to be. Now I think we are more focused on becoming competitive, on cutting costs, on using technology to make our processes better. And again, for the past two years we've had clean audits. The auditors come in and we work with them; it's no longer a combative atmosphere.
Are your internal systems up to the job?
We're in the process of transitioning to a brand new ERP system. We've been hindered by the fact that every time we needed a new system we developed it individually, and we ended up with 200 different systems that didn't talk to one another. Our ERP system is going to change that.
What role would Amtrak play in the Obama Administration's $53 billion plan for upgrading rail service across the country?
The plan is envisioned to be a competition, as I understand it, for high-speed rail service, and Amtrak would surely want to be part of that. We'd be competing against foreign railroads and other domestic railroads.
Suppose this six-year plan actually got approved. Would Amtrak simply drain more from the federal budget by becoming a bigger operation, or would it become self-sustaining?
I would be hesitant to say self-sustaining. We currently recover 76% of our operating costs through ticket revenue, and that's the highest level of any railroad in the country. We want to get that number as high as possible, of course, and there are places in the system where we have done that. In the Northeast Corridor, for example, our Acela service recovers 121% from an operating point of view. But there are other places where it would be very difficult to achieve that. Our goal is to continue to be as efficient as possible, and to keep our costs down while keeping our customer service up so that we can attract more riders and give them the transportation option they want and need. Then I think the finances work themselves out.
How would you assess the odds of this plan getting off the ground, given the political and budgetary environment?
It's going to be a challenge. We're in a situation where any new spending is scrutinized very closely. But we have to do something. The population is growing such that people need to be moved. We're focused on green, and we're focused on efficiency. Rail is a fantastic option.