Adios, Stephen Gardner

Amtrak CEO Steps Down to Bolster Company’s Relationship With Administration

An eastbound Acela Express rolls through Elizabeth, NJ. A second generation of Acela train sets is set to enter service beginning later this year, three years behind schedule.

Shortly after I published my last Substack post, news of the firing of Amtrak CEO Stephen Gardner came across my news feed . I was shocked but not surprised.

Gardner’s strong opposition to Elon Musk’s call to privatize Amtrak put him on the wrong side of the President. In a statement released by Amtrak, Gardner said he was “stepping down as CEO to ensure that Amtrak continues to enjoy the full faith and confidence of this administration.”

History will remember Gardner as neither the best Amtrak CEO nor the worst. But he accomplished much on his watch, moving the company downfield toward the goal line but still shy of the red zone. (Hopefully everyone gets the football jargon.)

Major infrastructure projects got underway and new train sets are nearing completion. The company has started to implement its strategic vision for expansion, “Amtrak Connects Us.” In addition, Amtrak reported a record 32.8 million trips for FY2024, a 15 percent increase from the prior year, and ticket revenue rose nine percent to $2.5 billion. He fell short, however, on maintenance of infrastructure and rolling stock.

Of course, it helps that Gardner served during the tenure of the most pro-Amtrak President in history, Joe Biden, and had access to capital funding his predecessors could only dream about. Thanks to the Infrastructure Investment and Jobs Act, which Biden signed in November 2021, Amtrak could invest $4.5 billion on infrastructure projects in FY2024.

Don’t expect Gardner’s to-be-named successor to head in the same direction. In all likelihood the administration will have considerable sway on who Amtrak’s board selects to be CEO.

The new boss will probably emphasize cost cutting in order to make Amtrak profitable. That could mean service cuts, layoffs and deferred maintenance. Capital spending is likely to drop, especially if the administration tries to claw back as yet unspent grant money. And, in all likelihood, the new CEO will not attempt to block privatization if Musk’s idea advances. Instead, they will keep their mouth shut.

In the 1980s the federal government successfully privatized Conrail, the freight carrier formed ten years earlier from Penn Central and five other bankrupt Northeast railroads. While Musk might think history could repeat itself with an Amtrak privatization, there are several important differences between the two lines.

When Conrail was formed in 1976 it shed thousands of miles of money-losing routes and laid off tens of thousands of workers. In addition, it had a near monopoly on rail service in large swaths of its operating territory, and the government invested billions for its rehabilitation.

However, Amtrak is a passenger railroad and, with few exceptions, passenger trains are not profitable. Even though it was chartered as a for-profit corporation and is managed like a for-profit corporation it operates more as a public service. For example, many of its money-losing routes serve small towns where it is the only form of public transportation.

A privatized Amtrak would look to shed its unprofitable routes and hold onto the profitable ones. The national system that we are familiar with and provides service coast to coast would be truncated. There would be large gaps between regions where passenger trains would continue to run.

To compete with other travel modes, i.e. air, highways, privatized Amtrak would still need to raise billions of dollars to upgrade its infrastructure and rolling stock. Will it be able to tap the capital markets or will it still depend upon government financial aid? Thanks to the Infrastructure Investment and Jobs Act, public Amtrak is already making the kinds of investments needed to be competitive.

In all likelihood, a privatized Amtrak would play the same role for the government that the government, i.e. Amtrak, played for private sector railroads in the 1970s: enable a graceful exit from the passenger business. With few, if any, profitable routes and massive debt, the newly privatized company would quickly go out of business. The government would no longer have to subsidize money-losing routes and fund capital investments.

The demise of intercity passenger rail in the United States is not foreordained. Most of Amtrak’s short-distance and medium-distances, i.e. less than 750 miles, are supported by the states. They could retain Amtrak or a successor company to continue on as a service provider that would operate and maintain the trains, handle sales & marketing, and provide administrative services.

As a private company Amtrak could also renegotiate the user fees it charges commuter lines and freight railroads that run over the Northeast Corridor. While the increased revenue would help maintain NEC infrastructure, I am skeptical these “tolls” would generate enough cash flow to pay for much-needed upgrades. Consequently, the best we could expect from the privatized firm is continuation of the status quo.

Amtrak’s long-distance routes would be most at risk since the federal government now covers their operating losses. Even though they are the most productive lines on a per passenger mile basis and generate high average ticket prices, according to Amtrak’s arcane accounting practices they are also its biggest money losers.

Consequently, they have long been a target of conservatives looking to weed out “fraud, waste, and abuse.” However, with the exception of the Coast Starlight, these routes serve red states for much of their journeys. Many of these states only have long-distance Amtrak lines. The Republicans who represent in Congress would not like being tied to elimination of their states’ last passenger trains.

As I was getting near this article’s conclusion I learned that Amtrak has just mothballed its fleet of Horizon coaches and café cars due to corrosion issues. The Horizon cars, which were built by Bombardier, entered service in the late 1980s and early 1990s. They were based on the Comet commuter cars built by Pullman-Standard for NJ Transit in the 1970s, which Metro North, MBTA, and SEPTA also purchased.

Pulling the Horizon fleet from service will negatively impact several popular Amtrak routes, including the Borealis, Downeaster, and Cascades. A cousin who is taking his family to Chicago on the Borealis switched to the Empire Builder for their return trip to Minnesota.

The problems with these cars most likely resulted between the interaction of aluminum and steel, which anyone who has taken high school chemistry knows about. Amtrak management should have addressed the problems years ago.

Between not having a CEO and Elon Musk and his DOGE (Department of Government Efficiencies) team on the prowl for agencies to hang over their mantelpieces, this move could not have come at a worse time for Amtrak. It destroys the railroad’s credibility with passengers and the states that funds these services.

Although Stephen Gardner most likely was pushed aside for reasons that have little to do with rolling stock issues, clearly it is time for change. That change should not be limited to the board room and executive suite but extend to just about every facet of how the company operates and is financed. We’ll be watching to see what the changes will be and how they will be implemented.

300 and Counting

Just wanted to share that this past week Ellis on the Rails recorded its 300th subscriber. Not a big number when compared with mega media platforms, but I am proud of this achievement and want to thank you for your support.