Evaluation of railroad operation and financing

W. G. Waters, D. H. Uyeno and T. G. Keast

Omega, 1982, vol. 10, issue 3, 279-291

Abstract: Building a railroad for developmental purposes is a task best suited for a Mississippi riverboat gambler. It has all the proper elements: glamour, acknowledged risks, timid doubters hanging around, the possibility of huge winnings. The successful builders become creatures of folklore: Van Horne and the Canadian Pacific, Vanderbilt and the New York Central. On the other hand, the west of North America is littered with the detritus of those who were unsuccessful--rusted track and rotting ties. The names of their ignominious builders are long forgotten except by the children of bitter creditors and disillusioned stockholders. The British Columbia Railway is a railway which expanded extensively with the hope of contributing to the development of the Canadian north with its copper, its coal, its timber and numerous other resources. Now, a few years later, developmental dreams clash with the financial reality of high operating costs and the burden of debt servicing due to capital costs. Should the railway grit its collective teeth and continue in the hopes of development or should it accept a smaller role? To examine some of these issues, a modular computerized financial model of the railroad was created to examine the prospects of the railway under a number of possible assumptions as to debt financing, organization of the railway, expansions and contractions of the track system, disaggregate traffic forecasts, and costing methods. This paper describes that model and assesses its usefulness.

Date: 1982
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