The Dollars Go Rolling Along

Railroad profits this year will be so good that the railroads may again become a healthy part of the economic system.

This cheerful fact was clinched last week when the venerable Association of American Railroads put total profits in the eight months to Sept. 1 at $466,900,000, v. $299,000,000 in the like 1941 period. Since more lush, big-traffic months are still to come, earnings for all of 1942 should top $800,000,000—60% above last year and between 1926’s $809,000,000 and 1929’s record $897,000,000.

Some railroads are doing even better. Far-flung Northern Pacific last week reported eight months’ profits at $5,787,000 against $3,227,000 last year; up-&-coming Alton Railroad cleared $1,752,000 v. $80,000; giant Union Pacific (whose up-from-the-tracks boss is now U.S. rubber tsar) bounced profits 133% to $25,106,000; once-busted Erie netted a record-smashing $9,124,000 against $5,292,000 last year.

Eye to the Future. Once broke and twice shy, the railroads are not frittering away their new-found cash in big or fancy dividends. Dividends last year totaled roughly $200,000,000 out of $501,000,000 earned; this year they are not likely to exceed $300,000,000—40% of estimated profits.

All the rest of earnings—plus some $200,000,000 depreciation reserves—will be socked away in the bank, used as far as priorities will allow for sensible and farsighted things like new equipment—and for funded debt retirement. Already the long-bankrupt Missouri Pacific has asked court permission to pay $36,934,000 RFC loans and accrued interest as well as $5,850,000 bank loans; St. Louis-San Francisco (in reorganization since 1933) wants to pay $14,915,000 of its obligations; Pennsylvania said it “would pay $2,325,000 bonds and notes.

This debt retirement may have barely started. It may burgeon if the tax relief proposed in the 1942 Revenue Act becomes law (TIME, Sept. 7). All railroads can then purchase their own bonds at discounts without paying taxes on the paper profits. (This privilege now belongs only to those in financial difficulties.) If the still-solvent roads use most of their available funds for bond retirement they might retire $1 billion of their $7 billion debt next year. The not-so-solvent railroads are scaling down their debts in court.

At that rate the railroads may emerge from the war no longer a debt-ridden industry whose fixed charges necessitate inflexible freight rates. In sounder economic health they may be able to compete successfully with trucks and airplanes, proving themselves a progressive instead of an obsolescent part of the national transportation system.