Santa Fe Pacific Corporation

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Santa Fe Pacific Corporation

1700 East Golf Road
Schaumburg, Illinois 60173
U.S.A.
(708) 995-6000
Fax: (708) 995-6219

Public Company
Incorporated: 1983 as Santa Fe Southern Pacific Corporation
Employees: 14,944
Sales: $2.30 billion
Stock Exchanges: New York Midwest Pacific

Santa Fe Pacific Corporation (SFP) is a holding company for subsidiaries engaged in transportation, mining, and petroleum products transmission. One of its wholly owned subsidiaries is the Atchison, Topeka and Santa Fe Railway Company, one of the nation’s major freight railroads, serving 12 states. Another subsidiary, Santa Fe Pacific Minerals Corporation, has significant coal mining operations and is a large producer of precious metals. Santa Fe Pacific Pipelines, Inc., the third subsidiary, transports gasoline, diesel, and jet fuel.

The history of SFP begins with a railroad. In 1859 Cyrus K. Holliday founded the Atchison and Topeka Railroad Company. The Kansas drought hit immediately thereafter and the company foundered. Through the early 1860s the company searched for funding and land grants. The company name became Atchison, Topeka and Santa Fe Railroad (ATSF) in 1863, but the first train movement did not take place until 1869, on a line of about 26 miles from Topeka to Burlingame, Kansas. The ATSF became the pioneering railroad of the southwest portion of the United States. The East had fairly reliable railroad service by 1860, but the West was still largely untouched. The ATSF started in eastern Kansas and ultimately reached Santa Fe, New Mexico, paving the way for the growth of towns and commerce. The company was built upon faith in the prospects of the West and Southwest.

By 1873 the company had more than 130 miles of track. In 1875 the road expanded eastward toward Kansas City. The first train entered Las Vegas, Nevada, in 1879, and Albuquerque, New Mexico, was entered in 1880. ATSF acquired the Sonora Railway in 1882. Hardships in the southwestern United States were crippling the Gulf, Colorado and Santa Fe Railroad in 1885. ATSF absorbed that company, thus stretching to Houston, Texas, and the Gulf of Mexico. Other smaller additions to the ATSF were being transacted through the company’s subsidiary—the Chicago, Kansas and Western Railroad Company. Many of these branches were not completed until 1887.

The company also worked to protect its presence in California. In 1886 ATSF purchased from the fading Chicago and St. Louis Railway a right of way into Chicago. After rusted tracks were replaced and bridges built, train service began in 1888. In 1890 the company purchased the St. Louis and San Francisco Railway and the Colorado Midland Railway. In 24 years, the ATSF had grown from the Topeka groundbreaking to a system of 9,300 miles, linking Lake Michigan, the Gulf of Mexico, and the Pacific Ocean. It served Chicago, Dallas, Denver, St. Louis, Los Angeles, Kansas City, and San Francisco.

During this time, the company’s growth was characterized by quality construction. It was the creation of railroad men, not financiers, and lines were often built ahead of traffic, leading the way for trade and settlement. ATSF absorbed and repaired dozens of bankrupt lines along the way.

The company suffered some setbacks around the turn of the century. In 1889 the California boom stalled, and passenger business dropped. During the financial panic of 1893, banks and rail empires crashed. Crop failures and dropping rates due to competition between 1889 and 1895 had weakened the company. Its troubles compounded by purchases and upkeep, the ATSF was pinched financially. The company went into receivership and in 1895 the financially troubled system was sold to Edward King, representing a reorganization committee, for $60 million. The company was reincorporated as the Atchison, Topeka and Santa Fe Railway Company, and reorganization began with the sale of the two lines acquired in 1890. Other unprofitable lines were sold and business picked up. By 1898 the company’s line had been trimmed to about 7,000 miles. The new president of the reorganized company was Edward P. Ripley.

Pruning continued, but the company revitalized enough to purchase the unfinished San Francisco and San Joaquin Valley Railway in 1899. The line was operative by 1900. Numerous short lines were also acquired. In 1901 the Santa Fe, Prescott and Phoenix Railroad was purchased, giving ATSF exclusive presence in Arizona, then a promising area. By 1902 the company had added almost 1,000 miles to its reorganized line. Careful purchase and expansion continued as ATSF extended through Arizona, New Mexico, northern California, and Texas.

Between the company’s inception and 1917, passenger travel rose 600%. The railway was operated by the U.S. government between 1917 and 1920, because of its strategic importance during World War I. Between 1920 and 1929, the ATSF concentrated on maintenance and improvement of equipment and lines. There were ups and downs in operating revenue as the postwar economy surged and faltered in the regions serviced by ATSF, but the decade overall was a good one. The company in 1928 purchased the Orient Line, a system that included about 300 miles of line in Mexico.

During the Great Depression the company’s business suffered. In 1935 the company started a track-improvement program between Chicago and California in order to institute a new fast schedule. At the same time, the first diesel-electric locomotive was being built. By 1938 ATSF was running two of the new diesel-electric trains between Chicago and the West Coast. The trains were much faster and more economical than their predecessors, a boon to both passenger and freight services. While the number of passengers dropped, travel distances had increased. Freight traffic was hit hard by the Depression. To offset this, the company reduced operating costs by increasing efficiency, primarily by equipment replacements. ATSF also began branching into other forms of transportation. It bought bus operations and acquired a system of truck lines. In 1935 it purchased the Southern Kansas Stage bus lines. The motor-carrier companies that ATSF acquired were consolidated into the Santa Fe Trail Transportation Company in 1937. By the decade’s end, ATSF owned 15 diesels and 44 motor coaches. By 1940 a freight-handling system was coordinated between the company’s truck operations. Just as ATSF was enjoying economic recovery, World War II broke out.

With the war came a surge in traffic, both passenger and freight. War halted the delivery of needed new locomotives, but availability was resumed right after the war. Despite the strain, the line and equipment survived the record-breaking traffic. The result was the development of an automated system of centralized control. In 1946 the company established the Santa Fe Skyway, Inc., offering air freight service to round out its business with shippers. Complete transportation integration was prevented by the Civil Aeronautics Board and the Interstate Commerce Commission (ICC). The skyway was discontinued in 1947. Truck and bus operations continued, covering 12,000 and 9,400 miles, respectively, by 1949.

In another postwar development, the ATSF returned its attentions to improving equipment and methods. Streamlined train use was expanded. The 1950s were marked by the complete phasing out of steam locomotives; by 1954, ATSF was entirely dieselized. During the 1950s, many railroads began de-emphasizing passenger service as a result of the growth of air travel and the improvement of highways due to U.S. President Dwight Eisenhower’s Interstate Highway Act. In contrast, ATSF, whose reputation had been built on passenger service, applied itself to upgrading passenger travel, buying passenger rail cars and developing high-quality, high-speed service.

In the late 1950s and early 1960s, the company pursued greater diversification that led to the creation of separate companies involved in pipelines, energy resources, and trucking. In 1968 Santa Fe Industries Inc. (SFI), a new parent company, was established as the holding company for these separate enterprises. Also in 1968 SFI inaugurated the fastest freight train in the world. During this time, ATSF began to enter a new market segment—the intermodal truck-train-container business— which allowed freight to be shifted from ships to trucks to trains more fluidly. In the early 1990s 60% of its trains were intermodal, and 40% of the railroad’s revenues came from intermodal operations.

The shift in emphasis was auspicious; by the late 1960s, railroads lost mail contracts to jets and thus lost the main revenue subsidizing passenger service. In 1968 ATSF’s losses on passenger service necessitated the sale of trains. It was a prelude to turning passenger service over to Amtrak in 1971. This marked the end of an era for ATSF, and the start of a new focus on freight service.

In 1972 SFI sought and found resources in its underused acreage in New Mexico and Arizona: tons of coal. Diversification made sense, and the company committed to mining the coal itself in 1982. The following year, John Schmidt took over as chairman and CEO, and Southern Pacific Company (SPC) agreed to merge with SFI, creating an umbrella holding company—Santa Fe Southern Pacific Corporation (SFSP), with $11 billion in assets. The merger application was filed with the ICC in 1984. At the time of the merger, SPC was not performing well. The company had diversified into industrial parks and office complexes. SFI had diversified into transportation, natural resources, and real estate. The ATSF and SPC were then the two least profitable of the major U.S. railroads. Joining forces would shorten routes, create economies by cutting overlaps, and eliminate competition with each other. Other major railroads were moving to merge in the early 1980s, making the ATSF and SPC merger necessary for survival.

While awaiting ICC approval, SPC’s rail business could not be operated by SFI, so SFI looked to SPC’s real estate to generate income. In 1983 real estate income supplied nearly a third of SFSP’s revenue. Development projects became a new source of income. Its natural resource division also contributed significantly to operating profits.

ICC hearings continued through 1985 and into 1986. SFSP suffered from being unable to run 40% of its business—the Southern Pacific Railroad. Placed in trust, the railroad deteriorated. Then the ICC ordered divestiture of either the Santa Fe or Southern Pacific rail operations, claiming the merger would create a monopoly on some important routes. By 1986 SFSP’s major businesses—transportation and fuel—were suffering, and real estate earnings were also down. In 1985 SPC contributed one-third of SFSP’s real estate earnings, which accounted for nearly half of the company’s operating profit that year. In 1987 the ICC refused to reconsider its rejection of the merger. SFSP reported a net loss of $138 million for 1986. Schmidt resigned as CEO, and the company underwent drastic restructuring, beginning with the sale of unprofitable businesses. Robert Krebs filled the CEO seat.

Six subsidiaries were put on the block, including three pipeline companies, a leasing company, a building contractor, and the Santa Fe Pacific Timber Company. Raiders circled the troubled company, aided by the October 1987 stock market crash. By the year’s end, SFSP announced the sale of SPC’s rail business to Rio Grande Industries, for $1 billion. SFSP’s net income was $373.5 million for 1987.

To discourage takeover, the company underwent a $4.7 billion leveraged recapitalization. Despite restructuring and the sale of subsidiaries, the company remained highly diversified: in addition to being the seventh-largest U.S. railroad, it held the second-largest petroleum products pipeline, remained one of the largest real estate operations, and oversaw the sixth-largest domestic oil and gas company. In 1988 ATSF had 12,000 miles of track. Undeveloped holdings included urban and agricultural land in 15 states, and oil and mineral holdings. Income from continuing operations for 1988 was $146 million. After accounting for discontinued operations, however, the company showed a net loss of $46.5 million.

Further setbacks came in 1989. In addition to slowed shipments because of the recession, the company received a $1.04 billion verdict in a federal antitrust case brought by Energy Transportation Systems, Inc. (ETSI) in Texas. ETSI was a coal-slurry pipeline company that accused SFSP of blocking a project. The settlement was adjusted to $350 million in 1990.

The company name was changed to Santa Fe Pacific Corporation in 1989. Hard times in the industry produced greater cooperation between companies; SFP reached agreements with Burlington Northern Inc., including sharing a rail terminal.

Early in 1990 SFP sold a 20% stake in its real estate subsidiary. Selling assets continued to reduce the company’s debt. SFP made public a portion of its Santa Fe Energy Resources, Inc. unit in 1990, and spun it off completely by year’s end. SFP Realty changed its name to Catellus Development Corporation, which also was spun off as an independent company in 1990.