July 14, 1997


Rodney E. Slater, Secretary
U.S. Department of Transportation
400 7th Street SW
Washington, DC 20590


Dear Mr. Secretary:

On May 26, 1997 I wrote you to express our company's interest in purchasing Amtrak's Northeast Corridor. My letter was prompted by our knowledge of successful privatization projects throughout the world and statements by Amtrak officials that Amtrak faces bankruptcy by the end of the year. Amtrak's Vice President Tim Gillespie succinctly characterized the situation when he said, "We'll continue to borrow money until the line of credit runs out and we go bankrupt." As we have not received a response from you yet, I assume that our original proposal is still under review by the Department.

Since writing my first letter a number of issues have come to light which punctuate the comments made by Amtrak's management. On June 23 the Working Group on Intercity Passenger Rail submitted their report to the House Committee on Transportation and Infrastructure. The Group described Amtrak as "awash in red ink, buffeted by conflicting missions and ballooning in debt". They stated that, "In the short range (the next 6 to 12 months), Amtrak faces a major liquidity crisis and probable bankruptcy." The situation has become so severe that Amtrak is now actively borrowing from its unsecured line of credit to meet basic operating expenses, essentially following the downward spiral foretold by Mr. Gillespie. These findings explain why the Group's report emphasized the necessity that steps be taken now to plan for a transition to a privatized system, rather than leave the process to the chaos that will arise from Amtrak's bankruptcy.

A review of Amtrak's annual report raises further troubling questions about the oversight of Amtrak's operations and finances by its managers and directors. It appears from all reports that Amtrak is borrowing funds with little or no means of repaying its debts. We are told that there are serious questions being raised about whether Amtrak's board is properly constituted under federal law, and whether individual board members are properly fulfilling their fiduciary responsibilities.

The Department faces a number of severe obstacles in its efforts to avoid chaos at Amtrak while protecting the enormous investment the taxpayer has made in the railroad. By our proposal of May 26th, we indicated our interest in meeting with you and in working together with the Department to address those obstacles, for the purpose of correcting what is already an untenable position for Amtrak. As public and political reaction to our proposal (virtually all of which has been favorable) developed, we learned more and more about the fundamental problems underlying the situation. Those problems to a large extent, apparently have their origins in the very structure of Amtrak as a sub-component of the Department. It is a relationship rife with conflicts of interest and duties.

For example, the multiple roles of the Federal Railroad Administration (FRA) in the oversight of Amtrak present the most obvious problems. Amtrak consistently earns one of the worst safety records, as measured by injuries per 200,000 man hours, among railroads of its size. It is the function of the FRA to address the safety concerns which should be raised by Amtrak's performance. Other railroads have routinely been asked to pay the price (both in penalties and in expensive curative programs) for FRA's scrutiny of safety concerns. However, as the agency which represents the Department on Amtrak's Board of Directors, the FRA is clearly and inconsistently called upon to serve the disparate masters of public safety and the public treasury. The agency's multiple responsibilities, coupled with Amtrak's performance, raise serious questions about whether its independent regulatory functions are being compromised by its managerial involvement with Amtrak.

Further, it appears that the Surface Transportation Board, which also falls within the Department of Transportation, is similarly compromised in its supposedly independent regulatory responsibilities. Within the past month the Chief of Staff to Vice Chairman Gus Owen was forced to resign after we discovered that he was actively writing articles about Amtrak and other issues that were before the Surface Transportation Board for consideration. Not only was he writing about actual Amtrak issues before the Board, but he was voicing strong opinions about those issues before the Board had made decisions, decisions which could result in a substantial cost to Amtrak. His actions were well known and condoned by members of the Board and its staff for some time prior to the issue being formally brought to the Board's attention by us. The acquiescence by the Board in this type of behavior raises very serious questions regarding the independence of the Board with respect to Amtrak and the integrity of Board decisions involving Amtrak. If the Board was willing to permit Mr. Owen's Chief of Staff to comment as frequently as he did, the question must be asked if the Board condoned similar action by other staff members further compromising the integrity of its review process.

Our research of Amtrak's finances, of the Congressional Panel's report and the process by which Amtrak is regulated and inspected have confirmed that it is time that the Secretary of Transportation take strong affirmative action to change Amtrak's entire structure. We believe that significant interest exists to support privatization of the entire railroad. Amtrak's financial and safety performance confirm that it is time for intercity passenger service to be opened up to organizations with the skill to properly manage the operation and financial structure of the system, with dedication to assure that services are run with the best safety record among large railroads, not the worst. We urge you to immediately begin the process of soliciting proposals for the Northeast Corridor and expand that process to a full privatization of the entire Amtrak system.

We look forward to your response to this letter and to our proposal of May 26th.

Very truly yours,

David A. Fink
President