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Many Congressmen and Senators questioned whether the Government ought to come to the aid of any private company—large or small—with a record of sloppy management. The hardest blows were struck by Wright Patman, chairman of the House Banking Committee. A Texarkana Populist who detests both big city banks and railroads, Patman attacked the legality of the Administration's plan to guarantee the loans under the Defense Production Act.
Delaying the Debtors. With that, Penn Central executives hastily presented the bankruptcy petition. The bankruptcy covers only the Penn Central Transportation Co. (1969 assets: $4.6 billion), which operated the railroad. Neither the parent Penn Central Co. nor the several solvent subsidiaries of the railroad corporation were immediately affected. Among the latter are the Buckeye Pipe Line Co., a 7,000-mile network of petroleum lines; Arvida Corp., which is developing land and apartments on 35,000 acres in Florida; and Great Southwest Corp., which has extensive housing and other realty ventures in California, Texas, Georgia, Hawaii and Missouri. Ultimately, the courts will decide whether, as congressional critics of the Penn Central insist, the profits and property of the railroad's affiliates should be siphoned off to meet its debts.
In ordinary bankruptcy proceedings, the assets of the company are turned into cash, which is distributed among creditors. The Penn Central, however, filed under Section 77 of the federal Bankruptcy Act, which is designed to help railroads delay paying their debts while they keep running. Since the start of the Depression, some three dozen railroads have been reorganized under Section 77, and none have gone out of business. The process often requires 20 years. Last week the Philadelphia district court picked Judge John P. Fullam, 48, to handle the Penn Central case.
Fullam's first big job, after a mid-July hearing, will be to appoint one or more trustees to run the railroad. The trustees will have the power to float new loans to keep the line operating. While waiting for those loans, Transportation Secretary John A. Volpe warned last week, the railroad may have to shut down for lack of cash to meet expenses, which include the $20 million a week payroll for its 94,000 employees. Said Volpe: "I don't believe any of us can say with any degree of certainty if the payroll will be met or not."
Volpe may have been exaggerating in order to gain support for an Administration bill to aid the Penn Central and other impoverished railroads. That measure would empower the Transportation Department to underwrite up to $750 million in private loans. Volpe said that four or five more railroads might soon follow the Penn Central into bankruptcy unless federal aid is forthcoming.