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Amtrak New President David Gun
Speaks At APTA Commuter Rail Conference

-----Original Message-----
From: Ross Capon
Sent: Thursday, June 13, 2002 4:19 PM
Subject: Gunn at APTA Yesterday

Notes by Marc Hoecker from APTA Commuter Rail Conference in Baltimore,
June 12 -- Session: "New Directions - Policy and Politics on the Track
Ahead" David Gunn(DG) - Peter Cannito(PC) - Moderated by Kathryn Waters
(KW, head of MARC--Maryland's commuter rail service)

Note: Alan Rutter (scheduled) was unable to attend this event.

KW - Introductions...Peter Cannito - Metro North . PC's career began in
1967 with NYC. 1974 - Amtrak in areas of Op's, Maint, Eng. He left
AMT in 1995, where he held the top positions in OP's and Mech. Went to
ABB Traction - EVPres. Became President of MN Commuter RR in June
1999. BS from Pennisisi College in Buffalo, NY. Attended Harvard
Business School.

PC - Discussed the Task force at APTA that is reviewing public policy
and principles.

KW - Introduced Gunn with the same info found in our newsletter.

DG - [Evaluation by Marc Hoecker: "He's witty, direct, and very sharp.
He impressed everyone."]
- I'm excited to join - this is the most exciting job I've ever
had. I have every incentive to tell the truth. If they can't handle
it, well - I'll just return to my home in Nova Scotia.
- Here's how we're organizing planning at Amtrak. Short Term and
Long Term. Everything Short Term is before July 1, 2002. Everything
long term is after July 1, 2002.
- People may not like this, but I have been a consistent critic
of the industry [Gunn is referring generally to commuter railroads,
transit agencies, and Amtrak]. Too much time is focused on the
appropriations process - getting more funding and more money. Too
little time is directed toward the basic economics of the business -
cost recovery. It is an absolutely critical measure.
- Think about this. We (again speaking generally about the
entire rail passenger/transit industry) dream of the time when we will
expand to a system 2-3-4 times the size of what we have. If you're
average cost recovery is 50% doubling, let alone tripling or
quadrupling, becomes very expensive and therefore problematic with the
politicians--they see us as a money pit.
- What drives our Cost recovery?
 The equipment we buy
 Labor Costs - absenteeism
 Fuel efficient vehicles
 Good use of capital
- We're always looking for funding. SEPTA (Philadelphia area
transit agency) example- they called for more funding - they thought
this was the answer. What did they do? They got 5 new board members
and a board with 12-17 people. They got funding, and their cost
recovery dropped.
- [The major theme of Gunn's talk is that by focusing on the
basics and the efficiency of the operation, we build credibility to
petition for more funding.]
- We're not focusing on a very important piece that would get us
immense credibility with elected officials
- Let's take AMTRAK and its equipment as an example: [This
comment was a big surprise]
 ACELA - first of all, why is it called this? They had a
recognized brand - Metroliner. "Acela" everyone knows what that's the room below the first floor. It's like taking Coca Cola and
calling it "Brown Liquid."
 With Acela, we run the same speeds with conventional equipment
[AEM-7 and Amfleet]. Now, which one has the better cost recovery?
 We spent a bundle on capital and put the debt on our balance
sheet. We added $700M of debt to the balance sheet.
 Acela is a very nice train that made our economic situation
 We specified equipment that is one of kind - and there probably
won't be any more of them.
 They are very expensive. They have 5 revenue cars, 1 cafe, and
two locomotives. It has enough power to run 10 cars and still make the
schedule. The amount of power we have on that thing makes no sense.
The economics are worse.
 But now that we own them, we'll run them.
 We lose sight - we need to always look at the numbers. Amtrak
clearly didn't push the numbers.
 On top of that, the politicians got into it and increased the
cost substantially. They said buy American. We also couldn't buy
something off the shelf from Europe because the train wouldn't meet our
crash-safety standards mandated by the FRA. This drives up the cost.

- Let's look at a Transit Example - Low Floor Buses:
 What do you see? We cut capacity by 10-15%.
 We have a nice piece of equipment that looks good to everyone
and is accessible - I'm not against that. But look at the economics.
 After cutting capacity of each unit, are the politicians
willing to pay for the extra buses you have to run to make up for the
deficit in capacity? No.
 The maintenance costs are very high - much more than a
conventional vehicle.
 If you look at your baseline - from the old GM "new-look" bus
What have we done? We're pandering to pressure rather than focusing on
an efficient operation.
- So, where does Amtrak go now?
 We have to get a bank loan in the next 2-3 weeks if we're going
to make payroll for July, Aug, and September.
 We've mortgaged everything. Except my desk. Which isn't that
good of a desk.
 I think we'll get over this obstacle though. People are
beginning to realize that it may not be a smart thing to tip this over
right now.
 What does Amtrak do over the next year? That's next year's
problem. I'm focused on the loan.
 We will return basic order and discipline to Amtrak management.
but it all ultimately starts with Congress.
 Self-sufficiency mission nonsense. It was ridiculous that they
proposed it, and crazy for Amtrak to pretend that they could achieve
it. As result, we did the classic things that are wrong. We took on
long term debt to finance short term subsidies.
 So where are we now? My goal is simple. Over the next year,
turn Amtrak into a traditional management structure that runs a good
operation. A lean, confident organization with very rigorous budget
and discipline. We will control headcount. Monthly fare plan. Clear
management goals and objectives. We'll have an org chart. We'll
rebuild whatever we need to. We'll have a capital budget that's
focused on returning the system to a state of good repair.
 We need public reporting of goals. Every month, report our
objectives. Every responsibility center will put out a
budget-performance report by train, by route, cash forecast, balance
sheet, ridership, etc.
 We need a capital budget that is defensible. The reality is
that at Amtrak, the numbers are murky and hard to get.
 We must overcome the complete loss of credibility. It's not
rocket science. We need to show them we know how to run a RR.
 I can make it efficient. I can't make it self-sufficient.

- ARC - and I'm not talking about the boat.
 I met with one of their members. I was amazed that some of
their recommendations were right on the mark - directly in line with
what I had.
 What is looney about their idea is that you can privatize
Amtrak. So I'll prove it to you. Anyone want to buy us? I brought
this hat with me - you can have it!
 To talk about Amtrak and splitting it up? We are the only
people who know how to run a 1923 Electric RR.
 We have already hemorrhaged technical talent. You will not put
it back together - and then you'll be at the mercy of the consultants.
 They propose this idea of separating the infrastructure from
running trains. What's great about this is you have a great example of
how this is working - go to England! It's cost 3 politicians their
jobs. They successfully collapsed the system, and it cost more than the
old British Rail. I heard last week / day /month, one train made it
from London to Edinburgh.
 You can't escape trying to run Amtrak and make it run well. If
we spend all our money on making it run well. Hire Pete!
 Fixing Amtrak is very doable
 The asset at Amtrak is the operations - and it's not that bad today.

Questions and Answers: [Almost all questions were directed to Gunn -
exceptions will be noted].

Q1 - Welcome back - [applause]

Q2 - Marketing - what will change and will Amtrak do more?
A: The most important thing is passenger service. People expect
service. They expect food at a reasonable price. Our marketing must
be focused. We spend a lot of money on ads. We should advertise, and
have deals like we do now, and remain focused based on reality.
Example Satisfaction guaranteed doesn't add up now because of the state
of repair of the system. Good discipline is needed in operations.
Here's an example: If I want to review the budget plan for cars and
locomotives, I need 16 people in the room to make a decision. When I'm
done with reorganization, it will be back to 5. Here's another crazy
thing: Acela doesn't report to the operating department. How can you
have a new train and not have it come under the control of your
operating department?

Q3- Re: Freight RR's How will relationships change on and off corridor?
A: We will have more movement of freight. Currently they move a lot
of their traffic at night on the Northeast Corridor. They want to move
more. We'll talk to them about it. I don't share the idea with some
of the freight RR's, like the UP, that there should be a wall between
passenger and freight and freight is good, and passenger is bad.
Look at the Santa Fe [BNSF]- they have a warm spot in my heart - and
they fired me! They treat us as a profit center. We pay them millions
in incentives. They are the sharpest at using equipment and
facilities and have a very positive relationship with passenger and
intercity rail. It is possible to run passenger and freights on the
same lines at 70-90 mph. You can't run TGV stuff obviously. I'm a
member of AAR - I'm amazed that other freight rr's don't see incentive
payments the way BNSF does. When I was on the Santa Fe, we had a
double track 90 mph RR, and ran 16 passenger trains mixed with over 50
freight a day. I think many in the freight industry have forgotten how
to run their RR's.

Q4- Re Safety Management procedures and programs
A: Amtrak has a very good safety record. They don't take a casual
point of view. They've got an ethic which is good. We have 24 people
in safety right now.

Q5- [Bob Post - Pitts. Port Authority] Re: how do you intend to upgrade
infrastructure to handle passenger trains?
A: The Freight RR's are in trouble. They're better than us, but
they're letting the quality of the their track deteriorate. Now they
have slow orders. They let it fall apart and then spend billions on
rebuilding. They think it doesn't bother the freight. And it's not
helpful to running passenger trains. "The only thing in more trouble
than Amtrak is the Airlines." Example on infrastructure - Coast Starlight.
SP let that fall in to a bad state of repair, and we're
suffering because of it.

Q6- KPMG has yet to sign the 2001 books. Where are we in this process?
Will it imact the loan?
A: Who are you? { The person who asked the questions replied that he
was with the IG's office } At Amtrak we need a solid management
structure. We've almost closed our books. Should happen momentarily.
It shouldn't happen in the first place though. Are we paying attention
to the basics - good accounting system? Bottom Line?
We will have a good budgeting system and control our decisions
on what we spend our money on.

Q7- Will you consider eliminating services that don't make that much
sense, say NY to LA?
A: I will not get into this debate on which train to cut. That's
for you in the government to decide. You take the system if you want to
add a train - fine. Tell me how you want to pay for it. We'll run it.
LDT - they need subsidies, but their capital costs are really low. NEC
- they generally do OK, but their capital costs are enormous! That's
in the long run. If I get into debate about this train makes sense
while this one doesn't - I've fallen into the same political trap 
Amtrak has been in before. You can't reconcile this with the politicians.
You'll never get support. I'll do a poll: Who disagrees with me? I
need to survive at least year or two and get vested in RRTA (Railroad

Q8- Will you allow Amtrak's engineering services to support and
work on outside projects?
A: No. We don't sit on a large pool of engineers. For us to spread
resources to other properties would be a mistake. Our focus is to get
this place in order so I don't have to answer that question on KPMG. I
don't want to talk about route structure. There's plenty of people in
government and on Capitol Hill that can do that.

Q9- (New York) MTA Comment. We were in far worse shape. David Gunn's
objective was to create management positions. It was very successful
on your part and I wish you the best. Working under Mr. Gunn, learned
the difference between being a supervisor and a superintendent who can
make decisions.

Q10- I attended an AAR board meeting. Is it your sense that freight
senior management recognizes their infrastructure is dying. And 2nd,
if they don't, how do we get them to change, as it would indict their
management structure.
A: I think it depends on the RR. Look at their operating philosophies.
On the Santa Fe, from Chicago we have a double track 90mph RR. We
would have 12-14, 16 High speed, so 90+mph passenger trains and express
trains mixed with 50 frieghts. What the SF did was every train that
left Corwith (freight yard in Chicago) could hold a track speed of 70
mph. Freights always kept themselves spaced. When you were catching
one, you had segments of 4 -track sidings (where faster trains could
overtake). They didn't have trouble with it.

Now look at the old RF and P (Washington-Richmond). They'll
have a drag [freight] train with 2 engines, and then a fast freight come
up behind it. Doesn't anyone look at interaction of trains? Drag
trains and fast trains don't work on the same track - I don't care how
many sidings you've got.

The RR industry seems to have lost the idea of how to run their
trains. For 30 years I've been the enemy. I've been in the passenger

Q11- How do you get them to change?
A: Work with the ones that work with you.

Q12- How will the airline loan program passed after 911 affect Amtrak?
A: It's another subsidy that continues the inequity.

Q13- Does 9/11 make Congress more inclined to give to Amtrak?
A: We've had a lot people riding our trains since 9/11. The problem is
the airlines are viewed as mainstream. Autos are viewed as mainstream.
Amtrak is not. We've been made into a social program. We need to be a
service for those people as well as the average person. We want to be
the best way to get there. Right now we're an anachronism.

Q14- [Gary of Bombardier] - Do you expect to continue to contract with
Commuter RR's for their operations?
A: Yes - if it makes money. I know you [Bombardier] are interested in it.

Q15- Question regarding sourcing at MBTA - nobody in the room, even
Gunn really understood what she was talking about.

Q16- RE: Atlanta and expansion of Long Distance service to new markets?
A: The rules of the game will be: We can run it, but we have to have
the deficit covered. We also need labor protection. We can't have
someone bail out on us and leave us with the labor costs when the 
train gets canceled. We won't do that.

[For a very negative take on Amtrak, see Kenneth Bird's letter in
today's Washington Post.]

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