Ten days ago, I published an open letter to AmeriStarRail, a company that proposes to take over Amtrak service in the Northeast Corridor. Below, without further comment, is AmeriStarRail’s response (with my questions in italics).
Dear Antiplanner,
Thanks for your detailed questions about AmeriStarRail’s proposal to improve Amtrak’s Northeast Corridor service and our bid protest. I saw your Open Letter to ASR on your blog and I wanted to provide these clarifications:
- the 76 trainsets with at least 12 cars each would be a total of 912 cars
- ASR did not propose to spend $5 billion improving NEC tracks. We will pay user fees for the tracks and stations. The $5 billion is for trainsets only.
- AmeriStarRail submitted a proposal to an Amtrak RFP with a bid price of $1 for 76 trainsets and $1 for a Northeast Corridor Trainset Maintenance Center
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Here are our answers to your questions:
1. Based on Amtrak’s cost of $2.45 billion for 28 nine-car trains, 76 12-car trains will cost around $9 billion. Amtrak’s existing Acela trains only lasted about 20 years before being replaced, so sensible lenders would require repayment of loans in 20 years. At 3 percent interest, debt service on such a loan would be more than $600 million a year, which is more than the operating profit Amtrak claimed to have made from all of its Northeast Corridor trains in 2019. In addition, a 30-year loan for the other $5 billion would add more than $250 million in annual debt service. How is AmeriStarRail going to be able to repay these loans? Is AmeriStarRail willing to share ridership and fare analyses and projections?
The actual cost for the 28 nine-car Alstom Avelia Liberty trainsets is $1.9 billion. The balance of the $2.45 RRIF loan is for track, station and yard improvements for the new trainsets. This makes the effective purchase price per trainset $67.8 million dollars – still a record price for high speed trainsets. AmeriStarRail’s estimated cost for 76 trainsets, before negotiations, is $5.1 billion. Part of the cost advantages, even for a longer trainset, reflects adding on to an existing order and production line and the economies of scale for parts and production of a much larger order volume. Our investors recognize that the final price is subject to negotiations.
Those negotiations include the useful service life of the trainsets which are estimated to be up to 40 years with a mid-life service life extension program. The existing Acela fleet are being phased out by Amtrak prematurely. AmeriStarRail has developed an operating solution to operate the Bombardier built Acela fleet for another 20 years in Amtrak service which we announce in the near future.
The only asset based financing that AmeriStarRail (ASR) will use is for the trainsets which, at $5 billion and a 30 year service life, have an annual debt service of approximately $265 million. Amtrak did claim an operating profit of less than $600 million in 2019 but by doubling service frequencies, operating all trains up to 160 MPH and adding over 30 new markets (see www.AmeriStarRail.com) to direct Amtrak Northeast Corridor service, ASR will generate greater NEC ridership and yields than Amtrak – especially with the efficiency of a standardized high speed trainset fleet.
AmeriStarRail will utilize $5 billion in asset based financing and some working capital funding and will not have an additional 30-year loan for $5 billion. Our financing is only for the costs “above the rail.” Government funding (optimally a combination of federal and state funds) will continued to fund Northeast Corridor infrastructure improvements and maintenance. ASR will pay user fees for the tracks, catenary, signals, stations and dispatching per the division of infrastructure costs for all commuter and freight train operators on the NEC as defined by the Northeast Corridor Commission.
AmeriStarRail ridership, marketing and fare strategies are proprietary and confidential in the best interest of ASR and our investment sources.
2. Amtrak says that the Northeast Corridor still has a $42 billion infrastructure backlog. The infrastructure bill now winding its way through Congress will cover less than half of that. Without rebuilding corridor infrastructure, AmeriStarRail’s plans are not going to work. Who does AmeriStarRail think will pay the rest of the cost of this backlog?
AmeriStarRail will not pay for the rest of the NEC backlog costs because the NEC has multiple users who contribute user fees for infrastructure as defined by the Northeast Corridor Commission. The $42 billion Northeast Corridor infrastructure backlog is the same with or without AmeriStarRail. ASR’s plans can be implemented with the existing conditions on the Northeast Corridor except:
- New Alexandria Amtrak NEC servicing and inspection yard (ASR funded)
- Long Bridge project and Virginia improvements (Federal/State funded)
- Northeast Corridor Connector (CSX/NS Woodbourne, PA – Morrisville, PA: six miles of track and signal upgrades)*
- Grand Junction Railroad (approx. 4 miles of bridge, track and signal upgrades through Cambridge and Boston)*
- a few station upgrades/new construction (Chester, Elkton, Cambridge, etc.)*
* Federal/State/Local funding TBD
AmeriStarRail’s improved Amtrak Northeast Corridor frequencies, speeds, service, new stations/routes and ridership will provide a better return for the planned NEC infrastructure investments. AmeriStarRail will also provide Transportation Equity to NEC investments with high speed rail service for all Amtrak passengers. ASR will also pay hundreds of millions of dollars annually for infrastructure user fees thus providing a new revenue source for supporting infrastructure investments.
3. Although AmeriStarRail says that the trains it proposes to buy will have top speeds of 160 miles per hour, actual speeds will be limited by track design and condition, and Northeast Corridor tracks are currently no more than 150 miles per hour on one stretch and much less elsewhere. The Northeast Corridor Commission estimates that improving the corridor enough to reduce New York-Washington travel times by “nearly 30 minutes” will cost $117 billion. In contrast, AmeriStarRail thinks that it can save more than 30 minutes with just $5 billion. Even given that the $42 billion in infrastructure backlog is included in the commission’s $117 billion, the commission’s estimate is more than 10 times AmeriStarRail’s. How does AmeriStarRail think that a mere $5 billion can increase speeds by so much?
The Northeast Corridor Commission estimate for $117 million to save “nearly 30 minutes” between New York and Washington is expensive because it is for Amtrak trains making the regular stops on the route. AmeriStarRail achieves the 30 minute reduction in travel times with tilting high speed trains operating nonstop on the route.
AmeriStarRail’s private sector investment is $5 billion only in new 160 MPH tilting trainsets. ASR will not invest in publicly owned infrastructure but will pay user fees just as private operators do for ports, highways and airports. The 160 MPH top speeds, on a short NEC stretch in New Jersey, have all ready been funded by the nearly completed New Jersey High Speed Rail Improvement Project (NJHSRIP) due to be completed in 2022. Over the 30+ years of useful life of the trainsets, ASR expects other NEC segments will also be improved to 160 MPH.
In 1969, The Metroliners operated in Nonstop service between Washington and New York covering 225 miles in 2 hours, 30 minutes. This was accomplished with an average speed of 90 MPH with trains that did not tilt on curves and did not exceed 110 MPH. AmeriStarRail estimates that the tilting Alstom Avelia Liberty trainsets can cover the same route Nonstop in 1 hour, 59 minutes with an average speed of 114 MPH and a top speed of 160 MPH and tilting for the highest speeds on curves of the current NEC infrastructure.
4. Although Amtrak claims that the Northeast Corridor earned $568 million in net operating revenues in 2019, this didn’t include depreciation. Failure to count depreciation led to the huge infrastructure backlog that now exists in the corridor. Under AmeriStarRail’s proposal, who is going to pay for the wear-and-tear on infrastructure caused by running AmeriStarRail trains? If AmeriStarRail proposes to compensate Amtrak and other owners of the infrastructure it uses, where will the money come from considering that operating costs and debt service appear to be likely to consume all of AmeriStarRail’s revenues?
AmeriStarRail will include depreciation effectively with the user fees that it pays for NEC infrastructure wear-and-tear according to the cost allocation formula developed by the Northeast Corridor Commission for all NEC users. ASR’s business plan to improve Amtrak NEC service and ridership generates revenues that more than exceed the operating costs, debt service and NEC infrastructure user fees. In fact, ASR will also be able to pay user fees to operate Amtrak trains on non-NEC routes over CSX, SEPTA, NJ Transit, Long Island Rail Road, Metro North and Pan Am Railways.
5. Part of AmeriStarRail’s proposal is to operate trains on routes connecting with but outside of the Northeast Corridor. To do so, it proposes to buy locomotives that can operate under catenary, with third rails, or with Diesel power. This seems unusually complicated and will add significantly to the weight of the locomotives. Has anyone in the world ever tried such locomotives and were they successful?
Yes – Alstom and other trainset manufacturers have designed and built multi-powered locomotives which are operating reliably and cost-effectively in revenue service mostly in Europe and Asia. Alstom multi-mode trains include the ALP-45DP and the Coradia Polyvalent.
6. The routes AmeriStarRail proposes to operate outside the Northeast Corridor include Richmond, Virginia; Long Island, New York; Harrisburg, Pennsylvania; Albany, New York; and Springfield, Massachusetts, among others. The Long Island Railroad loses money, and Amtrak admits that it lost money on the Harrisburg, Albany, and Springfield routes in 2019. While it says the Richmond route made an operating profit, Amtrak numbers not only don’t include depreciation, they count state subsidies as “operating revenues.” What makes AmeriStarRail think it can make these routes profitable? Is AmeriStarRail counting on state subsidies to make these extensions feasible?
AmeriStarRail will operate all Amtrak NEC service and feeder routes without operating subsidies. This is possible because of a number of proprietary innovations that ASR has developed in four key areas: Service, Marketing, Technology and Organization. ASR will operate all NEC trains as Amtrak trains with the efficiency of a standardized fleet, with Amtrak tickets and Amtrak union crews just as independent airlines operate routes as an affiliated carrier under the American Airlines or United Airlines flag.
As detailed on the AmeriStarRail website, expensive terminal operations in Washington, Philadelphia, New York and Boston North Station are eliminated. This greatly improves equipment and crew utilization. The new through operation to new markets (Alexandria, Long Island, Maine, etc.) also generates new ridership and revenue to eliminate state operating subsidies. ASR is proposing that states redirect the annual operating subsidies into annual infrastructure improvement projects within their respective states.
7. The pandemic has dramatically transformed American travel patterns. Among other things, the average length of an Amtrak trip was 20 percent greater in July 2021 than in 2019. This increase signals that many people who previously might have taken Amtrak for short trips are now driving. At least some of this loss is likely to be permanent as Americans are not going to relax about their health even after the pandemic is declared over, if that ever happens. How does this change AmeriStarRail’s plans? Does AmeriStarRail have any reliable evidence that it can recover these passengers?
With or without a pandemic now or in the future ASR recognizes that travel demand and patterns have changed and may not equal 2019 for years. ASR Amtrak trainsets will be equipped with triple-class, all-compartment seating in 2, 4 or 6 seat compartments in Coach, Business and First Class. These compartments will offer privacy, individual heat/AC controls, tables and more headroom, legroom than luxury automobiles to provide a competitive alternative to flying or driving.
AmeriStarRail and our private financing sources have discussed the new post-pandemic challenges to generate profitable ridership and revenue. However, even in 2019, average NEC load factors were less than 60% and Amtrak only had a single digit market share for all trips between it’s most important city pair in the United States – Philadelphia – New York. ASR will pursue growing market share and load factors with innovative Amtrak service improvements, speeds, frequencies and proprietary marketing/fare initiatives.
8. Congress has massively added to the national debt in the last two years, and more spending is promised. This appears to have significantly increased inflation. The Federal Reserve may respond by increasing interest rates. How high can interest rates go before the investors who are supposedly willing to finance AmeriStarRail’s plans decide that this is a no go?
The strength of the American economy will always be important for AmeriStarRail’s success to improve Amtrak NEC service now and over the multi-decade life of the trainsets. ASR Service, Marketing, Technology and Organization innovations will provide margins, flexibility and resiliency in the face of inflation and economic downturns. Our private financing sources involve the liquidity of funding from cash on hand and therefore have some insulation from Federal Reserve policies and interest rates.
9. Among the features AmeriStarRail promises for its new service are “integrated cup holders at each seat.” This is apparently considered to be of equal importance to “top operating speed of 160 MPH” and “new route options.” Does AmeriStarRail really think that cup holders will be a make-or-break deal item?
The integrated cup holders at each seat were simply one of many details from the ASR bid proposal to Amtrak and are not a make-or-break item. ASR never considered it “to be of equal importance” to the trainset operating speeds.
10. AmeriStarRail probably believes that free-market advocates such as myself should be lining up to support their plan. In fact, all I see is another proposal to supposedly use private funds to finance a money-losing operation that will eventually have to be rescued by government bailouts. What kind of guarantee can AmeriStarRail provide that this won’t happen?
Actually, AmeriStarRail is offering a private bailout of Amtrak’s money-losing operation on the Northeast Corridor. In fact, taxpayers will need to subsidize the largest RRIF loan in history because Acela ridership has plunged so much due to the pandemic. ASR efficiencies of operating Amtrak NEC service with a standardized fleet at the highest speeds possible on new routes to new stations along with innovations in service, technology, marketing and organization are key to growing ridership, market share and profitable revenue.
Beyond posting performance bonds, AmeriStarRail cannot guarantee it’s success as all free enterprise ventures face risks of failure. We do know that our innovations will result in the most dramatic transformation of Amtrak’s Northeast Corridor service in over 50 years. Without ASR’s private sector initiative, government funding of the Northeast Corridor will result in Amtrak poorly utilizing the taxpayer’s investments with single digit market shares, poor load factors and less than 30% of all Northeast Corridor passengers being able to afford to ride High Speed Rail Service in America.
Also by operating under the Amtrak brand and existing infrastructure assets the consequences of enterprise failure are minimized.
Please let me know if you need clarification of any of our answers or have additional questions.
Sincerely,
Scott Spencer
Chief Operating Officer
AmeriStarRail
