©2017 BY AIRNET-21

FREQUENTLY
ASKED
QUESTIONS

1. What does AIRNet-21 propose?


AIRNet-21 proposes to split Amtrak into two companies, both owned and controlled by the Federal government.  One company would provide transportation services (i.e., market and sell tickets, operate the passenger trains throughout the United States, and conduct contracted commuter services), while the other company would operate, manage and improve Amtrak’s owned infrastructure, slightly over 600 route miles mostly in the Northeast Corridor.


This proposal has long been under consideration by congressional committees, research and policy think tanks, and government-convened commissions and panels such as the Amtrak Reform Council.  The Government Accountability Office, the Congressional Research Service, and the US DOT Inspector General have also extensively studied it.


2. How does AIRNet-21 promote better Amtrak service? 


Freed of its obligation to fund more than a billion dollars annually of infrastructure operating and capital costs on its owned infrastructure, Amtrak can reallocate its capital resources to new cars, locomotives and trainsets throughout its national system.  Just as it does now on the national network, it will pay only for the track capacity it uses on a “train-mile” basis. The “ownership penalty” financial allocations will be removed from the Amtrak ledgers which should result in lower unit-cost pricing to states and commuter agencies purchasing Amtrak services under PRIIA Sections 209 and 212. 


Prior to AIRNet-21 moving from the conceptual to the realizable, it was recognized that, under AIRNet-21, a statutory framework would need to be created that would enable the implementation of a smoothly functioning marketplace. That marketplace needed to be transparent and regulated to ensure that the public was protected. It also had to have a market maker that was incentivized, by both carrots and sticks, to optimize the frequency of trains using the system. Under AIRNet-21, the IMO is the market maker. It only makes money if the number of trains using the system more than doubles. It loses money if it hasn’t invested enough in Amtrak’s owned infrastructure to enable it safely to double (or more) the number of trains using the system or if there are accidents, which cause people to shy away from taking trains.  

 

3. Does AIRNet-21 force the IMO to grant rail carriers “open access” to IMO managed tracks? 


No. Under the ICC Act of 1887, use of a rail line is governed by the party controlling the rail line. This property right was reaffirmed under the 1997 ICC Termination Act—the Act that transferred rail carrier oversight authority to the STB. AIRNet-21 makes no changes to this longstanding property right. Under AIRNet-21, the IMO will be required to respect existing freight and passenger railroad operating rights and, on the rail lines it manages, the IMO will only allow new, qualified passenger operators under those terms and conditions that are safe and comply with statutes and Federal rules. Without an order from the STB and a mutually acceptable compensation agreement, no rail carrier of any kind may demand and be granted access to IMO managed rail lines. Hence, under AIRNet-21, there is no “open access.”


4. How does this plan avoid the pitfalls of the failed Railtrack model in the UK? 


Railtrack had not planned for success and permitted the number of trains using the system to increase before the necessary capital investments had been made. Railtrack was then replaced by Network Rail, which did make and continues to make capital investments. Under AIRNet-21, the initial capital investments have to be made up front.  While there were other factors, some unique to the UK and its legal system and business incentives, which caused Railtrack’s problems, the lessons learned from the UK have been incorporated into AIRNet-21.  

4.1     Have similar rail bifurcation programs been attempted elsewhere around the world? 


In fact, most of the rest of the world has bifurcated its railroad and rail transportation functions. All member states of the EU (as a result of three different directives, inter alia, 91/440/EEC, 2001/14/EC and 2007/58/EC) have separated their rail transportation and infrastructure functions as have non-EU member states such as Sweden, Australia, and Switzerland. 


4.2    How does the AIRNet-21 plan avoid the high ticket price pitfalls of the private train operation in the UK? 


While UK Train Operating Companies (which in the US are called Transportation Service Providers) have been very successful, there have been many complaints about ever-increasing ticket prices. In designing AIRNet-21’s marketplace statutory framework, it was recognized that competitive ticket prices, increased frequencies and faster trip times are the keys to drawing people out of cars and off the roads, and into trains. As a result, unless there is a bidding war for a particular slot (or, as its referred to in the US rail industry “train path”), train operators only have to pay the Surface Transportation Board established minimum price—the avoidable or marginal cost—for using Amtrak’s owned infrastructure.


4.3     But how then is Amtrak protected? 


In order to make sure that Amtrak has the time to adapt, the service patterns of all of Amtrak’s trains are protected for an initial period of three years. Furthermore, during this time, Amtrak will pay a fixed amount and can run as many additional trains as it would like at no extra cost using non-assigned train paths. Also, since no one else has the rolling stock, Amtrak is likely to be the only non-commuter carrier operator. It is expected that Amtrak, with its current Acela and future Avelia Liberty trainsets, will continue to be the dominant and perhaps only supplier of first class train services.
 

4.4     And how are the commuter carriers, such as New Jersey Transit and SEPTA, protected? 


The commuter carriers will have their service patterns protected, but more importantly, the commuter carriers, instead of paying the fully allocated costs for using Amtrak’s owned infrastructure (as they currently do) will, statutorily, only pay the avoidable cost—or marginal cost—just as they did prior to 2013.


4.5    And the freight carriers? 


Nothing changes for the freight carriers. They will continue to pay the same amount as they do under Amtrak and have the same access and other rights as they currently have.

 

5. Wouldn't introducing a new State-by-State ownership structure help? 


The transfer of track ownership to the States in which Amtrak owns track would result in the balkanization of the system because there would be no central coordinating body and, more importantly, the available funding and investment direction would change on a State-by-State basis.


6. How is AIRNet-21 compatible with the Administration's infrastructure vision? 


AIRNet-21 aligns with the Administration’s infrastructure vision. It causes the private sector to invest significantly more in a Government-owned asset than the Government could politically or fiscally achieve. At the same time, the asset remains -- and all improvements to the asset become -- the Government’s property. And, capitalizing on the private sector’s management expertise, it causes significant job growth and improved travel options. Unlike virtually all other proposals, however, it has no cost to the Government; based on discussions with the Congressional Budget Office, it appears likely to score well. This means that AIRNet-21 actually brings funds into the Government.

7. Under AIRNet-21, the initial capital investments have to be made up front. How much would be invested? 


During this period, it is anticipated that, in both maintenance and capital, close to $20 billion would be invested.
 

7.1    Given the long period of time it takes to complete the proposed infrastructure projects, when would the infrastructure company expect to break-even financially? 


Break-even is anticipated to take between 10 and 15 years to achieve.


7.2    On what basis was it decided which initial capital investments to make? 


Safety-related capital investments were prioritized above all others. Following safety investments, those investments which result in increased capacity and reduced trip-times were prioritized, because it is solely through the fluid operation of expanded train corridors that Amtrak’s owned infrastructure can become profitable. All such investments become the property of the US government when-made, as-made.

8. For how long would a private sector company manage Amtrak’s owned infrastructure?  

 

Typically, rail infrastructure management contracts are structured as leases and run for either 50 years or 99 years.

8.1     Has this been done before? 


Yes, not only domestically, but also internationally and with a wide variety of assets, e.g., the Department of Transportation’s railroad testing and training facility in Pueblo Colorado, the United States’ Panama Canal Railway (currently operated by the Panama Canal Railway Company, which is owned by Kansas City Southern), military base housing, Non-Excess Military Facilities, national park visitor facilities, etc.
 

8.2    What recourse does the Government have if the private sector fails to perform? 


The lease is revocable if there is a failure to operate safely as required by regulation, if the private sector fails to maintain the property causing trip times to increase, or if it fails either to invest the minimum required annual loan interest into the infrastructure or otherwise comply with the enabling or any other legislation.

9. How does the public benefit from AIRNet-21? 


AIRNet-21 is a legislative vehicle under which the Federal government to continue to own Amtrak’s owned infrastructure, while the private sector invests potentially around $100 billion. With AIRNet-21, Amtrak can focus on its primary mission—the profitable provision of transportation services on the Northeast Corridor—and servicing rural America and working with the States to supply State-supported Services.

10. Why would institutional investors want to invest in Amtrak's infrastructure? 


Certain institutional investors have long-term liabilities and need offsetting long-term assets, which, over the long run, have the potential to be operated profitably.

10.1    But, since its inception, Amtrak has been a money-losing proposition. Why would it be attractive today?  

 
The world has changed. The transportation modes, which undermined passenger railroads 75 years ago are no longer the romantic objects they once were. Interstate highways, which were new and represented freedom under Eisenhower, are old and congested today. Airports, which were once exciting and glamorous, are now crowded and unpleasant. Railroads, which are unattractive today and require very substantial investment were once America’s life blood, not only for the movement of freight and products, but also passengers. Certain institutions with a long-term horizon and the ability to identify those capable of implementing a new vision seek out opportunities such as Amtrak’s owned infrastructure. As John Maynard Keynes said, "When the facts change, I change my mind. What do you do, Sir?"

 

11. How will the public be assured that the safety of the right of way is not compromised in any way? 


The same regulatory agencies with oversight over Amtrak and Amtrak’s owned infrastructure will have oversight over any other party running Amtrak’s owned infrastructure.

11.1     How is the safety and security of the railroad operations assured with the operating functions divided between two parties? 
 

In fact, operations divided between two parties will be safer than one vertically integrated operation. In a vertically integrated operation, there is every corporate, financial and job-security disincentive to report a safety hazard either to an internal common superior or a regulatory oversight body. In a situation of bifurcated operations, there is every corporate, financial and job-security incentive to report a safety hazard either to the other guy’s superior or a regulatory oversight body. 

12.  What will happen to Amtrak’s infrastructure existing workforce?

 
The manager of Amtrak’s infrastructure will be statutorily required to offer employment to all of Amtrak’s agreement personnel performing work assumed by the manager under their existing contracts and subject to the same laws that currently apply, such as the Railway Labor Act, Railroad Retirement and rail safety laws. It will also be required to grant a hiring preference to qualified Amtrak employees not subject to collective bargaining agreements who, immediately prior to the transfer time, performed infrastructure work that will be performed by the infrastructure manager after the transfer time.