Amtrak's Unforgiving Timetable: With only a year to make Amtrak profitable or face liquidation, CEO George Warrington knows he may be holding a one-way ticket. (Corporate Turnaround).

IF CEOs feel unusually beleaguered in these nailbiting days of sagging markets, earnings, and stock prices, they can find solace in this thought: At least they don't have the problem that faces George D. Warrington.

Warrington is president and CEO of the National Railroad Passenger Corp.--better known as Amtrak--and his daunting challenge is the 1997 U.S. Congress order to make a profit by December 2, 2002. It's considered a mission impossible by many, including the federally appointed Amtrak Reform Council, which concluded in November that the company would not meet its deadline and ordered it to craft a liquidation plan.

One big problem is that, in creating Amtrak as a quasi-governmental corporation in 1971, Congress also saddled it with a Catch 22 mandate: to provide a public service. It's required to operate unprofitable routes, often through sparsely populated areas. Unlike private companies, Amtrak-which called the council's conclusion "the wrong decision at the wrong time"-can't choose its markets.

It's a mission conflict that analysts say makes self-sufficiency a delusion. Amtrak can only achieve its mandate, warns the Transportation Dept.'s inspector general's office, by drastically cutting maintenance and capital investment -- essentially mortgaging its future.

"Amtrak has been put in purgatory," Warrington says, gazing out the window of his office in Washington's Union Station. Those six words encapsulate the quandary he laid out in May in a speech at the National Press Club. As he put it: "If you're a public-service provider, you go where the community need is; if you're a business, you go where the money is. If you're Amtrak, which way do you go?"

As if its conflicted mission weren't enough, Amtrak has been forced to operate on the cheap. In the railroad's 30-year history, Congress has given it $23 billion in capital and operating funds--70 times less than the Feds have poured into highways and aviation. Amtrak has had to make do with antiquated equipment, owns little of its trackbed, has difficulty attracting and retaining skilled labor, and - because of its necessity to turn to private financing - is awash in more than $3 billion in debt.

Amtrak has never made a profit. Nor, as Warrington points out, has any other passenger train system, although other developed nations typically devote 20 percent to 30 percent of their transportation budgets to rail. (In the U.S., the percentage is 1 percent.) To keep operating this year until an infusion of 2002 fiscal-year funds arrived October 1, Amtrak was forced to mortgage part of its Pennsylvania Station in Manhattan. It also has set up a voluntary-separation and early-retirement program for 2,900 of its managers.

But if the challenges of his job weigh on Warrington, the bookish 49-year-old CEO doesn't show it. He talks enthusiastically about his railroad and its potential.

As a result of September's attacks, he has a bit more to be enthusiastic about. Although the tragedies have added to most firms' grief-and added significantly to Amtrak's own costs-they perversely may prove a turning point.

Trains have been packed. And even some policymakers who previously urged cuffing off federal support for Amtrak now nurse second thoughts, acknowledging the need to face up to decisions on the railroad's future. For 30 years, Warrington says, Congress "has sidestepped" those decisions. "There's been a significant increase in public recognition, discussion, and debate of our mission," says Warrington. "I'm now hearing people say, 'Yes, you're right. Amtrak has been dealt a bad hand."'

Opportunity to Set National Transportation Policy

Many executives would want no part in playing that hand, and one wonders why Warrington accepted the top post. One reason was his background. He earned a master's degree in public administration, held early jobs in New Jersey's transportation department, and then became general manager of New Jersey Transit Rail Operations and executive director of the Delaware River Port Authority before joining Amtrak as president of its Northeast Corridor in 1994.

"My training has been in public administration and public service," he explains. "So the [CEO] job was attractive to me. It is an extraordinary opportunity to make a tangible difference in setting national transportation policy." Moreover, Warrington strongly believes in the importance of passenger railroads to the nation's future.

Still, he admits that he "was conflicted" when offered Amtrak's CEO post. As head of the Northeast Corridor-where he boosted the bottom line by $200 million, improved on-time performance to 90 percent, and increased ridership by 8 percent-he was a details-oriented, hands on manager. "My management style is fast-paced, being close to the action," he reflects. "But I knew that in the CEO job, I would need to adapt my approach and mindset - in fact my whole professional life - to an orientation that was almost exclusively around politics and money.

Four years later, he believes he has adjusted to the change. "While I miss being closer to the day-to-day business," he comments, "I actually have come to respect the political process.

Warrington has made the transition just fine, praises Michael Dukakis, 1988 democratic presidential nominee and currently acting chairman of Amtrak's board, who strongly supported Warrington for the post. "Despite his demurrals, George already had formidable political skills before he became CEO," Dukakis says. "That's one reason we picked him. In the public sector-unlike the private sector-you HAVE to have strong political skills."

Evidence of Warrington's savvy is how he quickly turned the September attacks into an opportunity to buoy Amtrak's image on Capitol Hill. Shortly after the event, he arranged for special excursions of the Acela Express, Amtrak's new high-speed train, to New York City for members of Congress to view first-hand "Ground Zero." Amid extraordinary security, 47 Senators made the trip on September 20; 125 House members followed on October 1. Warrington personally welcomed each member aboard.

Warrington's political prowess also shows up in the form of Amtrak's rosier outlook in Congress. Legislation introduced in October and sponsored by Sen. Fritz Hollings (D-SC), chairman of the Senate Commerce Committee, calls for elimination of Amtrak's self-sufficiency mandate. The measure also would reauthorize the railroad through 2003, grant Warrington's request for $3.2 billion in emergency financing to meet security and capacity needs, and provide $35 billion in direct-loan guarantees. Also moving on Capitol Hill are Senate and House bills that would let Amtrak sell $12 billion in bonds to develop high-speed rail.

Some experts doubt Congress will pass the bills this session especially given the amount of money involved. "There are still a number of objectives that need to be more clearly defined and there must be a consensus as to what form the legislation should take to get that financing," says James Coston, a member of the Amtrak Reform Council, an independent federal commission.

Still, Warrington insists the bills are positive signs of things to come. He admits to the frustrations he's sometimes felt since becoming CEO in December 1998. (He served as acting CEO a year before that.) He doesn't deny that running Amtrak is a special management challenge. "Quasi-government institutions are very, very unique in management and leadership," he observes. "They are creatures of a political process, but have conventional business, and measurement and performance expectations. Often, there is conflict between the expectations of commercial success and a public-service mission that is politically driven."

Despite such contradictory aims, Amtrak was making progress --until mid-September, says Dukakis. If it weren't for the economic downturn and the added security costs we'd be well on our way to self-sufficiency," the acting chairman asserts. Indeed, despite all its headaches, Amtrak was able to whittle its federal operating support to $59 million last year from $318 million in 1999.

Dukakis credits the Amtrak CEO for creating a talented, dedicated management team, putting in place Amtrak's first-ever strategic plan, and developing a capital investment plan. The capital plan is a 20-year blueprint for strengthening the intercity rail network and developing high-speed services. It calls for an increase in federal investment in intercity passenger rail from 1 percent of the annual federal transportation budget to 2.5 percent-a rise of about $1.5 billion a year.

While he thinks big, Warrington is still forced to concentrate on cost reduction and revenue generation thanks to the company's self-sufficiency mandate. On the cost side, Warrington explains that Amtrak is "resisting the traditional method of saving money by eliminating segments of our network." Instead, he has launched programs to increase efficiencies in systems, purchasing, and procurement. Overall, the steps are aimed at saving an average of $270 million a year for four years.

Meanwhile, to boost revenue, Warrington has introduced an unconditional Satisfaction Guarantee program for passengers, a customer loyalty program called Guest Rewards, a brand identity program, and a state-of-the-art speech-recognition system to provide faster and more convenient access to train-status information on Amtrak's 1800-USA-RAIL hotline. He's also expanded the company's mail and express services, commuter operations, and other commercial activities.

The cornerstone of Amtrak's strategy, and Warrington's signature project, however, is the Acela Express, the country's first high-speed service. Introduced last December after a delay of several months because of production snarls, the Acela service "clearly is a winner, as Warrington. Not only is it contributing solidly to Amtrak's bottom line, he says, but it's also a model for high-speed rail service in other urban corridors.

Future Depends on Congress

The trains are aimed at business travelers. They currently make 10 daily roundtrips between New York City and Washington and eight between New York and Boston, a frequency that eventually will rise to 19 and 10. Although capable of speeding 150 miles per hour, they're forced to go slower because of 19th-century tunnels and other antiquated infrastructure. Still, they've shaved valuable minutes off travel time up and down the corridor, helping Amtrak gain market share from airlines.

Since September, some 30 percent of Acela Express trains have been sold out. The combined patronage on the Acela and Metroliner service (due to be phased out by early 2002) is up some 35 percent from that on the Metroliners alone last year. The increase helped Amtrak boost its ridership to 23.5 million passengers in 2001--a 4.3 percent rise from 2000. Since mid-September, ridership is up 10 percent to 15 percent systemwide.

Warrington admits it's hard to forecast whether or not that growth can be sustained. The terrorism scare has slowed overall travel demand. "Yet," he points out, "a larger share of the diminished pie is moving to rail."

He's confident he's done his job in positioning Amtrak for growth. Transportation analyst, Maria Matesanz, senior vice president at Moody's Investor Services, agrees. "Amtrak's management is doing as good a job as it possibly can under its conflicted mission," she observes. She lauds Warrington for "effectively straddling the company's conflicting goals" and for "bringing public attention to the conflict."

Still, Warrington and his team face an uphill battle. Matesanz warns that high labor costs (21,000 of Amtrak's 24,000 employees are unionized) and "the poor condition of rail track assets" pose continuing problems.

Much of Amtrak's future, she concludes, depends upon Congress. That's no revelation to George Warrington. He's reminded of it every time he looks out his window and sees the Capitol dome three blocks up the street.