Iowa Holding Company Could Take Over Railroad
By BETTY WATERS
PALESTINE -- A company with experience running both passenger and freight trains will assume operation of the Texas State Railroad if conditions for the transfer are met and is expected in time to broaden operation of the tourist train to include rail freight business.
Iowa Pacific Holdings LLC would buy railroad stock of the current operator, American Heritage Railways Inc., and take over operation of the tourist train that runs between Rusk and Palestine if conditions on both sides are ironed out. The transaction is anticipated to be finalized in 60 to 90 days.
Iowa Pacific is a holding company based in Chicago with properties across North America and the United Kingdom. In addition to freight operations, it operates passenger trains.
The Texas State Railroad Authority board, an entity that oversees operation of the railroad, voted Thursday to conditionally support an agreement between Iowa Pacific and American Heritage.
The support is subject to due diligence, a check on financial information on Iowa Pacific, some clerical work, completion of a lease on a section of track between the railroad and a connection with Union Pacific and application to the Surface Transportation Board for permission to start using that connection for freight rail.
"It (the transfer to a new operator) is a good thing for both the railroad and for the East Texas community," Steve Presley, chairman of the Texas State Railroad Authority board, said.
"We're looking forward to working with them (Iowa Pacific) because they bring a new dimension to the railroad that we don't now have, which is the freight rail business, which should be good for economic development reasons."
More companies nationwide are looking to rail for transportation of goods for long distances because it's much cheaper than sending goods across country by truck because of high fuel prices, Presley said.
As the rail business builds, more and more companies will be interested in being in locations where they can have a rail siding, he predicted.
Ed Ellis, president of Iowa Pacific, issued the following a statement: "We are very excited about this opportunity to build on the substantial achievements that American Heritage has made, in cooperation with the Texas State Railroad Authority, in improving the Texas State Railroad's infrastructure and in developing the tourist ridership."
He added, "It is our intention to continue this progress by further developing passenger service, reconnecting the railroad with the national rail network at Palestine and implementing freight service."
Ellis told the authority board that it might take 10 years to build up the freight business and that his company will try to develop clients.
After Ellis met with the authority board, Presley said, "To the best of my knowledge, everybody was very pleased with the opportunity it (the transaction) presents."
Allen Harper, chief executive officer of American Heritage Railways, said, "We have had a tremendous experience developing the Texas State Railroad and appreciate all the assistance we have enjoyed from the Texas State Railroad Authority and from local communities in this process."
The Texas State Railroad is the only historic steam train left operating in Texas on a regular basis.
It is important to recognize that without American Heritage, Presley said, "We wouldn't be here ... we would have never gotten this far, but things have changed for them and things are different from what we guessed they would be in the beginning so now it's a better fit for this other company to come in."
Jeffrey D. Jackson, senior vice president and chief operating officer for American Heritage Railways, said, "There's always been a goal to develop the passenger business through special events and we've accomplished that."
He added, "There's also been the goal to develop the freight business. We've just come to the realization that we're passenger rail specialists. We've developed that side of the business and Iowa Pacific are freight rail specialists. It's just time for us to turn it over to a freight operator that can focus on that side of the business and completely develop Texas State Railroad so that it has both sides -- both freight and passenger business."
When American Heritage took over operation of Texas State Railroad from the state, it was losing about $2 million a year and had about 40,000 paying customers. By 2011, the company had brought the railroad to a near break-even situation. Ridership under American Heritage peaked in 2010 with 82,000 riders.
"We just came to the realization that the best way for the railroad to succeed and the best way for Texas State Railroad to be viable long-term was to also develop the freight side of the business," Jackson said. "It just seemed like a good time to bring Texas State Railroad and Iowa Pacific together."
Jackson continued, "We're very proud that we played a role in preserving the Texas State Railroad. Ultimately the goal of Al Harper, who is owner of the company, is to make a difference in preserving historic operations around the country and now I think when history looks at what our role was, it will be viewed as a significant role. It's just the right time to bring in Iowa Pacific and let them build on the passenger business that we developed and hopefully be equally successful with the development of freight business."
The deal may not go through if the authority cannot figure out a way to spend another $150,000 on clean-up of a diesel spill at the Rusk depot, Presley said, yet expressed optimism that the authority will find a source of funding.
American Heritage already has spent about $240,000 on the clean-up, Presley estimated, saying the total cost could run considerably higher.
"We've been able to figure a way to do things in the past. We've had legislators that were very helpful to us and interested in the railroad and saw the benefit of having us continue to operate," Presley said.
Officials are talking with various agencies in Austin, such as the Texas Commission on Environmental Quality, to determine the availability of funds to help with the spill clean-up cost.
American Heritage had no responsibility and was not at fault in the spill event, Jackson said, because it occurred due to a dilapidated fueling system underneath the ground that was designed and built by the Texas Parks and Wildlife Department when the state ran the railroad. The state turned it over to the Texas State Railroad Authority and the authority subleased it to the company, Jackson noted.
American Heritage has gone about working on the clean-up and wants to be reimbursed for funds expended, Jackson said. Although the authority board approved funds to complete the clean-up Thursday, Jackson said, it did not take any action on reimbursing the company for funds already spent.
It is a coincidence that the spill issue arose during the time that negotiations have been under way on the change of operators for the railroad, Jackson said.
"We were already in discussion of the transition with Iowa Pacific before the spill occurred," he said.
Harper, owner of American Heritage Railways, had threatened in early February to shut down the railroad because of financial problems, but a few weeks later reversed his position and pledged to continue operating the Texas State Railway through 2012.