Would Amtrak lease-to-purchase cars be a good idea for them?

[me_little_me]

What if Amtrak bought cars on time, paying for them from the revenues they generate?

Say a company buys a sleeper (or coach or whatever) and does a lease/sale of it to Amtrak with the revenues generated being the payments. So Amtrak goes out on bids for a car that cost $3M (or whatever they cost). The bidder buys and provides the car to Amtrak and low bid is the company that offers the best deal. Amtrak would pay all (or, say, all except personnel and maintenance costs) of the revenue to the provider at the agreed upon interest rate and at the end when the car is paid for, Amtrak gets to keep it. Amtrak would be responsible for maintenance.

Amtrak could be generating additional revenue to pay for the car without having to lay out cash up front. The provider basically finances the car with no fixed amount of income per month but with a fixed rate of interest. If the car makes more money than it costs, Amtrak is ahead of the game as they are paying only as they are generating income. For months when income exceeds costs, they pay off more of the principal and for months when it does not, they are paying part of the interest (so the principal plus accrued interest rises).

Since much of Amtrak's costs are fixed (costs don't go up by 20% if a sixth car is added to a consist), the additional capacity has a higher profit margin than the five-car train had and that additional income pays for the car.

Stupid or sensible?

 

[jmbgeg]

What if Amtrak bought cars on time, paying for them from the revenues they generate?

Say a company buys a sleeper (or coach or whatever) and does a lease/sale of it to Amtrak with the revenues generated being the payments. So Amtrak goes out on bids for a car that cost $3M (or whatever they cost). The bidder buys and provides the car to Amtrak and low bid is the company that offers the best deal. Amtrak would pay all (or, say, all except personnel and maintenance costs) of the revenue to the provider at the agreed upon interest rate and at the end when the car is paid for, Amtrak gets to keep it. Amtrak would be responsible for maintenance.

Amtrak could be generating additional revenue to pay for the car without having to lay out cash up front. The provider basically finances the car with no fixed amount of income per month but with a fixed rate of interest. If the car makes more money than it costs, Amtrak is ahead of the game as they are paying only as they are generating income. For months when income exceeds costs, they pay off more of the principal and for months when it does not, they are paying part of the interest (so the principal plus accrued interest rises).

Since much of Amtrak's costs are fixed (costs don't go up by 20% if a sixth car is added to a consist), the additional capacity has a higher profit margin than the five-car train had and that additional income pays for the car.

Stupid or sensible?

I believe that many airlines lease airplanes through leasing companies, but have no knowledge that the leases pledge the revenues only from that plane or are contingent upon that plane's revenues.

 

[Anderson]

This is an accounting nightmare waiting to happen. How do you allocate train revenue from a train that is two of these cars and three "owned outright" cars in a consist? At least in theory, it makes some sense if you used it to add a few trains to a packed route (say, buying several new Acelas or extending the existing ones by a car or two, sticking additional trains on one of the NEC feeder routes, etc.), but you still need to ensure that Amtrak is generating some revenue on the line to cover their expenses in the interim.

To offer a good example, if Amtrak could get the clearance to run at decent speeds on the run, it would make sense for attempting an LA-Las Vegas run.

To add to the reply: This is basically what Pullman did for decades (until the antitrust suit broke the company in two).

 

[Dutchrailnut]

How do you pay off a car that has negative income???

The cost of transporting people is 40% higher than what people pay for their ticket.

 

[George Harris]

If I understand correctly, Lease-Purchase has some tax advantages. Otherwise, there is no financial benefit.

 

[AlanB]

If I understand correctly, Lease-Purchase has some tax advantages. Otherwise, there is no financial benefit.

Yes, it gives the company leasing the cars back a tax break, or at least it did. I'm not sure if that tax law hasn't since changed since I don't hear about it happening too much anymore. As for Amtrak, or the company in effect selling it's equipment, it gives them a quickie cash infusion which can make the balance sheet look very nice for a year or two. But really one is just shifting the problem down the road for the next President to deal with as you generally end up paying more money in the long run.

Amtrak did this with most of it's equipment, but it now represents a good part of Amtrak's debt, at least in effect.

 

[Trogdor]

Alan is correct that Amtrak did a sale-leaseback on a lot of equipment (and stations, such as NYP) in the past decade to raise cash. Right now, Amtrak is in the process of buying out those leases so they can regain full ownership of the cars and engines.

That said, I can't see any private, for-profit corporation agreeing to a deal with Amtrak where the lease gets paid out of revenues generated from that specific car. If Amtrak doesn't run the car, but instead lets it sit in a yard somewhere, the car's owner would not get paid any money. As it stands right now, there isn't exactly a huge market for passenger railcars in North America, so if the owner decided to repossess the car, what would they do with it?

 

[nferr]

Alan is correct that Amtrak did a sale-leaseback on a lot of equipment (and stations, such as NYP) in the past decade to raise cash. Right now, Amtrak is in the process of buying out those leases so they can regain full ownership of the cars and engines.

That said, I can't see any private, for-profit corporation agreeing to a deal with Amtrak where the lease gets paid out of revenues generated from that specific car. If Amtrak doesn't run the car, but instead lets it sit in a yard somewhere, the car's owner would not get paid any money. As it stands right now, there isn't exactly a huge market for passenger railcars in North America, so if the owner decided to repossess the car, what would they do with it?

Exactly. Leases of this type get paid out of general corporation revenues, not revenue specific to one car. I do aircraft leasing for a living.

 

[Dutchrailnut]

But no matter how you slice it, Amtrak never has possitive revenue, its always negative.

be it corporate, or other.

the company is always short.

 

[Trogdor]

Revenue is money they take in. That number is always positive. Revenue minus expenses, which is net income, is the number that has always been negative at Amtrak.