In the wake of bankruptcy, keeping Maine’s rail network intact ‘strategically critical’

A police officer walks past axle gear in Lac-Megantic, Quebec in this July 9, 2013 file photo. Montreal, Maine and Atlantic, the railway involved in last month's deadly derailment in Lac-Megantic, Quebec, filed for Chapter 11 bankruptcy protection on August 7, 2013,
MATHIEU BELANGER | REUTERS
A police officer walks past axle gear in Lac-Megantic, Quebec in this July 9, 2013 file photo. Montreal, Maine and Atlantic, the railway involved in last month's deadly derailment in Lac-Megantic, Quebec, filed for Chapter 11 bankruptcy protection on August 7, 2013,
Posted Aug. 08, 2013, at 6:44 p.m.
Last modified Aug. 09, 2013, at 8:06 a.m.

Speculation is growing over what the long-term economic impacts will be to the bankruptcy of Montreal, Maine and Atlantic Railway.

Experts interviewed by the Bangor Daily News, however, say businesses served by the railroad shouldn’t experience any immediate impacts as a result of the company’s bankruptcy.

The railway filed for Chapter 11 bankruptcy on Wednesday, a month after one of its trains rolled driverless down a hill before derailing in the middle of the town of Lac-Megantic, Quebec, causing an explosion that killed 47 people.

Given that Chapter 11 allows a company to continue operating while it reorganizes without having to worry about creditors, the short-term repercussions of the bankruptcy will likely be “nominal,” according to William DeWitt, a former railroad executive who is currently a professor at Maine Maritime Academy’s Loeb-Sullivan School of International Business and Logistics.

However, the long-term implications of the current situation are very real and should be a focus of state officials, DeWitt said.

The disaster in Lac-Megantic has cut Montreal, Maine and Atlantic’s rail network in half, hamstringing one of the main rail lines that Maine companies have to reach markets in western Canada and the midwestern United States. The company has been working with other haulers to bypass Lac-Megantic and deliver its customers goods.

“This railroad that connects Searsport through Canada to the midwestern United States, Toledo, Chicago, Detroit, etc., is in the long term, strategically critical for Maine,” DeWitt said.

Filing for bankruptcy protects the company’s assets for possible sale, but to what extent another railroad operator would be interested in acquiring some or all of Montreal, Maine and Atlantic’s assets is unclear.

Whether the rail line will be reconnected in Lac-Megantic is still uncertain, which throws the value of Montreal, Maine and Atlantic’s east-west assets into question, according to rail industry experts.

In addition, the business of shipping crude oil via rail from western Canada to eastern seaports, which provided much needed revenue to Montreal, Maine and Atlantic, will likely be dampened by the Lac-Megantic disaster and unavailable to future operators. Oil companies are likely looking at the issue from a liability perspective and will be willing to pay more to avoid the regional railroads, like Montreal, Maine and Atlantic, and use a Class 1 rail line like Canadian National, which goes around Maine.

“The fact of the matter is that we need this rail. It is very important to the state,” David Bernhardt, commissioner of the Maine Department of Transportation, said Thursday. “We are talking about something that runs from Searsport to Brownville to western Maine. If you were to look at a map you would see a lot of Maine business along that way.

“There should not be any stoppage of service,” he added. “There might be a slowdown, less runs made by trains, but the service will continue.”

A Canadian court and a federal judge in Bangor granted creditor protection to the Hermon-based railway on Thursday.

The transportation department has hired an attorney and filed a notice for appearance seeking standing with the court as a representative of state and customer interests in the bankruptcy proceedings, Bernhardt said.

Three of four Maine rail freight haulers have expressed willingness to assume MMA’s workload or work with a trustee that the U.S. bankruptcy court will appoint to run Montreal, Maine and Atlantic Railway as the bankruptcy process continues, Bernhardt said.

It’s the responsibility of the U.S. Department of Transportation to name a trustee to take over Montreal, Maine and Atlantic’s operations while its debts are reorganized. State officials will advise the federal government on who they think should step in, Bernhardt said.

J.D. Irving Ltd., based in Saint John, New Brunswick, has a vested interest in keeping trains moving along Montreal, Maine and Atlantic’s network. It operates two of Maine’s five railroad companies — Maine Northern Railway and Eastern Maine Railway — as well as Montreal, Maine and Atlantic’s largest unsecured creditor, New Brunswick Southern Railway, which is owed nearly $2 million, according to the bankruptcy filing.

“Connections to the [Montreal, Maine and Atlantic] are vital to our operations and the customers we connect via our railroads,” Mary Keith, vice president of communications for J.D. Irving, wrote in an email to the BDN. “We are maintaining open lines of communication with the state regarding the importance of sustaining viable rail links.”

Keith would not disclose the financial impacts on the company of the current situation.

When asked if J.D. Irving is a potential suitor to acquire Montreal, Maine and Atlantic’s assets out of bankruptcy, Keith declined to comment.

“We are exploring all options to ensure viable rail service which is vital to the Maine economy and hundreds of jobs in the state. We have no further comment at this time,” she wrote.

Bernhardt said that Department of Transportation officials have discussed Montreal, Maine and Atlantic’s bankruptcy with J.D. Irving’s railway companies and the St. Lawrence and Atlantic Railroad and Pan Am Railways. Only St. Lawrence and Atlantic is “not sure they are interested” in filling Montreal, Maine and Atlantic’s shoes, he said.

Until a more permanent operator is found, the federal Surface Transportation Board has leeway to order a railroad company to continue to provide short-term service over a rail line, according to Willie Ritch, spokesman for U.S. Rep. Chellie Pingree.

One positive bit of news if Montreal, Maine and Atlantic folds, Bernhardt said — the state could see a net increase in railroad workers. Only Montreal, Maine and Atlantic employed one-man crews on its trains using remote-control devices. The rest employ more workers per train, he said.

“I think you will find that they typically do not have one-man crews hauling those types of materials,” Bernhardt said. “Their safety records are pretty good.”

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