EXHIBIT No. 332 CHICAGO, August 29, 1936. Messrs. M. C. TAYLOR, L. S. HUNGERFORD, CHAMP CARRY, L. W. GREENLAW, In connection with the proposed form of supplemental agreement on special type of nonstandard construction cars, I have come around to the feeling that we ought perhaps to use the relative revenue benefit from the specific business carried in those special type cars, rather than the revenue benefit developed What do you think of that specific proposition? under the whole contract. I have also been wondering if we might not develop some specific plan or provision for taking the railroad proportion of excess costs out of their part of surplus revenue, and thereby avoiding the suggestion that we are asking the To the extent that we can railroad to pay us any part of our excess costs. make more definite and certain the suggestion or policy, that these excess costs are to be taken out of the revenue from Pullman operation, rather than out of the railroad pocket in the first instance, I think it would be desirable to do so. Of course it does not make any real difference in the end, whether we pay over surplus revenue to the railroad, and the railroad then turns around and pays us out of its surplus revenue receipts, the share of excess costs apportioned to the railroad, but I think we all realized in our talks with the western group of Railroad Presidents, particularly with those having the slant exhibited by Mr. Sargent and Mr. Donnelly, that they make a lot of fuss about the railroad "paying" any part of Pullman's expenses. If we could devise some way of sugar-coating the excess-cost pill, it might very well be worth while spending some words to do it. With roads like the Santa Fe, having reasonably assured revenue characteristics, we might even consider some further sweetening of the dose, by providing that Pullman would recoup the railroad proportion of these excess costs out of railroad proportion of surplus revenue, if any there be, but not calling on the railroad to dig up cash from other sources if there is no surplus revenue. What do you gentlemen think of that as a specific proposition in connection with the Santa Fe class of roads? How do you think we could properly protect the Pullman interests in this connection, in our operations on a road like the New York Central, where the surplus revenue characteristic is not so dependable, but where the dislike of the railroad in having to pay any new or unusual toward Pullman expense, is just as pronounced as we found it with Messrs. Sargent and Donnelly. D. A. CRAWFORD. EXHIBIT No. 333 THE PULLMAN COMPANY, Mr. RALPH BUDD, President, Burlington Lines, 547 West Jackson Boulevard, Chicago, Illinois. DEAR MR. BUDD: I have your letter of September 8th informing us of your position with regard to the two additional sleeping cars for your Denver Zephyr train. We are of course sorry that we will not have this opportunity to install some Pullman-built lightweight equipment on the Burlington but hope that we will eventually have such opportunity. The furnishing of the two additional cars for your Denver train is not of especial importance from the standpoint of the quantity of equipment involved, but it is of importance that it be clearly in the record that lease and operation of these two cars represent only the completion of the limited-quantity arrangements made in the earlier stages of the development of lightweight equipment, when engineering and economic facts now known had not been demonstrated and when materials and fabricating methods now in successful and accepted use were not available. As a matter of general policy in the stage that has now been reached in the development of new equipment types, we propose that the re84949-44-pt. 12-10 sponsibilities of the Pullman sleeping and parlor car services be discharged with equipment and organization of our own specification and choosing. We appreciate the courtesy of your consideration of our statements and proposals in connection with the two additional sleeping cars in question in these discussions. I understand that other arrangements are now under discussion for licensing the Burlington to use in these cars certain of our recent accommodation designs, and I feel sure that those matters can be satisfactorily arranged. Yours very truly, D. A. CRAWFORD, President. EXHIBIT No. 334 THE ATCHISON, TOPEKA & SANTA FE RAILWAY SYSTEM, EDWARD G. BUDD MANUFACTURING COMPANY, Philadelphia, Pa. DEAR SIRS: Under date of March 2d, Mr. Budd, and under date of February 28th, Mr. Henkle, wrote me in regard to the reservation of space in your works for the manufacture of 48 stainless steel cars, which had been the subject of discussion between Mr. Henkle and myself, and under date of the 25th ultimo Mr. Henkle, after a further conference in regard to our desire to purchase light weight equipment, submitted three proposals as follows: (1) An order for six 8-car trains, each train to be of the following consist: No. 1 Storage Mail and R. P. O. Car, SK-12168_. No. 3 Sleeper, 8 section, 2-compartment, 1 drawing room. SK-12151 No. 7 Sleeper containing 7 bedrooms, 1 compartment, 2 drawing No. 8 Combination Room Car and Observation Lounge, containing 4 compartments and 2 drawing rooms, SK-12155---- Price $52.900 46 769 69.209 60.209 69.091 69,997 77, 632 81, 103 The prices quoted above were based on the purchase of six trains and are f. o b. tracks of your works at Philadelphia, and the letter contained the proposal that you would manufacture one train in advance at the above-quoted prices, if we gave you an order for a total of six trains, and further provided that in the event that after completion of the first train we should decide to alter the consist of the remaining trains the prices would be adjusted to take care of any difference in labor or material. (2) A proposal on the basis of our contracting with you to build but one train of the following consist: That letter also carried the proposal that if we should wish to place on order for one train only the above prices would prevail, but should we later decide to go ahead with five more trains and give notice to your company within 6 months (which I understand from my conversation with Mr. Henkle means within 6 months from the date of the placing of the order for one train), upon receipt of the order for the five additional trains you would be willing to adjust the cost of this one train as above stated to the prices quoted in your proposition set out above as No. 1. (3) That should we contract for but two trains of the following consist, the prices would be as given below: but should we later decide to go ahead with four more trains and give you notice thereof within 6 months (which I understand from my conversation with Mr. Henkle means within 6 months of the date of the placing of the order for two trains) you would be willing to adjust the prices to the basis quoted for the 6 trains, indicated above as your proposal No. 1. Since receipt of the three proposals of March 25th, Mr. Henkle and the undersigned have had further conferences, the last being this morning. This letter to you will be a definite commitment on our part for a total of 48 cars of light weight, stainless-steel construction, to be built upon the following conditions: (1) That you will start immediately on the construction of one train as outlined in your proposal of March 25th, designated above as No. 1, the cost on the basis of the consist named in proposal No. 1 to be $531,922.00 f. o. b. tracks at your works in Philadelphia, to be built in accordance with the sketches as numbered in proposal No. 1 and the specifications which you have submitted, but in the event we should conclude to eliminate car No. 1 (postal car) and substitute therefor a standard sleeper, indicated on the consist as No. 3, being an 8-section, 2-compartment, 1-drawing-room sleeper, the price will be $548 222.00. (2) After the completion of this train you will build the remaining 40 cars at such time as we may direct, we to have the privilege of changing the type of these 40 cars as we may desire, the prices to be adjusted to take care of any differences in labor or material as may be involved because of such change in the type of cars we may ask you to build. (3) It is understood that you will complete your specifications and details, and when that has been done and they have been accepted by us this letter will be augmented with a definite contract. Yours truly, W. K. ETTER, Vice President. EXHIBIT No. 335 THE ATCHISON, TOPEKA AND SANTA FE RAILWAY SYSTEM, EDWARD G. BUDD MANUFACTURING COMPANY, Philadelphia, Pennsylvania. DEAR SIRS: Please refer to your three letters of March 25, 1936, signed by your Mr. Henkle, in regard to stainless-steel, light-weight passenger equipment, for which we have reserved space in your shop for a total of 48 cars, Mr. Henkle's first letter quoting prices on six 8 car trains, his second letter quoting prices on the equipment for but one train, and the third quoting prices in the event but two trains were built, this program contemplating the building of trains consisting of storage mail and R. P. O. cars, storage mail and baggage cars, 8-section, 2-compartment, 1-drawing-room cars, cocktail lounge car, dining car, sleeping car to contain 7 bedrooms, 1 compartment, and 2 drawing rooms, and combination-room car and observation lounge containing 4 compartments and 2 drawing rooms. You now have under construction one train of 9 cars for us. We now desire to go ahead with the construction of the remaining 39 cars, but instead of building them to the consist of the trains mentioned in the letters referred to we desire the following: 8 dining cars, 6 baggage-lounge or club cars, 6 club-lounge cars, 19 day cars. The 8 dining cars will follow your plan SK-12153; for the 6 baggage-lounge cars plans will have to follow; the 6 club-lounge cars will be built according to your plan SK-12165; and the 19 day cars will be built as per the plans for coach 3070 which you constructed for us in 1935, with the possibility that there may be some slight change in the interior arrangement. Mr. Purcell will get in touch with your organization with respect to further details and I hope it will be possible for you to begin work on these cars as soon as possible. We hope to be able to definitely decide upon the details at an early date, that the progress of construction may not be interfered with. Inasmuch as this plan contemplates a change in the types of cars which it was contemplated we would build when room for the entire 48 was taken in your shop, it will be necessary, in compliance with the next to last paragraph of Mr. Henkle's letter of March 25th, quoting prices on six 8-car trains, to adjust the prices, as to which I shall be glad to hear from you at an early date and after which a firm contract can be prepared and executed. In this connection, I may say that we contemplate building additional cars as follows: 11 day coaches, 2 dining cars, on which competitive bids will be asked. Yours truly, W. K. ETTER. Mr. CRAWFORD: EXHIBIT NO. 336 At the request of Mr. E. J. Engel, Executive Vice President of the A. T. & S. F. Ry. Co., I called upon him this morning to discuss the new-type lightweight car agreement covering 5 cars ordered by the Santa Fe from the Budd Mfg. Co. for operation on the Super Chief and to submit to Mr. Engel statement to indicate what the effect would have been of the injection of these 5 cars into our results of operation on the Santa Fe for the year ending Dec. 31, 1935. As Mr. Betts, General Auditor of the Santa Fe, is on his vacation Mr. Engel wished him to look over the statement, which explains more clearly the various provisions written into the supplemental agreement which we had submitted. The only discussion I had with Mr. Engel was on his comment we had provided that as far as the new-type lightweight cars are concerned the division of revenue between the two companies would be 50/50 in excess of $9,000.00 per car instead of the Santa Fe receiving all of the revenue in excess of $9,000.00 up to $10,500.00 and an equal division thereafter, as provided in the principal agreeement. Mr. Engel then asked me what our position would be as to additional new-type lightweight cars which the Santa Fe undoubtedly would require in the very near future; he said this would probably run to not less than 6 additional trains. I told him, in acordance with my understanding with you, that The Pullman Company would not be willing to lease from the Railway Company any additional new-type lightweight cars built by outside car builders; he then called attention to the fact that their operating agreement expires Dec. 31, 1937, in less than eighteen months, and asked what our position would be if they should insist upon an additional fleet of stainless steel lightweight cars. I told him that if they insisted upon having additional stainless steel cars and we were not willing to furnish such cars, and as they probably would not be delivered, if ordered outside, until some considerable time after the first of next year, we probably would not endeavor to stand on our rights under the contract and block them from operating the cars themselves but would agree to a cancelation of the contract. He said he did not want to see such a situation arise but could not understand why we were not willing to supply the railroads with cars constructed of such material as the railroads might require. I told him it was my understanding our manufacturing and engineering people were convinced they could build cars of Cor-Ten steel, with some aluminum used in the interior and with stainless steel sheathing, that would not weigh more than the stainless steel cars built by the Budd Co., and both he and Mr. Nelson Willard, Mr. Bledsoe's Assistant, who was present at the conference, expressed surprise and stated they had not been advised of that fact before and felt it would materially change their position. I told Mr. Engel I would discuss the matter with Mr. Adams upon my return and advise him definitely and if I were correct in my understanding I was sure you would be willing to so advise Mr. Bledsoe formally by letter. In referring to the expiration date of our present operating agreement Mr. Engel said that while it had less than 18 months to run he felt conditions were changing so rapidly he thought we should not endeavor to discuss the terms of a new operating agreement before next year, but asked if we would be willing to include such new-type lightweight cars as we might agree to furnish the Santa Fe under the same terms of the new agreement as present-type standard cars and I told him that we think we can build new-type lightweight cars at a price not greatly in excess of what present-type standard cars cost and that we would be willing to include them with present-type cars under the terms of a new agreement, but in answer to his question I explained that we definitely would not be willing to continue the present division of revenue terms, under which the Railway Company receives all of the revenue in excess of $9,000.00 per standard sleeping car up to $10,500.00 per car and 50% in excess of the latter amount up to $14,500.00 and 75%, if earned, in excess of $14,500.00 per car, explaining the genesis of that arrangement, which originally anticipated that Pullman would receive first an amount in excess of $2,000.00 per car but that during recent years this initial return to Pullman had dwindled to less than $200.00 per car, and that while I was not prepared to discuss terms of a new agreement at the present time we probably would not be willing to agree to any fixed division point of revenue, that it would have to be on a floating basis, Pullman first recovering all of its expenses of operation, with probably a reasonable return on its investment, before dividing surplus revenue with the Railway Company. In leaving Mr. Engel's office I agreed to advise him, after a talk with Mr. Adams, more definitely as to the comparable weight of new-type lightweight cars built of Pullman construction and new-type lightweight stainless steel cars which the Santa Fe have ordered from Budd. Upon returning to my office I talked with Mr. Adams and he advised me that it is the opinion of our manufacturing people, in which he concurs, that PullmanStandard can build sleeping cars of the construction above mentioned that will not weigh 3% more than the new-type lightweight stainless steel cars which the Santa Fe has ordered from Budd and that this additional weight is due to the additional strength which Pullman considers it necessary to build into the body structure of the car. I telephoned Mr. Engel to give him this information and to ask him to go out to Pullman tomorrow or Thursday with Mr. Adams and me to see the new Twin Unit which is now completed and hope that he will be able to go. DEAR MR. BLEDSOE: In connection with your letter of November 30th it has been called to my attention that the Union Pacific people are asking for berths 6'5" long in the new streamliner they are going to have built to replace their present City of Los Angeles train. They have apparently been informed that this is the berth length adopted for the train that the Budd Company is building for your Chicago-Los Angeles service. Berths of this length as compared with the previous standard Pullman berth length of 6'24" will, of course, be appreciated by the occasional out-sized passenger, but the fact remains that the great mass of sleeping-car passengers have been satisfactorily accommodated in the past in the standard berth length, and with the very definitely limited maximum length of the car, the additional 24 inches per berth will have to be gotten out of some other facility previously furnished. In an ordinary car plan, such as that providing for eight sections, and some consist of rooms, the 18 inches needed to lengthen the berths out to 6'5" each will have to come out of the washrooms and locker space, after taking into the usable length of the car the space formerly assigned to one vestibule. Provision can be made for such reallocation of space in new cars, but the point that I have in mind is that this is one of the features of competitive activity that could with advantage, both to Pullman and to the railroads, be kept under some reasonable control. There is, of course, no end to the possibility of what can be given away, in the way of revenue space, and I only hope that the competitive urge to outdo your 6'5'' berths will go on to further extremes. The Budd organization apparently has no particular concern about the competitive situation that their designs may set up. The 6'4'' berths that they put into the Burlington's Denver train, I think, reflects no real need other than the desire on someone's part to set up an advertising "beat" on the standard berths that we put into the Union Pacific's Denver trains. Reasonable restraint on the tendency to put something more than is needed into each package of sleeping-car revenue space is one of the advantages of a uniform service arrangement such as Pullman has heretofore furnished and |