Alaska Railroad to cut 49 positions, lay off 31

  • The Alaska Railroad announced Friday that it is laying off 31 and eliminating 49 positions in total. (Photo/Michael Dinneen/For the Journal)

In-state economics have combined with world market forces to push the Alaska Railroad to again cut its workforce.

The state-owned Alaska Railroad Corp. announced Friday it would be eliminating 49 positions as part of an internal restructuring effort to save $5.7 million, according to President and CEO Bill O’Leary.

The cuts will result in 31 direct layoffs and the elimination of 18 positions that were left unfilled in 2016, a railroad press release states, and save an estimated $4.7 million annually.

The Alaska Railroad is forecasting a $4.9 million loss from operations in 2017.

Spokesman Tim Sullivan wrote in an email that 29 of the positions will be cut from the five labor unions that represent about 75 percent of the corporation’s overall workforce. Virtually every level of employment will be impacted; “everything from interns to vice president positions” will be cut, Sullivan added.

“It’s a profoundly miserable day around here,” O’Leary said in an interview.

“The human piece of this is really, really impactful,” he said further. “Obviously not only to those employees whose positions are being eliminated, but to the remaining employees it’s incredibly disruptive and obviously wish we did not have to go to these lengths. A lot of organizations say this but the railroad really is like an extended family around here so having to take these steps — there’s just a real brutality to it.”

Despite the challenges, railroad leaders said the ultimate goal of the restructuring is to allow the corporation to continue operating without its customers noticing a difference.

“Our management team, along with the railroad board of directors, focused on safety, customer service and meeting regulatory requirements as decisions were made,” Alaska Railroad board chair Jon Cook said in a formal statement. “Of utmost importance is our ongoing commitment to provide exemplary service to our passengers, freight and real estate customers.”

Friday’s announcement is the latest in a prolonged series of workforce reductions the Alaska Railroad has implemented over the past decade as corporation leaders try to adjust to market conditions that seem to continually change for the worse.

The most recent layoffs came in 2013 when 54 positions were cut. Since 2008 the railroad has eliminated more than 300 year-round positions. Its long-term workforce is currently at 609 positions, according to the press release.

Correspondingly, the railroad has watched the freight volumes it hauls — its primary business line — decline by 44 percent since 2008.

In the late 2000s railroad once hauled more than 1.6 million tons of petroleum products per year. That business has all but evaporated after Flint Hills Resources closed its North Pole refinery in 2014, which used to supply the Anchorage International Airport with jet fuel via railroad shipments.

Additionally, reduced global demand for coal from the Usibelli coal mine near Healy has pulled another 1 million-plus tons of freight per year out from under the Alaska Railroad since 2011. As a result, the railroad has closed its coal export dock in Seward.

Reduced North Slope oil activity has also curtailed demand for the railroad’s interline barge service out of the Port of Whittier, O’Leary said. The barge service allows bulk materials, such as chemicals, pipe and others to be carried on railcars barged from Washington to Alaska to be pulled off the barge and transported directly to Fairbanks for reloading on trucks headed for the North Slope.

The Alaska Railroad also has significant real estate holdings across the state, a business line that is steady, and the strong tourism industry in the state has helped grow passenger demand, but the two aren’t enough to the losses in freight revenue, O’Leary said.

The recent overall decline in the Alaska economy has also led to less demand for general rail freight services.

Rather, the roughly $12 million per year the corporation nets from real estate each year has just masked growing operational losses, but not sufficiently supported reinvestment in the capital-intensive railroad business.

The railroad is also trying to manage ever-escalating personnel costs, he added.

“Very similar to what the state and other purely private sector employers have experienced, the medical benefits, medical costs have been very, very difficult for us to deal with,” he said.

While the Alaska Railroad Corp. is owned by the State of Alaska, it is a self-funded enterprise business with its own pay scales, and retirement packages that are completely separate from traditional state employees.

O’Leary said the corporation has instituted cost-saving measures to its health insurance and defined benefit retirement programs in recent years to mitigate cost increases, which have helped slow, but not stop, the cost increases.

He said the railroad is continually working with its employees’ unions to further address the issues.

Finally, on top of the business challenges, the Alaska Railroad is trying to implement the federally required Positive Train Control safety system, which O’Leary has called “the mother of all unfunded mandates.”

A complex technological system to remotely slow and stop trains traveling at unsafe speeds, Positive Train Control will likely cost the railroad nearly $160 million over 10 years by the time it is fully implemented in late 2018. Not installing the system would mean the loss of passenger service and potentially stiff personal fines to corporation leaders.

Elwood Brehmer can be reached at [email protected].

02/10/2017 - 2:49pm