Acela Financing Case

Acela Financing Case

Brief Overview

-Primary provider of passenger rail service in the United States

-Provides service to more than 20 million intercity passengers

-Operates 516 stations in 44 states

-Never profitable in 30 year history

-Had been receiving annual subsidies from the federal government

-In 1997, Congress pass ARAA which would stop federal subsidies in 2002

-Amtrak developed new business plan - bring in net annual revenues of $180 million by 2002

Acela

-"New way of doing business"

-High speed rail service to reduce travel time and travel at 150 miles per hour

-High quality - comfortable amenities and highly personalized service

The Equipment

-Amtrak needs to purchase

+15 dual-cab high-horsepower electric locomotives

+20 high-speed train sets

-Each train consists of

+One first-class coach car

+One bistro car

+Three coach cars

+One end coach car

+Two power cars

Equipment Cost

-The 15 high-speed locomotives will cost $7,161,300 each, or $107,419,500.

-The 20 train sets will cost $32,129,050 for a total of $642,581,000.

-The total cost will be $750,000,050.

Financing

-Initial proposed investment: $267,900,000

+Towards 6 locomotives and 7 train sets

-Financing options:

+Borrow and Buy

+Lease

-Buy equipment at end of lease in 2020 at higher of terminal or fair market value

-Early-buyout option in 2017

+Rely on federal sources

Preliminary Assumptions

-Profitability of Amtrak

+Ability to take advantage of tax shields

-Salvage value

+Different