October 21, 2018
Business

Rail chief discusses impact of GNP Paper mill’s problems forced layoffs, wage cuts by MM&A

BANGOR – The chairman of Montreal, Maine and Atlantic Railway is personally ashamed he had to impose wage reductions on his staff of 275 people within weeks of becoming their boss.

Ed Burkhardt, a partner in Rail World Inc., the Chicago-based consortium that purchased the assets of the former Bangor and Aroostook System, said Thursday he never expected he’d have to begin reacting to a prolonged shutdown of the railway’s biggest customer just hours after he signed on the dotted line.

Great Northern Paper Inc., which accounted for one-third of Montreal, Maine and Atlantic’s business, filed for bankruptcy less than two hours after Burkhardt completed the $50 million sale on Jan. 9.

“Right now, with GNP down, we have a problem,” said Burkhardt in an address to business people at Husson College. “This, to me, is an embarrassment.”

The $50 million deal might not have happened if Great Northern had sought Chapter 11 protection from creditors one day earlier, said Frederic Yocum, the railway’s vice chairman, after Burkhardt’s address.

“The bank probably wouldn’t have given us the money,” Yocum said. “Probably.”

On Jan. 16, MM&A President Robert C. Grindrod announced that the railway was cutting employee wages by up to 40 percent effective the next day and was asking employees to volunteer to be laid off. About 25 workers were let go.

At the time, Grindrod said the railroad operation estimated it would lose $800,000 a month in business, not just from Great Northern but also from suppliers who ship wood chips, pulp, logs and other materials to the paper company’s two mills in Millinocket and East Millinocket.

The only product that is being railed into the mills is heating oil, a commodity a federal bankruptcy court judge ruled should be purchased to heat the facilities.

On Thursday, Burkhardt said the last two months have strained the company’s business plan and tested its employees’ resolve. He said that even though the workers are angry about the temporary wage cuts, they’re working hard to attract new business to the line.

“Our employees have accepted this far better than you think,” Burkhardt said. “Yes, we’re in a character development mode. I think we’re going to look back at this as the silver lining in the cloud. It really put us to the test.”

When it purchased B&A, Rail World expected to spend $20 million on capital improvements and other projects. Some of those projects have been temporarily cut back, Burkhardt said. But once Great Northern starts up again under new ownership, the investments in the system will pick up again, he said. Among the plans are proposals to boost railcar repair operations at the Derby station in Brownville, transfer day-to-day railcar upkeep operations to Millinocket, and boost service through Greenville.

“Our business plan assumes now that they’re back by June 1,” Burkhardt said. “We think that’s a viable date based on what we know now.”

Belgravia Paper Co. of Vancouver, British Columbia, has submitted a $91 million offer for Great Northern. Belgravia’s offer is what is called a “stalking horse bid,” and under its conditions other companies interested in buying Great Northern must bid at least $2 million more. In addition, other companies wanting to buy GNP must be willing to pay Belgravia a $5 million “breakup fee” if they are successful in topping the Canadian firm’s offer.

Burkhardt said he personally has spoken to Belgravia’s owner, Ronald Stern, about beginning negotiations on a new shipping contract. Those talks are in the “early stages,” Burkhardt said.

“He’s already talked to us about reducing our freight rates,” he said. “We expected that call.”

Burkhardt said he and Stern had business dealings in the past, when Stern purchased St. Marys Paper Co. in Sault Ste. Marie, Ontario, and Burkhardt was in charge of Wisconsin Central Railway.

“I can tell you he’s a very competent, knowledgeable manager who would be very good for GNP,” Burkhardt said.


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