Meanwhile the East Tennessee, Virginia & Georgia Railroad had been established to the west of the Richmond & Danville, in the heart of the southern Appalachians.[291] This company was a consolidation in 1869 of the East Tennessee & Virginia Railroad, from Bristol, on the boundary between Virginia and Tennessee, to Knoxville, Tennessee; and the East Tennessee & Georgia Railroad, from Knoxville, Tennessee, to Dalton, Georgia. Both roads were aided by the state of Tennessee. In 1870, however, the new company extinguished its debt to the state by the payment of $4,117,761 in state bonds. Not long after the completion of its line from Bristol to Dalton, the East Tennessee fell under the control of the Pennsylvania Railroad, which already dominated its neighbor to the east. To facilitate the control and to unify the interests of the Pennsylvania south of Washington a “Southern Railway Security Company” was formed, with a capital of $5,000,000. This company was entrusted with a majority of the stock of the Richmond & Danville and of the East Tennessee. It also controlled the Coast Line railroads from Richmond to Charleston, and the Memphis & Charleston from Chattanooga to Memphis.[292] Unfortunately the financial results of the combination were disappointing. Of the subsidiary roads the East Tennessee managed to pay at least 3 per cent on its capital stock from 1872 to 1876; but the Richmond & Danville paid nothing, the Coast Lines nothing, and the Memphis & Charleston barely earned the 3 per cent guaranteed under its lease. In 1873, therefore, a special meeting was held at the office of the Southern Railway Security Company to consider the propriety of making sale of certain properties of the company.[293] In 1874 the lease of the Memphis & Charleston was surrendered,[294] and in 1876 the bulk of the securities held, outside of the Richmond & Danville stock, were disposed of.[295]
The retirement of the Southern Railway Security Company marked the beginning of the withdrawal of the Pennsylvania from investment in the South. For the rest, it left the lines north of South Carolina in three main competing groups. There were the Coast Lines from Richmond south, the Richmond & Danville, and the East Tennessee, Virginia & Georgia properties. And stretching from west to east was the Memphis & Charleston, which was already in financial difficulties of a serious nature. All three of these groups were now thrown upon their own resources; and two of them, at least, took vigorous measures in self-protection. The policy of the East Tennessee was the most aggressive. Shut up in the narrow valley between the Clinch and the Great Smoky Mountains, and flanked by hostile roads, it conceived it to be necessary for it to acquire connections to the south, to the east, and to the west. Accordingly, it leased the Memphis & Charleston in 1877 and obtained an outlet upon the Mississippi River.[296] In 1878 it bought the Georgia Southern and the Selma, Rome & Dalton and provided itself with a line as far south as the Flint River in Alabama.[297] In 1881 it bought the Alabama Central, extending some 96 miles west from Selma. The same year it secured control of the Macon & Brunswick in Georgia, and began construction from Macon to Rome to complete a line to the South Atlantic coast.[298] In the north it made an alliance with the Norfolk & Western, which opened that company’s line from Bristol to Norfolk,[299] and arranged with the Louisville & Nashville and the Kentucky Central for construction to a connection at the Kentucky-Tennessee state line which should open to it the business of the Central West.[300]
The Richmond & Danville fell under the control of a group of capitalists who already controlled the Atlantic Coast lines and held an interest in the East Tennessee, and who now bought the 24,000 shares of Danville stock still held by the Pennsylvania Railroad.[301] Like its rival, it enlarged its system. It leased the Atlanta & Charlotte Air Line in 1881,[302] with certain minor roads in the Carolinas and in Georgia. In 1882, under the charter of the Georgia Pacific, it began construction westward from Atlanta to the Mississippi. It did not stretch out, as did the East Tennessee, but it secured a very complete control of the territory between Richmond in the north and Augusta, Savannah, and Atlanta in the south. In 1881, also, the Richmond & Danville took a step destined to have important consequences. Since it desired to acquire certain railroads, and since its charter allowed it to hold stock in none but connecting lines, it caused to be incorporated a so-called Richmond & West Point Terminal Railway & Warehouse Company, with authority to acquire stocks and bonds of railroad companies in North Carolina, South Carolina, Tennessee, Kentucky, Georgia, Alabama, Mississippi, and other states. This company increased its stock by October, 1881, to $3,000,000; of which the Richmond & Danville then owned $1,510,000. The most important acquisition which it made at the time was the Virginia Midland Railway, from Alexandria, Virginia, to Danville; but other additions were to follow.
The independent action of the Danville and East Tennessee companies was followed by a new consolidation which reunited most of the lines dominated by the old Security Company. In response to queries in August, 1883, Mr. Calvin S. Brice admitted that a syndicate in which he was interested had bought control of the Richmond & Danville.
“We have secured,” said he, “about 28,000 of the 50,000 shares of stock issued by the Richmond & Danville Company. Our syndicate controls, besides our new purchase, the East Tennessee, Virginia & Georgia Railway and the Chesapeake & York River line of steamers that ply between West Point, on the Chesapeake, and Baltimore, and has close traffic arrangements with the Clyde steamers, which run between New York and Philadelphia and all Southern points. Our purpose is to confine all our railroad and steamship lines under one management, and to equip and operate the system in the best possible manner.”[303]
It appears from this statement that the capitalists who controlled the East Tennessee now again consolidated with the leading interests of the Richmond & Danville and lines east, albeit changes in personnel and transfers of holdings occurred. Return to the old combination was made desirable by the more intimate connection of the two groups of roads. The Western North Carolina had been opened across the mountains of North Carolina in 1882. This had made practicable the diversion of the western traffic of the East Tennessee from the Norfolk & Western to the Richmond & Danville; a traffic which the northern connections of the East Tennessee promised largely to increase. Consolidation was doubtless also prompted by the desire to save the East Tennessee from serious financial difficulty which threatened it. It had become apparent that this company, at least, had severely taxed its strength in the rapid extension of mileage which had followed 1876. Before that time its position had been secure. It had possessed a monopoly of the somewhat limited local traffic between Chattanooga and Bristol, and had formed part of the most direct route between New York, Philadelphia, Baltimore, and Washington, and towns in Tennessee, Northern Alabama, and Mississippi. Its extensions had changed the situation. They had brought it into touch with the Mississippi River and the Atlantic Ocean, and had increased its fighting power; but they had also endowed it at large cost with a group of poorly equipped, unprofitable lines located in a keenly competitive territory. The Selma, Rome & Dalton had been purchased just after a foreclosure sale. The Macon & Brunswick had never been able to earn much more than working expenses. The Alabama Central had not seen fit to publish its financial figures after 1878, while the Memphis & Charleston, as we have seen, had turned to the East Tennessee only to escape bankruptcy.
The East Tennessee had hoped to make profitable the lines which it had so rapidly acquired. Unfortunately the company was poorly equipped for such a task. Its finance had been extravagant. In 1875, on 269 miles of lines there had been $7317 in stock and $15,620 in bonds per mile. In 1883 the mortgage bonds and car trusts outstanding per mile owned amounted to $23,444, the income bonds to $15,404, and the capital stock to $41,079. A grand total of $79,927 as compared with the $22,937 of eight years earlier, and an average of almost $100,000 in securities per mile of new line acquired! Ninety-nine per cent of net income was being absorbed in paying interest on all classes of securities, although maintenance figures were kept as low as $630 per mile of line. This large volume of stocks and bonds made improvement from earnings impossible, and prevented conservative management by taking from the stockholders any chance of dividends, and by reducing the quotations of common stock to less than $5 per share. And though in some respects the location of the system was good, the route which it offered to much of its business was indirect, the competition which it had to meet was severe, and its Atlantic terminal, Brunswick, was of small importance compared with the thriving cities of Savannah and Norfolk. The result was a failure to secure the gains from consolidation which had been expected. Surplus earnings were continuously small, and current bills were left to run; until by 1883 the floating debt had become so large that an issue of $1,200,000 in debenture bonds was required to take care of it.
The failure of the East Tennessee to weld its connections into an efficient transportation system left it helpless in face of the panic of 1884. Earnings fell off in that year, a directors’ committee was appointed,[304] and the resulting report revealed a plain inability on the part of the company to meet its charges.
| “The interest charges proper for the calendar year 1885 are,” said the committee, | $1,476,505.85 | |
| “To this must be added the principal due on car trusts and debentures in 1885, | 280,954.11 | |
| “Or a total of | $1,757,459.96 | |
| “The payments on similar account will be— | ||
| in 1886, | $1,739,196.28 | |
| in 1887, | 1,720,932.60 | |
| gradually decreasing until the debentures and car trusts being paid off in 1894, the total fixed charges for the year 1895 will be | $1,295,970.00 | |
| “The net revenue for the year 1883–4 was | 1,699,925.84 | |
| “The net revenue for 1885 and 1886, allowing for the decrease in earnings following the panic, and supposing the road to be operated for 60 per cent, may be estimated at | $1,400,000.00 |
“This will leave,” said the committee, “an annual deficit of $350,000, to which must be added a total of $1,000,000 required by the general manager for steel rails, iron bridges, and other needed improvements.