type: other

jurisdiction: US

text: b' Evaluattion of Amtrak\n A k\xe2\x80\x99s FY 20010 Fleeet Strateegy:\nA Comme\n C endable High-Level Plaan That Needs DDeeper\n Analysis\n A s and Pllanning Integraation\n\n\n Report\n R Nu\n umber E\n E-11-2\n\n March\n h 31, 201\n 11\n\n\n\n\n Evaluation\n E Report Issu\n ued By\n\n\n NAT\n TIONAL RA\n AILROAD PASSENGE ER CORPO\n ORATION\n OFFIICE OF INSSPECTOR GGENERALL\n 10 G ST\n TREET, N.E\n E.\n WASHING\n W GTON, D.C. 20002\n\x0cDate: March 31, 2011\n 2 From\n m: Ted Alves, Inspector Geeneral\n\nTo: Joseph Depa\n artment: Office of Innspector Genneral\n Boardman,\n President and\n Chief\n Executivee\n Officer\n\n Subjject: Evaluation of Amtrak\xe2\x80\x99ss FY 2010\n Fleet Strateggy\n\n cc: Mario Bergeron, Chief M Mechanical\n Officer\n Stephen Gaardner, VP, P Policy and\n Developm ment\n DJ Stadtler,, Chief Finanncial\n Officer\n Al Engel, V\n VP, High Speeed Rail\n Emmett Freemaux, VP M Marketing\n & Producct Developm ment\n Jessica Scriitchfield, Internal\n Controls Officer\n\n\nAttacheed is the report of our recently comppleted evaluaation of Amttrak\xe2\x80\x99s FY 20010 Fleet\nStrateg\n gy. This revieew was requ uested by thee then-Rankiing Member of the Senatte\nApprop priations Commmittee, Sub bcommittee on Transporrtation, Houusing and Urbban\nDeveloopment, and Related Ageencies. Our objective\n o waas to assess w\n whether the ccritical data\nand asssumptions thhat have a maaterial impacct on the equuipment andd financial reesource\nestimattes containedd in the Fleet Strategy were\n w reasonabble and validd.\n\nThis report documeents our find dings and maakes seven sppecific recommmendationns to improvee\nAmtrak k\xe2\x80\x99s Fleet Straategy and th\n he fleet plann\n ning process . Your respoonse to our ddraft report iss\nincludeed as Append dix I.\n\nWe apppreciate the courtesies\n c an\n nd cooperatiion of Amtraak representaatives duringg this\nevaluattion. If you have\n h any queestions, pleaase contact m\n me at (202) 9906-4499\n(Ted.A\n Alves@amtraakoig.gov); Calvin\n C Evanss, Assistant IInspector Geeneral for Innspections\nand Ev\n valuations, att (202) 906-4\n 4507 (Calvin n.Evans@am mtrakoig.govv); or Nico LLindenau,\nDirecto\n or, Inspectionns & Evaluaations, at 2022-906-4961 ((Nico.Lindeenau@amtrakkoig.gov).\n\n ment\nAttachm\n\x0c Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\nA Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n EXECUTIVE SUMMARY\n\nT he FY 2010 Transportation, Housing and Urban Development and Related Agencies\n Appropriation Act mandated that Amtrak prepare a comprehensive plan that provides\ndetails and time frames for the maintenance, refurbishment, replacement, and expansion of\nAmtrak\xe2\x80\x99s rolling stock fleet.1 In February 2010, Amtrak included this plan, referred to as the\nFleet Strategy, as part of its FY 2011 Grant and Legislative Request. The Fleet Strategy\noutlines the company\xe2\x80\x99s strategic approach for acquiring new locomotives and cars to replace\nits aging equipment fleet, and additional capacity to accommodate the projected increase in\nridership over the next 30 years. The plan also identifies funding requirements, discusses\nfinancing alternatives, and includes a procurement approach designed to support a\ncompetitive supplier base.\n\nThe Fleet Strategy calls for buying 1,200 passenger cars, 334 locomotives, and 25 high speed\ntrain sets within the next 14 years at a cost of approximately $11 billion.2 Over the entire\nplanning period, from 2009 to 2040, the strategy estimates that $23 billion of capital funding\nwill be required to acquire equipment, undertake necessary equipment overhauls, manage\nprocurement projects, upgrade maintenance facilities, and provide inventories of spare parts.\n\nBased on the importance of the Fleet Strategy to Amtrak\xe2\x80\x99s future operational and financial\nsuccess, as well as the magnitude of the estimated funding requirements, in May 2010 the\nthen-Ranking Member of the Senate Appropriations Committee, Subcommittee on\nTransportation, Housing and Urban Development, and Related Agencies, requested that we\nconduct a comprehensive review of the strategy. Our specific objective was to assess whether\nthe critical data and assumptions that have a material impact on the equipment and financial\nresource estimates contained in the plan are reasonable and valid.\n\n\nRESULTS\nAmtrak has done a commendable job of using a holistic approach to create a comprehensive\nFleet Strategy that identifies and addresses the myriad of issues related to fleet acquisition,\nmaintenance, and retirement. For example, the strategy discusses the size and age of the fleet,\nfactors to consider in determining when to retire equipment, financing alternatives,\nadvantages to pursuing different procurement strategies, and factors that could limit growth\npossibilities. It provides a long-term perspective on equipment acquisition that will be very\nuseful and that Amtrak greatly needed.\n\nThe Strategy recognizes that additional refinements in both data and assumptions are needed\nto provide more precise estimates, and that these refinements will be incorporated into future\n\n1\n This term refers to Amtrak\'s passenger cars, locomotives, and train sets (line of permanently coupled\npassenger coaches drawn by a locomotive).\n2\n This and all other Fleet Strategy-related figures are in 2009 dollars.\n\x0c 2\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\nA Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nannual revisions to the plan. For example, the document notes that although ridership\ndemand projections should be based on a detailed route by route analysis, in order to meet\nthe congressional deadline for submitting a strategy, Amtrak assumed a 2-percent annual\ngrowth rate for the car fleet. While the Fleet Strategy clearly identifies the need to refine\nsome assumptions, in other cases it is not clear whether Amtrak plans to revisit all of the\nassumptions and estimates in the annual strategy updates.\n\nOur evaluation identified a number of areas where Amtrak can improve the reasonableness or\nvalidity of its data and assumptions by conducting additional and more detailed analyses. As\ndiscussed below, these changes could have a significant impact on the projected fleet\nrequirements and the financial resources needed to satisfy the requirements.\n\nDetermining Rolling Stock Requirements\nThe strategy\'s high-level growth and operational assumptions may not be precise enough to\nproject Amtrak\xe2\x80\x99s future demand for rolling stock and the financial resources required to meet\nthat demand. The strategy\'s assumption of a projected average annual growth rate of 2\npercent for its total fleet of passenger cars is a reasonable first step and may be appropriate\nfor determining a rough estimate of future equipment needs. However, a more detailed route-\nby-route analysis of ridership growth that considers existing passenger load factors would\ngenerate a far more precise estimate. In the absence of an overall network strategy, the Fleet\nStrategy adopts several other assumptions (such as no changes in routes, service levels,\nschedules, or frequencies) that, if revisited, could significantly affect fleet and financial\nrequirements. Without a more detailed analysis, the Fleet Strategy may not identify the\nappropriate number and types of equipment needed for growth on each of its routes.\n\nUse of Multi-level Passenger Cars\nThe Fleet Strategy does not fully explore the potential benefits of operating additional multi-\nlevel passenger cars. Both nationally and internationally, multi-level cars are becoming\nincreasingly attractive to passenger rail operators because of their higher capacity and the\nfinancial and operational advantages they offer over single-level cars. Although Amtrak\xe2\x80\x99s\nstrategy acknowledges the potential advantages, it does not include plans to incorporate a\nhigher percentage of multi-level cars into its fleet than currently exists. The strategy\nanticipates potential customer resistance, although our work shows that Amtrak could\nmitigate this resistance. We estimate that if Amtrak were able to replace all of its single-level\ncars with a seat-equivalent number of multi-level cars, the benefits could amount to between\n$174 million and $679 million (depending on the amount of luggage space provided) over\nthe economic life of the equipment.\n\nEquipment Availability\nThe Fleet Strategy may overestimate future fleet requirements because it does not factor in\nthe benefits of higher equipment utilization through improved fleet reliability and\navailability. Amtrak set goals to improve the availability of its fleet in its FY 2010\xe2\x80\x932014\n\x0c 3\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\nA Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nFive-Year Financial Plan. However, it did not account for these availability improvements\nwhen projecting future fleet requirements in the Fleet Strategy. If Amtrak achieves its\navailability targets in the Five-Year Financial Plan, it could reduce its fleet requirements and\ntherefore procurement and overhaul investments by $520 million.3 In addition, if Amtrak\ncould further improve the availability of its equipment to the levels achieved by some of the\nbetter European operators, it could reduce its capital investments by an additional $505\nmillion.\n\nEconomic Useful Life of Amtrak\xe2\x80\x99s Rolling Stock\nAmtrak\xe2\x80\x99s Fleet Strategy does not use a sophisticated model that fully considers financial,\noperational, and strategic factors in determining the economic useful life of its rolling stock.\nThe strategy uses a time-based criterion (age) to plan rolling stock retirements. Based on our\nbenchmarking with European passenger rail operators, we learned that other railroads\ndetermine the best time to replace rolling stock assets using decision processes based on\nfinancial, operational, and strategic factors. Using these factors in their decision models\nresults in European operators keeping their equipment in service considerably longer than\nAmtrak plans in its Fleet Strategy. Especially for passenger coaches, equipment overhauls\xe2\x80\x94\nthat only cost a fraction of the price of a new coach\xe2\x80\x94may be an attractive alternative to\nbuying new coaches. If Amtrak were able to keep its equipment in service, for example, 10\nyears longer than assumed in the Fleet Strategy, it could reduce its capital investment\nrequirements by $1.6 billion over the 30-year-planning period.\n\nPlan for Replacing and Enhancing Acela Express\nAlthough the Acela Express service is one of Amtrak\xe2\x80\x99s main revenue drivers, the Fleet\nStrategy does not provide a clear and well-supported plan for the replacement and\nenhancement of the Acela fleet. The Fleet Strategy identifies factors that Amtrak needs to\nconsider in developing the best option for replacing and enhancing the Acela fleet, but\nrecognizes that Amtrak is still short of sufficient information to make firm decisions. While\nthe strategy identifies two different courses of action that Amtrak could pursue, neither\noption appears to satisfy Amtrak\xe2\x80\x99s expressed desire to meet forecast growth in demand;\nfurther, information to determine whether the equipment purchases would be economical to\nthe taxpayer is insufficient. A clear strategic focus for the Acela service and an operational\nand financial assessment of the alternatives would provide Amtrak the information needed to\nreach an informed decision on the requirements for replacing and expanding the Acela fleet.\n\nFleet Procurement Approach\nAmtrak\xe2\x80\x99s Fleet Strategy plans annual delivery rates of 65 single-level and 35 multi-level cars.\nBased on our research, these quantities appear to be lower than needed for some\n\n3\n The overhaul investments were calculated over each piece of equipment\xe2\x80\x99s economic lifetime. We did not\nevaluate if Amtrak\xe2\x80\x99s targets were realistic nor the impact of potential future funding decreases on their\nachievability.\n\x0c 4\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\nA Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nmanufacturers to most efficiently operate their production lines. In addition, Amtrak\xe2\x80\x99s plan of\nordering relatively small car quantities could prevent it from taking advantage of lower unit\nprices generally associated with larger orders. Taken together, Amtrak\xe2\x80\x99s approach will likely\nlead to higher unit costs. The unit price of Amtrak\xe2\x80\x99s equipment acquisitions will be a major\nfactor in determining Amtrak\xe2\x80\x99s total capital funding requirements over the 30-year planning\nperiod. For example, each 10-percent change in the unit price of cars, locomotives, and train\nsets would have a $1.4-billion impact on the capital-funding requirement for the program.\nAmtrak states that its present approach is intended to provide support for a competitive\nsupplier base, but the Fleet Strategy does not provide sufficient evidence to show that the\nlikely higher unit costs would be offset by the benefits gained.\n\nFleet Planning Process\nParticularly considering the short time period available to meet the congressional deadline,\nAmtrak did a commendable job of developing its Fleet Strategy, and plans to continually\nrefine and update it. Yet the strategy was not developed as part of a systematic process\nintegrated with other strategic plans and activities. Amtrak could improve its fleet planning\nprocess by addressing the opportunities to improve the strategy discussed in this report as\npart of a more systematic and integrated process for preparing future strategy updates.\n\nRecommendations\nThis report contains seven recommendations designed to improve Amtrak\xe2\x80\x99s Fleet Strategy\nand the fleet planning process.\n\nWe briefed Amtrak management on our findings and recommendations on January 11, 2011.\nThese officials stated that they were in the process of revising the Fleet Strategy and would\ntry to incorporate as many of our recommendations as possible into the revision.\n\nManagement Comments and OIG Analysis\nIn commenting on a draft of this our report, Amtrak\xe2\x80\x99s President and CEO stated that\nmanagement agreed with all of our recommendations. He noted that Amtrak addressed some\nof our recommendations in the recently published FY 2011 Fleet Strategy Plan and they\nidentified plans to address the remaining recommendations in future strategy updates. In\naddition, Amtrak will strengthen the fleet strategy planning process by ensuring that future\nplan updates incorporate more precise estimates based on strategic planning activities and\nbusiness processes for the company as a whole and for each line of business. Management\nalso began efforts to recruit a fleet strategy manager who will be responsible for the further\ndevelopment of the fleet strategy process and annual updates of the plan.\n\x0c 5\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\nA Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nManagement\xe2\x80\x99s comments, which are contained in Appendix I, are responsive to our\nrecommendations. Management actions to improve the strategic planning process and recruit\na fleet strategy manager should lead to further improvements in future updates of the plan.\n\x0c Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\nA Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n\n\n\n TABLE OF CONTENTS\n\n Page\n\nEXECUTIVE SUMMARY ............................................................................. 1\n\nBACKGROUND........................................................................................... 6\n\nFINDINGS AND RECOMMENDATIONS .................................................... 8\n\n Rolling Stock Requirements ................................................................... 8\n Multi-level Passenger Cars ..................................................................... 15\n Equipment Availability ............................................................................ 20\n Economic Useful Life of Amtrak\xe2\x80\x99s Rolling Stock ..................................... 25\n Fleet Plan for Acela Express .................................................................. 33\n Rolling Stock Acquisition Approach ........................................................ 40\n Integration of Systematic Fleet Planning Process into\n Amtrak\xe2\x80\x99s Overall Strategy ................................................................. 46\n\n\nAPPENDIXES\n\nAppendix I: Comments from Amtrak\xe2\x80\x99s President and CEO ...................... 51\nAppendix II: Evaluation Methodology ........................................................ 55\nAppendix III: OIG Team ............................................................................... 56\n\x0c 6\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nBACKGROUND\n\nIn FY 2009, the National Railroad Passenger Corporation (Amtrak) carried more than 27 million\npassengers over 21,000 route miles to more than 500 destinations in 46 states, the District of\nColumbia, and 3 Canadian provinces\xe2\x80\x94an average of about 75,000 riders per day on up to 300\ndaily Amtrak trains.\n\nAt the end of FY 2009, Amtrak owned and maintained an active fleet of rolling stock consisting\nof 1,286 passenger cars, 328 locomotives, and 22 train sets (of which 20 are high-speed train\nsets). The fleet\xe2\x80\x99s current replacement value is about $7.5 billion, based on the Fleet Strategy\xe2\x80\x99s\nassumptions on replacement prices.\n\n Age Structure: Cars\n No. of Cars Base: 807 Single-Level and 479 Multi-Level Cars\n by Type\n 412\n 400 Single-Level Cars\n Multi-Level Cars\n 300\n\n 186\n 200\n 144\n 89 105\n 100 75 63 79\n 50 41\n 29\n 5 0 0 8 0 0 0\n 0 Age\n >50 36-50 31-35 26-30 21-25 16-20 11-15 6-10 0-5 [yrs.]\n\n\n\n Age Structure: Locomotives\n No. of Locos Base: 264 Diesel and 64 Electric Locomotives\n by Type\n 200 184\n Diesel Locomotives\n Electric Locomotives\n 150\n\n\n 100\n 62\n 50 41\n 18 14\n 8 1\n 0 0 0 0 0 0 0\n 0 Age\n >30 26-30 21-25 16-20 11-15 6-10 0-5 [yrs.]\n Fleetdata_Rob_Edgcumbe_Nico.xls/Current_age\n Source: Amtrak Fleet Strategy\n\n\n\n\nMost passenger cars were procured in the 1970s to mid 1990s (see above figures).4 Amtrak\nprocured most of the electric locomotives (AEM-7) in the early 1980s while most of the diesel\nlocomotives were procured relatively recently; the last locomotive was delivered in 2001.\n\n\n\n\n4\n Does not include the Acela Express train sets delivered 1999\xe2\x80\x932000.\n\x0c 7\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nIn 2010, Amtrak signed two contracts to order new equipment. In July 2010, it awarded CAF-\nUSA a contract to manufacture 130 single-level cars to replace and supplement Amtrak\xe2\x80\x99s fleet\nfor its long-distance routes.5 In October 2010, Amtrak awarded an equipment order to Siemens\nfor 70 electric locomotives for the Northeast Corridor (NEC).\n\n\n\n\n5\n Similar to the Viewliner model, the cars include 25 sleeping cars, 25 diners, 55 baggage cars, and 25\nbaggage/dormitory cars.\n\x0c 8\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n FINDINGS AND RECOMMENDATIONS\n\nROLLING STOCK REQUIREMENTS\n\nFleet Strategy Uses High-level Assumptions That May Not be Precise\nEnough to Project Future Rolling Stock Demand and Financial\nResources Needed to Meet Demand\nThe Fleet Strategy assumes a projected average annual growth rate of 2 percent in passenger car\nfleets on all of its routes to determine Amtrak\xe2\x80\x99s future needs for rolling stock. This approach is a\nreasonable first step and may be appropriate for developing a rough estimate of future equipment\nneeds. However, to generate a more precise estimate, Amtrak needs to conduct a more detailed,\nroute-by-route analysis of ridership growth. That analysis also needs to consider the existing\nridership load on each route because current load factors have a significant influence on future\nequipment requirements. The strategy assumed few, if any, changes to routes, train frequencies,\nor the make-up of train sets. These operational assumptions also significantly affect fleet\nrequirements and need to be analyzed. Without a much more detailed analysis of route-by-route\noperations and alternatives to meeting ridership growth, the Fleet Strategy may not identify the\nappropriate numbers and types of equipment needed for growth on each of its routes. A more\ndetailed analysis could lead to significantly different projections in fleet and financial\nrequirements than those identified to date in the Fleet Strategy.\n\nTwo-Percent-Growth Rate is Less than Amtrak\xe2\x80\x99s Route-Specific Demand\nProjections; Could Have Significant Impact on Fleet Requirements\nRidership demand is the primary factor that determines fleet requirements. Each route has its\nindividual characteristics (population density and growth, household income, alternative\ntransportation modes, etc.) that determine current and future demand. The travel demand patterns\nfor each individual existing and new route needs to be considered when estimating fleet\nrequirements.\n\nTo account for the uncertainty associated with future ridership and revenue, standard practice\nsimulation models should be performed that represent the worst case, best case, and likely case\nscenarios to assess different values of internal and external parameters influencing ridership\ndemand (economic growth, income, gas prices, etc.). To illustrate, gas price changes have a\nsignificant impact on Amtrak\xe2\x80\x99s ridership: the average gas price in 2008 was $3.47 per gallon\nand, according to Amtrak, accounted for 1.45 million additional riders on Amtrak\xe2\x80\x99s system\xe2\x80\x94\n\x0c 9\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\ncompared with 2007 when the average gas price was $2.66 per gallon.6 Analyzing various\nscenarios enables management to understand the effects of possible changes in these factors and\nprepare for their consequences. Without reliable ridership demand forecasts, fleet requirement\npredictions may not be accurate.\n\nAmtrak\xe2\x80\x99s Fleet Strategy and its draft implementation plan acknowledge that a detailed analysis is\nrequired to more accurately estimate long-term fleet requirements. As part of the process of\ndeveloping the Fleet Strategy, Amtrak prepared route-by-route ridership projections. The figure\nbelow illustrates the projected average growth in ridership demand from 2010 to 2018 for each\nof its existing train routes, along with averages for each line of business and the overall total.7\n\n Forecasted Route by Route Ridership Growth Rates\n Annual Averages from 2010 to 2018\n\n Total Amtrak\n Avg. 2.5%\n 5%\n NEC Short Distance Long Distance\n Avg. 2.2% Avg. 2.9% Avg. 1.6%\n 4%\n\n\n\n 3%\n\n\n\n 2%\n\n\n\n 1%\n\n\n\n 0%\n Hi a oui s\n af\n\n\n\n\n y-S at e\n ni\n ela\n\n\n\n\n er\n\n\n ols\n -St ce\n\n\n\n\n P ie ia n\n\n\n\n\n le\n\n\n\n\n nt\n Me l\n\n\n\n\n ief\n\n\n\n\n Cr e t o\n M a nte r\n\n\n\n\n yr\n\n\n\n\n e B or\n\n\n\n\n y o west yr\n es\n\n\n\n\n d\n s\n l\n\n\n\n\n e S ice\n\n\n\n\n Blu dac k\n\n\n\n\n t\n\n\n\n\n Lim t\n d\n W o thas\n\n\n\n\n ins\n\n\n\n\n ws\n\n\n\n\n d\n n\n Ke S prin er\n\n\n\n\n e\n s\n\n\n\n\n eld\n\n\n\n\n t er\n\n\n\n\n tar\n\n\n\n\n ns\n uis\n Su er\n\n\n\n\n r\n a\n na\n\n\n\n\n on\n\n\n\n\n h\n de\n res\n\n\n\n\n de\n\n\n\n\n i te\n ite\n\n\n\n\n i te\n ett\n n ia\n\n\n\n\n ag\n Il li\n\n\n\n\n Si lv ardi n\n Le\n\n\n\n\n ph\n\n\n rfl in\n st\n\n\n\n\n sc e\n uth Z eph\n\n\n\n\n et\n ly\n\n\n\n\n te\n\n\n\n\n rlig\n rin\n i\n\n\n\n\n l ea\n Ch\n H o t Ne\n e rv\n erv\n\n\n\n\n pit\n\n\n\n\n Wa\n qu\n\n\n\n\n . Lo\n\n\n\n\n rS\n Ac\n\n\n\n\n g fi\n gio\n\n\n\n\n t\n\n\n\n\n n\n dm\n\n\n\n\n uil\n s ca\n dF\n ea\n\n\n\n\n Lim\n\n\n\n\n L im\n S\n .L\n\n\n\n\n lm\n o\n\n\n\n\n r qu\n\n\n\n\n sE\n xp\n\n\n\n\n roli\n wa\n\n\n\n\n va\n Ze\n\n\n\n\n n\n pl e\n\n\n\n\n lve\n\n\n\n\n Or\n\n\n\n\n Sta\n Ca\n rm\n\n\n\n\n oa\n\n\n\n\n ve\n ier\n eS\n\n\n\n\n t\n iro\n Re\n\n\n\n\n wn\n\n\n\n\n Pa\n nE\n\n\n\n\n syl\n Ca\n\n\n\n\n e\n\n\n\n\n C\n or\n lan\n\n\n\n\n xa\n Ma\n Ca\n\n\n\n\n er\n\n\n\n\n a\n ois\n\n\n\n\n nJ\n\n\n\n\n or e\n Ve\n\n\n\n\n Sil\n\n\n\n\n ol\n\n\n\n\n et\n os\n\n\n\n\n ew\n Ad\n go\n\n\n\n\n rn i\n wp\n\n\n\n\n p ir\n on\n pir\n\n\n\n\n ic\n Do\n\n\n\n\n t\n nn\n\n\n\n\n Te\n l le\n\n\n\n\n p it\n Ci t\n\n\n\n\n as\n a rt\n\n\n\n\n ns\n Ill in\n\n\n\n cif\n\n\n\n\n Sa\n\n\n\n\n re\n i ca\n\n\n\n\n Sh\n fN\n n-\n\n\n\n\n l ifo\n y st\n Em\n\n\n\n\n Em\n Pe\n Ne\n A\n\n\n\n\n Co\n Ca\n\n\n\n\n Su\n e\n\n\n\n\n He\n Pa\n\n\n\n\n Pe\n as\n\n\n\n\n So\n Th\n\n\n\n\n Ch\n an\n\n\n\n\n ve\n\n\n\n\n Ca\n\n\n\n\n ke\n rk -\n\n\n ns\n Ha\n Eth\n\n\n\n\n La\n Ci t\n Yo\n\n\n Ka\n w\n\n\n\n\n w\n Ne\n\n\n\n\n Incremental LD Equip FY18 FY23 V5 (2).xls/Forecasted Ridership\n Ne\n\n\n\n\n Source: Fleet Strategy Route Specific Ridership Demand Forecast\n\n\n\n\nAccording to the Fleet Strategy, Amtrak was working on a comprehensive route analysis to\nproject future ridership demand. However, to complete the Fleet Strategy in time to include it\nwith the FY 2011 Grant and Legislative Request, Amtrak chose to project future fleet\nrequirements based on a flat 2-percent-per-year growth of its total car fleet.\n\n\n\n6\n The cross-gas-price elasticity (indicates how much ridership demand changes because of gas price changes) of\nAmtrak train ridership demand in that period was 0.18 percent, which confirms other research projects, such as The\nImpact of Rising Gasoline Prices on U.S. Public Transit Ridership, Christopher Blanchard, Duke University,\nDurham, N.C., 2009. See also The Effects of Rising Gas Prices on Transit Ridership, Jeremy Mattson, Small Urban\nand Rural Transit Center of Upper Great Plains Transportation Institute at North Dakota State University, Fargo,\nN.D.\n7\n Based on data used in the Amtrak Fleet Strategy, Attachment 1. These forecasts are not consistent with forecast\ndata used for Acela Express in the Fleet Strategy, Table 8, p. 42.\n\x0c 10\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nExisting and Optimal Load Factors for Each Route and Service Need to be\nConsidered when Planning Future Rolling Stock Needs\nAlthough 2 percent annual growth rate appears to be a conservative assumption compared with\nAmtrak\xe2\x80\x99s overall growth projection of 2.5 percent until 2018, it does not take into account actual\npassenger loads\xe2\x80\x94an important factor in determining when additional equipment will be needed.\n\nThe load factor is a measure of how much of the available seat capacity is being used by\npassengers and is defined as the number of passenger-miles traveled as a percentage of the total\nseat-miles available. Services currently having low load factors might accommodate future\ndemand growth without adding any cars or trains. Services currently having high load factors\nmight require immediate capacity adjustments to accommodate existing demand and the\nprojected growth. Therefore, considering the current and optimal load factors is of central\nimportance within the fleet planning process.\n\nFor example, we compared existing route-specific load factors to the 2-percent-flat-rate growth\nof the car fleet to determine the impact on requirements. The comparison assumed that ridership\ndemand (in passenger miles) increases at a 2-percent annual rate, and that an additional car is\nadded to the consist8 as soon as an average load factor of 60 percent is reached.9\n\nThe financial impact of over-planning and under-planning10 on six selected routes that we\nanalyzed is significant, as shown in the following figure. For four routes, with a lower average\nexisting load factor, the Fleet Strategy over-plans by more than 100 cars\xe2\x80\x94a purchasing value of\nmore than $350 million. Conversely, for the two routes with a higher average existing load\nfactor, the effect of under-planning is about ten cars ($35 million).\n\n\n\n\n8\n Consist: The makeup or composition of a train of cars, their number and specific identity.\n9\n For this analysis, we used a 60 percent average load factor as an indicator of a capacity-constrained condition.\n10\n As used here, over-planning means that the strategy\xe2\x80\x99s approach plans for more seat capacity than needed for meet\ndemand. Accordingly, under-planning means that Amtrak plans for less capacity than needed to meet demand.\n\x0c 11\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Comparison Flat-Rate Growth vs. Individual Average Load Factor (ALF) -specific Growth\n Examples from Short Distance Routes, FY 2009-2040\n Examples: Over-planning Examples: Under-planning\n Cars PACIFIC\n per SAN JOAQUINS KEYSTONE SURFLINER CAPITOLS PENNSYLVANIAN CAROLINIAN\n Train\n ALF: ALF:\n 14 ALF: ALF: ALF: ALF:\n 73% 75%\n 37% 36% 32% 27%\n 12.0\n 12\n 10.9\n\n 10 9.4\n 9.0 8.9 9.1\n Cars per train in\n 8 current consist\n 6.8\n 5.8 6.0\n 6 5.2 5.2 Cars per train in\n 5.0 4.9 5.0\n 2040 with 2%\n 4.2\n 3.7 3.7 annual growth\n 4 3.2\n Cars per train\n 2 with ALF-\n specific growth*\n\n 0\n LoadFactor_Analysis_RPS-08-Stats_SD_FY09_60%.xls/LF_Calc\n Deviation: 1.6 Deviation: 3.0 Deviation: 4.2 Deviation: 3.0 Deviation: -2.0 Deviation: -2.9\n X X X X X X\n 7 train sets= 8 train sets= 10 train sets= 8 train sets= A car is added 2 train sets= 2 train sets=\n 11 cars 24 cars 42 cars 24 cars to the train -4 cars -6 cars\n over-planned over-planned over-planned over-planned consist as soon under-planned under-planned\n as an ALF of\n ~$38.5 mil** ~$84 mil** ~$147 mil** ~$84 mil** 60% is reached ~$-14 mil** ~$-21 mil**\n\n * Assumed 2% growth in ridership demand (=passenger miles) Values rounded\n ** Assumed avg. price per car = $3.5 million\n ALF: Average Load Factor\n Source: RPS report RPS-08-Stats for FY 2009, Amtrak National Consist Book\n 27\n\n\n\nAssuming that over-planning and under-planning will balance out and that consequently the 2-\npercent growth rate will provide a reasonable estimate of equipment needs may not be valid.\nSpecifically, the following figure shows that existing average load factors are below an assumed\nconstraint-level of 60 percent for 30 of Amtrak routes. These routes provided 77 percent of all\nseat miles travelled in FY 2009. In other words, only 23 percent of the FY 2009-provided seat\nmiles were on routes that are currently capacity-constrained. Using the 2-percent-flat-rate growth\nassumption on the routes that are not capacity-constrained could lead to over-estimating\nequipment needs, potentially increasing costs by hundreds of millions of dollars.\n\x0c 12\n Amtrak Office\n e of Inspecto\n or General\n Evaluatio\n on of Amtraak\xe2\x80\x99s FY 2010 0 Fleet Stra\n ategy:\n A Com\n mmendable\n e High-Leve\n el Plan That Needs Dee eper Analys sis and Plan\n nning Integrration\n Reeport No. E--11-2, March\n h 31, 2011\n\n Average Load Fa\n actors (ALF) FY 2009\n 2\n Average -All Amtrak Services-\n Loa\n ad Factor % Seat Miles (1,000)\n Potentially Over-Plann\n P ning: ALF: Po\n otentially Under-Plann\n ning:\n ~\n ~77% of Total Seat Miles\n M < 60% ~23% of Total Seat Milles\n 80\n 0% 2,500\n Se\n elected \xe2\x80\x9cConstraint\xe2\x80\x9d-\n Load Factorr C\n Criterion: 60% ALF\n Seat Miles (1,000)\n (\n 2,000\n 60\n 0%\n\n\n 1,500\n\n 40\n 0%\n Av\n verage Total Amtrak: 1,000\n 50% Load Factor\n\n 20\n 0%\n 500\n\n\n\n 0\n 0% 0\n H e -S t.L r\n\n\n\n\n Blu dack\n Cr e in i\n\n\n\n\n a\n\n\n\n\n t\n Hia l len\n n J ton e\n\n\n\n\n t\n\n\n\n\n Ad Train\n prin yer\n\n\n\n\n sE r\n\n\n\n\n we St ar\n\n\n\n\n Lim r\n Wo a gl e\n\n\n\n\n n\n l\n es\n osi rvic e\n\n\n\n\n o\n\n\n\n\n or\n s\n Ke ate\n\n\n\n\n rm n t\n\n\n Ch ois Z al\n\n\n\n\n e B ed\n\n\n\n\n Sta ie f\n\n\n y o ver M ed\n y-S in s\n s\n\n\n s\n\n\n\n\n dF s\n\n\n\n\n syl t te\n Ca n ian\n r\n\n\n\n\n P a eld\n\n\n\n\n S o S ilve er\n\n\n\n\n Ma ited\n ow itols\n\n\n\n\n o\n ic S st er\n\n\n\n\n ter\n\n\n\n\n Au eans\n s\n ina\n cen\n hy\n\n\n\n\n ore rligh\n\n\n\n\n a te\n Te ephy\n pir rfl ine\n\n\n\n\n Eth L oui\n\n\n\n\n i\n\n\n\n\n de\n tha\n\n\n\n\n c el\n e tt\n\n\n\n\n ew\n\n\n\n\n inia\n rni ront\n ou\n n\n\n\n\n\n d\n\n\n\n\n ete\n o\n\n\n\n\n rin\n Ill\n\n\n\n\n S il Limi t\n Ch\n it\n\n\n\n\n e\n qu\n\n\n\n\n on\n\n\n\n\n gfi\n Ill in egi o\n St\n\n\n\n\n ep\n\n\n\n l\n\n\n\n\n ui l\n dm\n A\n\n\n\n\n sca\n a rd\n\n\n\n\n Em t L im\n\n\n\n\n eW\n a\n\n\n\n\n A\n lm\n p\n\n\n\n\n rqu\n Su ort N\n\n\n\n\n va\n s\n wa\n ys\n\n\n\n\n n\n r\n\n\n\n\n r ol\n e\n\n\n\n\n l ve\n\n\n\n\n l\n ne\n\n\n\n\n t.\n\n\n\n\n Or\n Ca\n\n\n\n\n o\n oa\n\n\n an\n\n\n\n\n aZ\n\n\n\n\n to\n st\n\n\n\n\n iro\n er\n u\n eS\n\n\n\n\n Pie\n\n\n\n\n C a l ls-T\n\n\n\n\n Ca\n Ha rtla n\n\n\n\n\n C\n xa\n R\n Ve\n\n\n\n\n ol\n ew\n go\n\n\n\n\n e\n pir\n\n\n\n\n L a oa st\n wp\n\n\n\n\n nn\n n- S\n st\n\n\n\n\n p it\n ns\n Cit\n eD\n\n\n\n\n uth\n Ho\n\n\n Sa\n c if\n\n\n\n\n Fa\n\n\n\n\n re\n ea\n\n\n ica\n\n\n\n\n Sh\n li fo\n\n\n\n\n fN\n a\n Em\n\n\n\n\n Pe\n -Ne\n\n\n\n\n Ca\n ve\n Pa\n\n\n\n\n Pe\n C\n as\n\n\n\n\n rth\n Th\n\n\n\n\n ara\n\n\n\n\n ke\n ns\n\n\n\n\n t on\n No\n\n\n\n\n i ag\n\n\n\n\n Cit\n Ka\n\n\n\n\n w\n\n\n\n\n ing\n y -N\n Ne\n\n\n\n\n sh Loadfactors_all_Routes_FY0\n 09.xls/sorted\n Source: Route Performancce Report, Year-to-Date, Sep\n ptember 2009,\n an\n\n\n\n\n Wa\n Alb\n\n\n\n\n November 4th 2009\n : Short Disstance Routes : Long Distance Routes : North East Corrridor (NEC)\n\n\n\n\nAssump ption that Additional\n A l Cars Can be Added\n d to Existing Trains M\n May Not be\nRealistiic, Given Train\n T Config\n guration Requiremen\n R nts\nOperation nal considerrations relateed to the typees of equipm\n ment needed to provide ooptimal serviice\non indiviidual routes can\n c also affeect fleet requ uirements. TTrains can bee made up off a combinatiion\nof coach,, sleeper, caff\xc3\xa9, diner, lou\n unge, and baggage cars. T To accommoodate futuree demand, ceertain\nconsist reequirements and restrictiions may occcur that needd to be consiidered whenn planning a\nroute-speecific expanssion of capaccity.\n\n owing illustration shows a typical co\nThe follo onsist of the C\n Capitol Lim\n mited:\n\x0c 13\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nIn FY 2009, the Capitol Limited service had an average load factor of 69 percent\xe2\x80\x94the highest\naverage load factor of any long-distance Amtrak train.11 Expanding capacity by adding one or\nmore cars raises various issues that Amtrak has not addressed in its Fleet Strategy, among them:\n \xef\x82\xb7 Are there operational or infrastructure-related constraints that would prohibit running a\n longer train?\n \xef\x82\xb7 Would the power of two locomotives still be sufficient to pull the train without\n significantly affecting travel time?\n \xef\x82\xb7 Would one diner car have sufficient capacity to serve all passengers?\n \xef\x82\xb7 Would the baggage capacity be sufficient?\n \xef\x82\xb7 How would the overall financial performance change?\n\nAmtrak\xe2\x80\x99s proposal to add more coaches or sleepers to existing trains without considering all of\nthese issues could lead to suboptimal estimates.\n\nAssumption of No Locomotive Growth May be Unrealistic\nRequirements for locomotives need to be based on projected train consists and schedules.\nPlanning for additional seat capacity also means potentially adding locomotives if additional\ntrains are run or longer (heavier) trains need additional propulsion power.\n\nBased on the 2-percent annual growth in Amtrak\xe2\x80\x99s car fleet and the assumptions discussed, the\nFleet Strategy projects a need for an increase in the single-car fleet from 807 cars in 2009 to\n1,433 in 2040\xe2\x80\x94a 78-percent growth over the 30-year planning period. Similarly, the strategy\nprojects that the need for multi-level cars will increase from 479 to 851 over that same 30-year\nperiod. The strategy projects no need for an increase in diesel locomotives, which remain at the\ncurrent level of 264, and only a relatively small increase in electric locomotives, from 64 to 70.\n\nBased on the growth rate assumptions used in the Fleet Strategy, we would expect a demand for\nmore locomotives, given that the number of cars is increasing significantly. The current ratio of\ncars per locomotive is 3.9; this would grow to 6.8 in 2040. Without a detailed analysis of power\nrequirements, the danger exists that Amtrak could end up short of locomotives.\n\n\nConclusion\n\nAmtrak\xe2\x80\x99s Fleet Strategy is a reasonable first step and may be appropriate for determining a rough\nestimate of future needs for rolling stock. Without a detailed analysis of the assumptions, Amtrak\nmay not have the information needed to ensure that it is procuring the appropriate numbers and\ntypes of rolling stock required on each of its routes. A more detailed analysis of assumptions\n\n\n11\n Amtrak Monthly Performance Report for September 2009.\n\x0c 14\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\ncould lead to significantly different projections in fleet and financial requirements than those\nidentified in the Fleet Strategy.\n\n\nRecommendation\n\nWe recommend that the President and CEO ensure that future strategy updates include a more\ndetailed process to determine future rolling stock requirements. Specifically, this would include:\n \xef\x82\xb7 route-specific ridership demand forecasts incorporating service extensions and new\n services, in addition to existing service;\n \xef\x82\xb7 the identification of external factors that significantly influence ridership demand,\n sensitivity analyses to measure their impact, and alternative strategies to accommodate\n potential changes in demand;\n \xef\x82\xb7 equipment-type-specific load factors (for example, sleeper v. coach cars);\n \xef\x82\xb7 the consideration of possible consist alternatives and changes in train frequencies; and\n \xef\x82\xb7 an analysis of the locomotive requirements needed to support future car fleet\n requirements.\n\n\nManagement Comments and OIG Analysis\n\nManagement responded as follows:\n\n \xe2\x80\x9cManagement agrees with the recommendation. Amtrak has taken a conservative position\n regarding the growth assumptions in assuming 2-percent growth per annum. We\n acknowledge that a more detailed growth model delivers more precise forecasts. In fact,\n Amtrak already has detailed studies of potential ridership demand by route and these are\n regularly updated. As the Fleet Strategy Plan evolves and is updated, we will bring those\n into the assumptions to refine the need.\xe2\x80\x9d\n\nWe consider management\xe2\x80\x99s comments to be responsive to our recommendation.\n\x0c 15\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nMULTI-LEVEL PASSENGER CARS\n\nFleet Strategy Does Not Fully Explore Benefits of Operating\nAdditional Multi-level Passenger Cars\n\nBoth nationally and internationally, multi-level passenger cars are becoming increasingly\nattractive to passenger rail operators because of their higher capacity and the financial and\noperational advantages they offer over single-level cars. Although Amtrak\xe2\x80\x99s Fleet Strategy\nacknowledges the potential advantages, it does not incorporate a higher percentage of multi-level\ncars into its fleet than currently exists. While the Fleet Strategy expects potential customer\nresistance to the increased use of multi-level cars, our work shows that Amtrak could mitigate\nthis resistance.12 We estimate that if Amtrak replaced all of its single-level cars with a seat-\nequivalent number of multi-level cars, the benefits could amount to between $174 million and\n$679 million (depending on the amount of luggage space provided) over the economic life of the\nequipment.\n\nOther Passenger Rail Operators are Expanding their Use of Multi-level Passenger\nCars\nMany passenger rail operators, both domestic and foreign, have recently placed orders for\nsignificant numbers of multi-level passenger cars, including the following:\n \xef\x82\xb7 New Jersey Transit in July 2010 approved an order from manufacturer Bombardier for\n 100 double-deck commuter cars.\n \xef\x82\xb7 In 2009, the German railroad company Deutsche Bahn and manufacturer Bombardier\n signed a contract for 800 multi-level cars to add to the 2,000 multi-level cars they already\n operate.\n \xef\x82\xb7 From 2008 to 2010, the Swiss railroad SBB ordered 74 multi-level EMU13 train sets,\n consisting of close to 400 multi-level cars, from Stadler Rail AG.\n\nMulti-level Cars Provide More Seat Capacity at Lower Cost\nMany financial and operational benefits are associated with operating multi-level cars because\nthey typically provide significantly more seats than a single-level car. If a multi-level car\ncontains 33 percent more seats than a comparable single-level car, then three multi-level coach\ncars can carry the equivalent number of passengers as four single-level coach cars. Reducing the\nnumber of cars needed provides many benefits:\n \xef\x82\xb7 Lower procurement costs: Using the cost estimates from Amtrak\xe2\x80\x99s Fleet Strategy, four\n single-level cars will cost $14 million, versus three multi-level cars costing $13.5 million.\n\n\n12\n In some cases, Amtrak\xe2\x80\x99s state partners have shown resistance toward the use of multi-level cars. For these state\nservices, Amtrak may not be the ultimate decision-maker.\n13\n EMU: electric multiple unit\xe2\x80\x94train consisting of self-propelled coaches, using electricity as the propulsion power.\n\x0c 16\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n \xef\x82\xb7 Lower maintenance costs: The maintenance cost for four single-level cars will be higher\n than for three multi-level cars. Although maintenance of seats and flooring will be\n comparable, three multi-level cars have 33 percent fewer trucks, wheels, and HVAC14\n systems requiring maintenance than four single-level cars.\n \xef\x82\xb7 Lower infrastructure costs: A train made up of single-level cars will require longer\n platforms and station track space than one with multi-level cars. This could require more\n capital investment to upgrade infrastructure to adapt to longer trains. In addition, using\n trains with multi-level cars could prevent or at least delay investments in rail\n infrastructure to enhance track capacity.\n \xef\x82\xb7 Lower operating costs: Three multi-level cars are lighter than four single-level cars\n because they have fewer trucks, wheels, and HVAC systems; therefore, they require less\n locomotive power, reducing energy costs.\n\nFrom a strategic point of view, if multi-level cars can meet Amtrak\xe2\x80\x99s needs, it makes sense to\nemploy as many multi-level cars as possible.\n\nDespite the potential financial and operational benefits, Amtrak\xe2\x80\x99s Fleet Strategy does not take\nadvantage of the opportunity to replace its single-car fleet with multi-level cars. Rather, Amtrak\nplans to replace its car fleet one for one\xe2\x80\x94both single-level and multi-level cars.\n\nAmtrak Could Mitigate Operational Barriers to the Increased Use of Multi-level\nCars\nDuring our interviews, we were told that multi-level cars may not be considered feasible for\nAmtrak because of the following:\n \xef\x82\xb7 Clearance envelope restrictions in the Northeast Corridor (NEC) tunnels do not allow\n Amtrak to operate its current multi-level cars.\n \xef\x82\xb7 Multi-level cars in service by commuter railroads do not offer sufficient and convenient\n passenger luggage space.\n \xef\x82\xb7 Passenger movements in multi-level cars are more difficult because of climbing and\n descending stairs.\n \xef\x82\xb7 Trains with multi-level cars may require longer trip times due to potentially slower\n speeds and longer dwell times.\n\n\n\n\n14\n Heating, ventilation, and air conditioning.\n\x0c 17\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nAs part of our review of the Fleet Strategy, we contracted with LTK, an experienced\ntransportation engineering and consulting company, to evaluate the feasibility and practicability\nof using multi-level coaches in the NEC.15 We assumed that the NEC is the most restrictive route\nfor the use of multi-level cars; therefore, if the concerns could be resolved for the NEC, they\nwould also be resolved on other Amtrak routes.\n\nLTK\xe2\x80\x99s assessment covered various areas critical to running multi-level cars on the NEC, such as\n \xef\x82\xb7 dynamic clearance envelope restrictions;\n \xef\x82\xb7 existing Amtrak service standards (seating, legroom, luggage storage, aisle widths,\n ADA16 accommodations, food service, passenger environmental conditions, etc.);\n \xef\x82\xb7 relative impact of multi-level cars on running time, power usage, and locomotive power\n requirements; and\n \xef\x82\xb7 potential seat capacity gains.\n\nLTK\xe2\x80\x99s evaluation found that existing multi-level cars, such as those operated by New Jersey\nTransit and the Atlantic City Express Service (ACES),17 could operate on Amtrak routes in the\nNEC with no major structural modifications and still provide approximately 33 percent more\nseats per car.\n\nAmtrak Could Reduce its Capital Investments by Using More Multi-level Cars\nThe financial benefit of procuring multi-level coach and business class cars instead of single-\nlevel cars is substantial. Specifically, if Amtrak replaced all single-level cars with multi-level\ncars providing the same amount of seat capacity, Amtrak could reduce its capital investments by\n \xef\x82\xb7 up to $174 million if the multi-level cars provided the equivalent luggage space per\n passenger currently provided on Amfleet cars, or\n \xef\x82\xb7 up to $679 million if the multi-level cars offered equivalent luggage space per passenger\n as currently provided on ACES trains.18\n\nThe following figure illustrates how Amtrak could realize the financial benefits of multi-level\ncars by replacing single-level cars at various substitution rates.\n\n\n\n\n15\n LTK Engineering Services: AMTRAK NEC NORTHEAST REGIONAL, Alternate Passenger Coach Study,\nSeptember 28, 2010.\n16\n Americans with Disabilities Act.\n17\n ACES trains run between New York City and Atlantic City and are operated by New Jersey Transit.\n18\n Amtrak currently does not have a set standard for luggage space per passenger. Instead, we used the luggage space\ncurrently provided by Amfleet I and ACES cars. For details, see the LTK report.\n\x0c 18\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Potential Reductions in Capital Investments*\n Multi-Level vs. Single-Level Coach Cars\n [$ million] with Different Luggage Space Options\n 700 679\n Based on ACES\n Luggage\n 600 Space/Passenger\n 543\n\n 500\n Based on Amtrak\n Amfleet I Luggage 407\n 400 Space/Passenger\n\n\n 300 272\n\n\n 200 174\n 136 139\n 105\n 100 70\n 35\n\n 0\n 20% 40% 60% 80% 100%\n Route_Single_BiLevel.xls/Effect\n\n Rate of Substitution of Single-Level Cars with Multi-Level Cars\n\n Luggage Space per Passenger:\n Amtrak NEC Amfleet I Single-Level Car: 7.11 (8.01) sqft per coach (business) passenger\n ACES Multi-Level Car: 2.95 sqft per passenger\n ACES: Atlantic City Express Service\n\n * Investments in procurement and overhauls over each piece of equipment\xe2\x80\x99s economic life\n Source: OIG calculation based on LTK report\n\n\n\n\nAlthough not included in the figure above, we estimate that Amtrak could achieve additional\nsavings through reduced maintenance, infrastructure, and operating costs. For example, LTK\ncalculated the difference in energy consumption on selected NEC Regional trains if Amtrak\nreconfigured the trains with multi-level cars. This calculation showed that NEC Regional trains\nequipped with multi-level cars could be 11 percent to 13 percent more energy efficient on a\nkilowatt-hour-per-seat basis. Given that Amtrak spent about $35 million in 2007 on electric\ntraction power for NEC Regional trains, the energy savings attributable to a conversion to multi-\nlevel cars could be significant and would also support one of Amtrak\xe2\x80\x99s strategic goals\xe2\x80\x94to\nincrease energy efficiency.\n\n\nConclusion\n\nUsing a higher percentage of multi-level cars in its fleet could provide Amtrak with more seat\ncapacity at lower cost. Not only would a greater use of multi-level cars reduce the capital\ninvestments required, but their increased use would also support Amtrak\xe2\x80\x99s goals of improved\nfinancial performance and energy efficiency.\n\x0c 19\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nRecommendation\n\nWe recommend that the President and CEO ensure that future strategy updates consider\nincreasing the use of multi-level passenger coaches wherever practical and feasible.\n\n\nManagement Comments and OIG Analysis\n\nManagement responded as follows:\n\n \xe2\x80\x9cManagement agrees with the recommendation. The 2010 Fleet Strategy Plan identified\n the need to investigate greater use of multi-level equipment to replace existing single\n level cars. The FY 2011 version of the Fleet Strategy Plan has taken this topic further\n discussing bi-level cars for use in state supported services contingent on the agreement\n with the states that financially support those services. The OIG report also discussed\n introduction of multi-level cars on NEC services. This was also specifically addressed in\n the FY 2011 version of the Fleet Strategy Plan. Amtrak has significant concerns about\n introducing this type of equipment on these services. These concerns and options will be\n analyzed by the new fleet strategy manager with written findings developed no later than\n December 31, 2011.\xe2\x80\x9d\n\nWe consider management\xe2\x80\x99s comments to be responsive to our recommendation.\n\x0c 20\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nEQUIPMENT AVAILABILITY\n\nAmtrak\xe2\x80\x99s Fleet Strategy May Overestimate Future Fleet Requirements\nbecause it Does Not Factor in Benefits of Higher Equipment\nUtilization through Improved Reliability and Availability\n\nAmtrak set goals to improve the availability of its fleet in its FY 2010\xe2\x80\x932014 Five-Year Financial\nPlan. However, it did not account for these availability improvements when projecting the future\nfleet requirements in the Fleet Strategy. If Amtrak achieves its availability targets in the Five-\nYear Financial Plan, it could reduce its fleet requirements and therefore procurement and\noverhaul investments19 by $520 million. In addition, if Amtrak improved availability of its\nequipment to the levels achieved by some of the better European operators, it could almost\ndouble that total savings.\n\nAmtrak Has Made Progress in the Past 5 Years in Improving Fleet Availability\nThe total amount of equipment required for Amtrak\xe2\x80\x99s operations is determined by adding the\nnumber of cars and locomotives needed to provide service plus an extra number of each type of\ncar and locomotive to account for those that are expected to be out of service for maintenance\nreasons. Consequently, Amtrak\xe2\x80\x99s overall fleet size requirement is partly determined by the\nreliability and availability of its equipment.\n\nFor FY 2009, Amtrak planned that about 83 percent of its active car and locomotive fleet would\nbe available for service at peak times, with the rest in workshops for preventive maintenance,\nrepair, or overhaul work, as shown in the figure below.\n\n\n\n\n19\n The overhaul investments were calculated over each piece of equipment\xe2\x80\x99s economic lifetime. We did not evaluate\nif Amtrak\xe2\x80\x99s targets were realistic nor the impact of potential future funding decreases on their achievability.\n\x0c 21\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Planned Availability of Amtrak\xe2\x80\x99s Active Fleet\n\n\n Planned Availability: Cars Planned Availability: Locomotives\n 1,400 350\n\n 229 58\n 1,200 300\n\n\n 1,000 250\n\n Availability: Availability:\n 800 200\n 83.2% 82.6%\n 1,360 334\n 600 150\n 1,131 276\n\n 400 100\n\n\n 200 50\n\n\n 0 0\n Active Fleet PM*, Repairs, Available for Service Active Fleet PM*, Repairs, Available for Service\n Overhauls Overhauls\n Amtrak_Fleet_Planned_Availability.xls/Def.Avail Amtrak_Fleet_Planned_Availability.xls/Def.Avail\n\n\n\n Comment: Acela Express not included *PM: Preventive Maintenance Source: System Fleet Plan FY 2009, Version 5/16/2009\n\n\n\n\nThis planned availability is determined based on information from Amtrak\xe2\x80\x99s Mechanical\nDepartment on the number of each type of equipment it expects to be unavailable for service due\nto planned and unplanned maintenance requirements. Unplanned maintenance requirements are\nnormally based on historical equipment reliability and performance data. For example, HHP-8\nlocomotives have been historically unreliable; therefore, only 64 percent of the fleet is planned\nfor service on any given day. The planned availability in FY 2009 for each type of car and\nlocomotive varies from 64 percent to 100 percent, as shown below.\n\n Planned Availability for Amtrak\xe2\x80\x99s Rolling Stock, FY 2009\n No. of\n Equipment in Planned\n Active Fleet Availability\n 400 100%\n 100%\n\n 89% 89%\n 88% 87%\n 85% 83% 83% 83% 86% 80%\n 300 82% 81% 81% 81% 81% 80% 80% 80% 80% 80% 80%\n 78%\n 73% 71%\n 71%\n 67% 65%\n 64%\n 60%\n 200\n 40%\n\n 100\n 20%\n\n\n 0 0%\n h\n\n\n\n\n 2- 8\n d S ch\n\n\n\n\n d S ch\n ic e\n\n\n\n\n ic e\n\n\n\n\n f\xc3\xa9\n\n\n\n\n 9\n S u on C h\n\n\n\n\n d S ch\n\n\n\n\n s\n ar\n\n\n\n\n er\n\n\n\n\n Tra -8\n Ca ep er\n ch\n\n\n\n\n 7\n r\n\n\n ar\n ne vice\n\n\n\n\n ar l vice\n\n\n\n\n e\n\n\n\n\n os\n rC h\n\n\n\n\n 2\n Sle r\n\n\n\n\n e\n\n\n\n\n t\n Se\n r. P r Foo leepe\n\n\n\n\n ne arrie\n las\n ac\n\n\n\n\n F5\n rita rvic\n c\n c\n\n\n\n\n od\n P-4\n\n\n M-\n Ca\n\n\n\n\n Di n\n eC\n\n\n\n\n r C ur C\n\n\n\n\n P\n oa\n\n\n\n\n oa\n\n\n\n\n oc\n a\n\n\n\n\n oa\n oa\n\n\n\n\n oa\n erv\n erv\n\n\n\n\n P -3\n\n\n\n\n HH\n Co\n Co\n\n\n\n\n .C\n\n\n\n\n lM\n er\n\n\n\n\n AE\n er\n\n\n\n\n in\n P-3 nia L\n IC\n\n\n\n\n rC\n\n\n\n\n Se\n bC\n ch\n ag\n\n\n\n\n C\n dS\n\n\n\n\n ge\n S\n\n\n o\n\n\n us\n Am rnia\n\n\n\n\n ua\n II\n\n\n\n\n oa\n\n\n Vie u to\n ne\n\n\n\n\n gg\n\n\n\n\n od\n r lin lin er\n\n\n\n\n r\n et\n\n\n\n\n rB\n oo\n oo\n\n\n et\n\n\n\n\n 2D\n oo\n riz\n\n\n\n\n r\n\n\n\n\n ss\n r fli\n\n\n\n i\n\n\n\n\n Su fic P\n\n\n\n\n lifo\n fle\n\n\n\n\n Ba\n\n\n\n\n Fo\n l\n lifo\n\n\n\n\n A\n r\n f le\n\n\n\n\n w li\n aF\n\n\n\n\n IF\n\n\n H e on F\n Ho\n\n\n\n\n ne\n\n\n\n\n He\n pe\n\n\n\n\n pre\n r\n Am\n\n\n\n\n ne\n\n\n\n\n Ca\n pe\n Ca\n\n\n\n\n ge\n\n\n\n\n II\n rf li\n aci\n e\n Su\n rni\n\n\n\n\n et\n\n\n\n\n Ex\n rfli\n Su\n\n\n\n\n et\n rita\n riz\n\n\n\n\n Su\n fle\n lifo\n\n\n\n\n f le\n\n\n\n\n ela\n Ho\n\n\n\n\n pe\n Am\n Ca\n\n\n\n\n Am\n He\n Su\n\n\n\n\n Ac\n\n\n\n\n Amtrak_Fleet_Planned_Availability.xls/Avail2\n Availability: Available for Service divided by Active Fleet\n Source: System Fleet Plan FY 2009, Vers. 5/16/2009, p. 10+11\n\x0c 22\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n\nIf Amtrak can improve maintenance practices or make equipment more reliable, more equipment\ncan be available for service. Improvements that Amtrak has made in maintenance practices in\nresponse to past OIG recommendations clearly demonstrate that significant improvements in\nfleet availability can be achieved.\n\nFollowing are some recent examples in which Amtrak has improved equipment reliability. Each\ncase required dedicated effort to study current procedures and then identify ways to streamline\nand improve the efficiency of maintenance practices:\n \xef\x82\xb7 Responding to recommendations in a 2005 OIG report, Amtrak implemented Reliability\n Centered Maintenance on the Acela fleet. This allowed a change in maintenance practices\n that resulted in an increase of 10 percent in equipment available for service (two\n additional train sets per day).\n \xef\x82\xb7 In 2006, following the recommendations of an OIG consultant, Amtrak improved the\n process used to conduct scheduled maintenance on Amfleet I coaches at Ivy City. This\n resulted in a 2.9-percent improvement in availability (ten coaches per day).\n \xef\x82\xb7 In 2009, in response to a similar OIG study, Amtrak improved the process used to\n conduct scheduled maintenance on Superliner cars in Chicago. This resulted in a 4.1-\n percent improvement in availability (nine cars per day).\n\nAmtrak Can Further Improve Fleet Availability, and Plans to Do So\nIn its FY2010\xe2\x80\x932014 Five-Year Financial Plan, Amtrak has set goals to improve its equipment\navailability.20 The plan states that by 2014, Amtrak plans to increase its car availability by 2.3\npercent, its diesel locomotive availability by 3.5 percent, and its electric locomotive availability\nby 4.3 percent.21 However, Amtrak did not consider the impact of these planned improvements\nin equipment availability in its Fleet Strategy.\n\nIf the Fleet Strategy incorporated the projections from the five-year plan, Amtrak could reduce\nits projections for new equipment by 53 cars and 25 locomotives and still keep the same amount\nof equipment available for service.22 This accounts for the potential reduction of $520 million in\nprocurement and overhaul costs over the life of these additional pieces of equipment.\n\nAdditionally, based on our benchmarking of European passenger rail operators,23 Amtrak may\nwell have opportunities to achieve even greater equipment availabilities for its car and electric\nlocomotive fleets, thus further reducing the amount of equipment needed. We obtained\n\n20\n FY 2010\xe2\x80\x93FY 2014 Five-Year Financial Plan, September 23. 2009, p. 22. We did not evaluate if Amtrak\xe2\x80\x99s targets\nwere realistic nor the impact of potential future funding decreases on their achievability.\n21\n Amtrak projects these increases in average actual availabilities. These will generally be higher than the planned\navailabilities mentioned in the system fleet plan. However, a 1-percent increase in average actual availability should\nresult in a 1-percent increase in planned availability. This assumption is reflected in the rest of this finding.\n22\n These numbers reflect that Amtrak will replace some of the locomotives twice during the 30-year period.\n23\n BSL Transportation Consultants, Benchmarking Fleet Availability, September 2010.\n\x0c 23\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nequipment availabilities from a number of European operators regarded as having good\nmaintenance practices that result in high levels of equipment availability.\n\nAs shown by the comparisons in the figure below, Amtrak\xe2\x80\x99s availability rate for its diesel\nlocomotives exceeds that of the European operators, but those operators have better availability\nrates for cars and electric locomotives.\n\n Rolling Stock Availability Ratios\n European Good Practice Benchmarks\n\n Passenger Cars Diesel Locomotives Electric Locomotives\n\n 100% 100% 100% Avg.: 90%\n Avg.: 89%\n 91%\n 90% 87% 90% Avg.: 82% 90%\n 80%\n 80% 80% 80%\n 92% 91% 92% 93%\n 89% 85% 87% 88% 88%\n 85% 81% 84% 84% 81%\n 70% 70% 70%\n 76%\n\n 60% 60% 60%\n Amtrak A B C D Amtrak A B C D Amtrak A B C D\n Cars European Operators Diesel European Operators Electric European Operators\n Locos Locos Amtrak_Fleet_Planned_Availability.xls/BSLresults\n Amtrak Target Availabilities 2014\n Amtrak 2009 Actual Availabilities Source: - Amtrak FY2010-2014 FIVE YEAR FINANCIAL PLAN\n - BSL Transportation Consultants\n Benchmark Availabilities\n\n\n\n\nThese benchmarks may have been achieved under different financial and operating\ncircumstances (for example, service levels, schedules, technical condition and age of fleet,\nmaintenance practices) than Amtrak is operating under. Further analysis would be necessary to\nunderstand how the rates were achieved and whether they could be used as realistic goals for\nAmtrak fleets.\n\nIf Amtrak could achieve the average availabilities for cars and electric locomotives reported by\nthese European operators, it could further reduce its procurement needs by another 52 cars and\n14 electric locomotives (an additional $505 million in procurement and overhaul costs that could\nbe saved over the life of these additional pieces of equipment).24\n\n\nConclusion\n\nA small improvement in rolling stock availability has a substantial impact on the amount of\nequipment needed to deliver current and future services. The Fleet Strategy does not consider\nAmtrak\xe2\x80\x99s goals for improving the availability of its fleet that could reduce equipment\nrequirements and associated costs. There may also be additional opportunities to further reduce\nthe amount of equipment out of service by analyzing maintenance practices used by some\nEuropean passenger railroads.\n\n24\n Because Amtrak\xe2\x80\x99s availability for diesel locomotives is above the European benchmarks, there are no additional\nsavings with this type of equipment.\n\x0c 24\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nRecommendation\n\nWe recommend that the President and CEO ensure that future strategy updates consider\nAmtrak\xe2\x80\x99s planned equipment availability and reliability improvements and incorporate their\nimpact into equipment estimates. He should also ensure that future strategy updates incorporate\nthe impact of any additional equipment availability improvements.\n\n\nManagement Comments and OIG Analysis\n\nManagement responded as follows:\n\n \xe2\x80\x9cManagement agrees with the recommendation. Equipment availability is a factor that\n should be considered in the planning process. We will further investigate if and how the\n availability targets will have an impact on the number of equipment required to run future\n services.\xe2\x80\x9d\n\nWe consider management\xe2\x80\x99s comments to be responsive to our recommendation.\n\x0c 25\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nECONOMIC USEFUL LIFE OF AMTRAK\xe2\x80\x99S ROLLING STOCK\n\nAmtrak\xe2\x80\x99s Fleet Strategy Does Not Use a Sophisticated Model That\nFully Considers Strategic, Financial, and Operational Factors in\nDetermining The Economic Useful Life of Rolling Stock25\n\nAmtrak\xe2\x80\x99s Fleet Strategy uses a time-based criterion to plan rolling stock retirements. Through\nour benchmarking with European passenger rail operators, we learned that other railroads\ndetermine the best time to replace rolling stock assets using decision processes based on\nfinancial, operational, and strategic factors. Using these factors in their decision models has led\nEuropean operators to keep their equipment in service considerably longer than Amtrak plans. If\nAmtrak were able to keep its equipment in service, for example, 10 years longer than assumed in\nthe Fleet Strategy, it could reduce its capital investment requirements by $1.6 billion over the 30-\nyear-planning period.\n\nAmtrak Based Economic Life of its Equipment on a Consensus Opinion of\nMarketing and Mechanical Departments\nIn our interviews, we were told that the economic life determinations of Amtrak\xe2\x80\x99s rolling stock\nfleet shown in the following table were established based on the consensus opinion of Marketing\nand Mechanical Department staff after taking into consideration data on capital availability and\nthe equipment\xe2\x80\x99s anticipated maintainability, reliability, and customer acceptance.\n\n Fleet Strategy\xe2\x80\x99s Economic Life Assumptions\n Type of Equipment Economic Life [Years]\n\n Single-Level Coaches 30\n\n Multi-Level Coaches 30\n\n Tier I Train Sets 25\n\n Tier II Train Sets 20\n\n Electric Locomotives 25\n\n Diesel Locomotives 20\n Source: Amtrak Fleet Strategy Fleetdata_Rob_Edgcumbe_Nico.xls/Summary\n\n\n\n\n25\n We use the common term \xe2\x80\x9ceconomic useful life\xe2\x80\x9d to express the economically best time to retire an asset.\nAmtrak\xe2\x80\x99s Fleet Strategy uses the expression \xe2\x80\x9ccommercial life\xe2\x80\x9d in the equivalent sense.\n\x0c 26\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nAmtrak recognizes that it needs to make its replacement decisions in a more sophisticated\nmanner. The draft Fleet Strategy Implementation Plan recommends the development of a rolling\nstock life-cycle-cost (LCC) model, which is a common method of calculating the equipments\xe2\x80\x99\ntotal cost of ownership. Amtrak can use this LCC model to help determine optimal asset\nreplacement times.\n\nOther Passenger Railroads use Multiple Criteria to Make Rolling Stock\nReplacement Decisions\nTo assess Amtrak\xe2\x80\x99s method of determining the economic useful life assumptions used in the\nFleet Strategy, we contracted with SCI Verkehr GmbH26 to provide information on the criteria\nEuropean railroads use to make rolling stock retirement decisions.27\n\nSCI learned through its research and interviews that European rail passenger operators use a\nvariety of strategic, financial, and operational factors to define the best time to replace their\nrolling stock. SCI also found that the operators did not use the number of years and miles\noperated as the primary factors in determining when to retire equipment.\n\nThe following table lists some of the criteria used by the European operators in their assessments\nof when to retire equipment.\n\n\n\n\n26\n SCI Verkehr GmbH is an independent consultant for the transportation sector with broad international experience\nin railroad fleet strategy, asset value analysis, and rail equipment asset lives.\n27\n SCI Verkehr GmbH, Replacement of Locomotive and Passenger Coach\xe2\x80\x94Identification of Economical Useful\nLife, August 2010.\n\x0c 27\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Factors to Determine Equipments\xe2\x80\x99 Economic Lives\n\n New safety requirements or decreasing equipment reliability can lead to early\n Safety and Reliability\n replacements or overhauls.\n\n In times of growing demand, the economics support modernizing old equipment\n Transport Demand\n rather than wait for delivery of new equipment.\n\n Budget, The price of new equipment and the amount of funds available often drive\n New Vehicle Price decisions.\n\n New federal regulations (for example: emissions, ADA, etc.) could lead to early\n Regulations: Emissions,\n replacements or overhauls. Diesel locomotives are often retrofitted with new\n ADA Requirements engines meeting latest emission standards rather than procure new locomotives.\n\n In Europe, operators have to comply with tender specifications that often require\n Tender Requirements,\n multiple-units (MU)* or operators may make a strategic shift from locomotive-\n Fleet Strategy hauled trains to MU.\n\n Availability or non-availability of workshop capacity for equipment overhauls can\n Workshop Capacity\n influence replacement decisions.\n\n Early replacement decisions may be driven by part availability. Especially for\n Availability of Spare\n electric locomotives, spare parts obsolescence could require (expensive)\n Parts custom-made parts.\n\n Maintenance and New equipment can be up to 20% more energy efficient than older equipment.\n Operating Costs Maintenance of older equipment can be more costly than new equipment.\n\n Delivery Time of New If procurement and manufacturing lead times are too long, refurbishments may\n Vehicles be preferred.\n Source: Based on SCI Verkehr\n\n * The term Multiple Unit (MU) is used to describe a self-propelling train unit capable of coupling with other units of the same or similar type and still being\n controlled from one cab. Multiple units are of three main types: Electric Multiple Unit (EMU), Diesel Multiple Unit (DMU), and Diesel electric multiple units (DEMU).\n\n\n\n\nThe methods used by the European railroads show that different factors might be relevant for\ndifferent types of equipment. For example, the useful life of electric locomotives may be limited\nbecause the technical obsolescence of major components makes overhauls or refurbishments\nunreasonably expensive. However, because passenger coaches have a basic mechanical structure\n(body and truck) and relatively simple parts, it is easier and less costly to refurbish them. A full-\nscale modernization can extend the life of a passenger car for 15 to 20 years.\n\nFinancial Models May Help in Defining Rolling Stock\xe2\x80\x99s Economic Useful Life\nThere are a number of analytic techniques available to help management decide on the most\neconomical approach to replacing existing assets with newer assets. An asset\xe2\x80\x99s \xe2\x80\x9ceconomic useful\nlife\xe2\x80\x9d is defined as \xe2\x80\x9c\xe2\x80\xa6 the time period that maximizes the annual worth of the existing asset or\nupon the time period when the annual worth of a new asset becomes greater than that of the\npresent asset for one or more years.\xe2\x80\x9d28 This approach helps ensure that management optimizes its\nreturn on capital investments by specifically taking into consideration all costs associated with\nthe particular asset, including capital investment, cost of operation and maintenance, and cost of\n28\n John R. Canada, Intermediate Economic Analysis for Management and Engineering, 1972. SCI gave a similar\ndefinition: "Economical useful lifetime is reached at the time a vehicle has to be replaced, but the costs of\nmodernization and operating costs for further usage of the old vehicle exceed life-cycle cost for a new vehicle."\n\x0c 28\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\ndeclining quality. The cost of declining quality quantifies the difference in customer appeal,\nreflected in revenue loss, between the new and existing asset.\n\nOther Passenger Railroads Operate their Rolling Stock Much Longer than Called\nfor in Amtrak\xe2\x80\x99s Fleet Strategy Plan\nA comparison of Amtrak\xe2\x80\x99s projections in the Fleet Strategy with the information provided by\nSCI shows that Amtrak plans to retire its rolling stock much sooner than other major passenger\nrail operators.\n\nLocomotives\nThe following table shows that Amtrak plans to retire its diesel and electric locomotives\nconsiderably earlier than the European operators. However, from the perspective of cumulative\nmiles operated, Amtrak\xe2\x80\x99s proposal on when to retire locomotives is much closer to when\nEuropean railroads have historically retired their locomotives. 29\n\n Comparison of Locomotive Retirement Ages and Mileage\n Amtrak Plans vs. Actual European Railroads\n\n Retirement Ranges\n Age Mileage\n [Years] [Million Miles]\n\n Diesel Locomotives\n Germany 25-44 2.3-2.7\n Italy 39-41 N/A\n France 30-37 N/A\n Austria 35-47 2.5-2.7\n Sample Range 25-47 2.3-2.7\n Assumption in Amtrak\'s\n 20 2.6*\n Fleet Strategy\n\n Electric Locomotives\n Germany 34-49 2.4-2.9\n Italy 45-58 2.6-2.9\n France 37-48 2.5-2.9\n Austria 33-50 2.5-2.8\n Sample Range 33-58 2.4-2.9\n Assumption in Amtrak\'s\n 25 2.8*\n Fleet Strategy\n Amtrak_Fleet_Mileage.xls/Age_Comparison\n\n * Based on planned retirement age and average actual miles operated per unit-year\n Source: Amtrak Fleet Strategy, SCI Verkehr\n\n\n\n\n29\n This observation does not apply for European Electric Multiple Units (EMU) train sets that operate significantly\nhigher annual mileages. See also the discussion regarding high-speed train sets in the next finding section on the\nAcela Express.\n\x0c 29\n Amtrak Office\n e of Inspecto\n or General\n Evaluatio\n on of Amtraak\xe2\x80\x99s FY 2010 0 Fleet Stra\n ategy:\n A Com\n mmendable\n e High-Leve\n el Plan That Needs Dee eper Analys sis and Plan\n nning Integrration\n Reeport No. E--11-2, March\n h 31, 2011\n\nPassengeer Coaches\nThe Euro opean railroaads appear to\n o operate theeir passengerr cars signifiicantly longeer than Amtrrak\nplans to in\n i its Fleet Strategy.\n S As illustrated in\n n the followiing tables, thhe European passenger ccar\nfleets hav\n ve a significaantly higher percentage (26 percent to 66 percennt) of older ccars (40 yearrs\nold\xe2\x80\x94buiilt before 197 70) than the Amtrak passenger car fl fleet (8.5 perccent).\n\n\n\n\nSCI learn\n ned that Euro opean railroaad passengerr cars are typpically kept in service 300 to 60 yearss\nbefore th\n hey are retireed. The reasoon that the European raillroads have a larger perccentage of ollder\ncars mayy be related to their willin\n ngness to reiinvest funds to refurbishh their equipmment or to\nbudgetary y restrictions for procuriing new equuipment. In a recent media interview, the CEO off\nGerman railroad\n r Deuutsche Bahn announced the t plan to innvest in a mmajor overhauul of all of thheir\n1,500 IntterCity cars. The cars aree on averagee 32 years olld and are exxpected to reemain in reveenue\n\x0c 30\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nservice for another 10\xe2\x80\x9315 years.30 In addition, Canadian VIA Rail announced that it is\nreinvesting in rail passenger cars and rail diesel cars that are already at least 50 years old and it\nexpects to operate them for another 20 years.31,32\n\nHigh-Speed Train Sets\nAmtrak plans to replace the existing Acela Express train sets much sooner than the European\nrailroads plan to retire their high-speed train sets. For example, as shown in the following table,\nGermany\'s Deutsche Bahn plans to operate its InterCity Express (ICE) train sets between 24 and\n31 years before retiring them, while Amtrak plans to retire the Acela Express train sets after 20\nyears of service.\n\n Economic Life Assumptions ICE Trains\n Expected\n Deutsche Bahn Max. Speed Begin of Planned\n Service Life\n High-Speed Trains [mph] Service Retirement\n [Years]\n\n ICE 1 165 1991 2020 29\n\n ICE 2 165 1996 2025 29\n\n ICE 3 205 1999 2030 31\n\n ICE T 143 1999/2004 2028 24/29\n Source: Based on bahntech, Das Technikmagazin der Deutschen Bahn , 02/2008 Retirement_ICE.xls/ICE\n\n\n\n\nDeutsche Bahn operates various versions of its high-speed train ICE. The first German high-\nspeed train (ICE 1) started operation in 1991 and went through a major refurbishment in 2005\nafter having traveled 4 million to 5 million miles per train set, which equates to approximately\n320,000 miles per year.33 For comparison purposes, in FY 2009, each Amtrak Acela train set\n\n\n\n\n30\n Deutsche Bahn CEO R\xc3\xbcdiger Grube in an interview with German newspaper Tagesspiegel, June 13, 2010.\n31\n http://www.viarail.ca/en/about-via-rail/media-room/latest-news/1397/30-october-2009-via-rail-canada-to-boost-\nfamed-transcontinental-train\'s-accessibility-and-appeal, and http://www.viarail.ca/en/about-via-rail/media-\nroom/latest-news/1487/29-march-2010-government-of-canada-and-via-rail-invest-in-rail-service-jobs-in-moncton.\n32\n Studies show that new equipment may have a small uplift in ridership demand, but correlations between demand\nuplift and attributes contributing to this demand change appear highest for seat comfort, seat layout, and ride\nsmoothness (correlations higher than 0.80). These attributes can also be found in refurbished equipment. See details\nin R. Sheldon, C. Heywood, Accent, UK; A. Meaney, N. Robins, Oxera, UK; M. Wardman, ITS, University of\nLeeds, UK in Estimating the Demand Impacts of New Rolling Stock, 2006; M. Wardman, G. Whelan, ITS,\nUniversity of Leeds, UK in Rolling Stock Quality\xe2\x80\x94Improvements and User Willingness to Pay, 1998.\n33\n Source: Modernisierung des ICE 1 (Teil 1), VORAUS (Zeitschrift der Gewerkschaft Deutscher Lokomotivf\xc3\xbchrer,\nAusgabe M\xc3\xa4rz 2006).\n\x0c 31\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\ntraveled on average about 167,000 miles. Before each major refurbishment, Deutsche Bahn\nconducted a technical assessment of the equipment to ensure that the technology would be viable\nfor the expected additional lifetime of another 15 years. Deutsche Bahn expects to retire this\nseries of train equipment after 29 years and over 9 million miles of service.34\n\n\nConclusion\n\nThe economic useful life of the Amtrak fleet has a significant impact on both the timing of\nequipment purchases and the overall capital funding requirement for the company. The impact\ncan be estimated by comparing the average annual capital expenses35 of Amtrak\xe2\x80\x99s rolling stock\nfleet using the economic useful life in the Fleet Strategy with an economic useful life that is, for\nexample, 10 years longer. Extending the economic useful life of Amtrak\xe2\x80\x99s fleet of passenger cars\nand locomotives by 10 years could reduce its average annual capital expenses by $55 million.\nOver the 30-year planning period, this would reduce capital expenses related to rolling stock by\n$1.6 billion.36\n\n\nRecommendation\n\nWe recommend that the President and CEO ensure that future strategy updates are based on an\neconomic evaluation model that uses strategic, operational, and financial factors (including\nreplacement costs, operating expenses, overhaul and upgrading expenses, maintenance expenses,\nand revenue/ridership impact of each relevant equipment alternative) to determine the optimal\nretirement age for Amtrak\xe2\x80\x99s rolling stock.\n\n\n\n\n34\n Assuming 320,000 miles per year, as performed to date.\n35\n The average annual capital expense of an asset is calculated as the total cost of asset acquisition and overhauls\nduring the life of the asset divided by the asset life.\n36\n These estimates are based only on the current fleet of cars and locomotives and do not include increased\noperational expenses.\n\x0c 32\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nManagement Comments and OIG Analysis\n\nManagement responded as follows:\n\n \xe2\x80\x9cManagement agrees with the recommendation. We have already started developing an\n evaluation model to determine the economic useful life of our different types of\n equipment. We want to focus not just on an optimal replacement time based on cost\n analyses, but also to consider the impact of additional revenue generated by attractive,\n new cars and locomotives and other factors that are identified during strategic planning\n activities for each line of business. Some of the necessary data to build a comprehensive\n model still needs to be collected, so we expect to start with a relatively simple model that\n will be improved over the next years.\xe2\x80\x9d\n\nWe consider management\xe2\x80\x99s comments to be responsive to our recommendation.\n\x0c 33\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nFLEET PLAN FOR ACELA EXPRESS\n\nAmtrak\xe2\x80\x99s Fleet Strategy Does Not Provide Sufficient Analysis to\nSupport Recommendation to Replace and Enhance Acela Express\nFleet\n\nAlthough the Acela Express service is one of Amtrak\xe2\x80\x99s main revenue drivers, the Fleet Strategy\ndoes not provide a clear and well-supported plan for the replacement and enhancement of the\nAcela fleet. The Fleet Strategy identifies factors that Amtrak needs to consider in developing the\nbest option for replacing and enhancing the Acela fleet, but recognizes that Amtrak is still short\nof sufficient information to make firm decisions. While the strategy identifies two different\ncourses of action that Amtrak could pursue, neither satisfies Amtrak\xe2\x80\x99s expressed desire to meet\nforecast growth in demand, and information is insufficient to determine whether the equipment\npurchases would be economical to the taxpayer. In order to reach an informed decision on the\noptions for replacing and expanding the Acela fleet, Amtrak should identify a clear strategic\nfocus for the Acela service and conduct an operational and financial assessment of the\nalternatives.\n\nAcela Express is an Important Revenue Driver and Demand Projections Show\nContinued Growth, but the Fleet Strategy is Not Linked to a Clear Strategic Focus\nfor this Service\nThe Acela Express is Amtrak\xe2\x80\x99s premier passenger service on the NEC, with multiple daily trains\nbetween Washington, D.C., New York, and Boston. Amtrak operates this high-speed rail service\nusing 20 train sets consisting of six passenger cars and two power cars per set. Introduced in\n1999, this service now accounts for about 25 percent of Amtrak\xe2\x80\x99s total ticket revenue.37 The\nFleet Strategy document outlines the expected ridership demand for Acela and projects an\naverage annual growth of 3.2 percent from 2009 to 2030.38\n\nHowever, the Fleet Strategy is not specifically linked to the main business goal that Amtrak\nwants to achieve with the Acela service. Some high-level questions that could help clarify what\naspects of the service may need to be considered in developing fleet requirements include:\n \xef\x82\xb7 Does Amtrak want to focus on maximizing ridership on Acela trains irrespective of\n financial performance [maximize public service]?\n \xef\x82\xb7 Does Amtrak want to focus on maximizing Acela\xe2\x80\x99s operational profit [reduce Amtrak\xe2\x80\x99s\n operational subsidy] irrespective of capital funding?\n\n37\n Based on FY 2009 Monthly Performance Report, p. C\xe2\x80\x931.\n38\n Amtrak Fleet Strategy, p. 42. The ridership demand forecasts were provided by Amtrak\xe2\x80\x99s Market Research\nDepartment, which uses a forecasting model developed by AECOM. This model uses a set of external variables\n(population, employment, income) and service variables (travel time, travel cost, frequency, on-time performance),\nwhich are updated regularly to account for changes. For purposes of this section, we did not review Amtrak\xe2\x80\x99s\ndemand forecast methodology. These forecast data are not consistent with the forecasts used in Attachment 1 to the\nFleet Strategy. (See footnote 7.)\n\x0c 34\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n \xef\x82\xb7 Does Amtrak want to focus on maximizing Acela\xe2\x80\x99s operational profit plus maximizing\n the benefits from capital investments in Acela assets (rolling stock, infrastructure, etc.)\n [minimize total Amtrak subsidy, both operational and capital]?\n\nAs with all of Amtrak\xe2\x80\x99s business activities and decisions, costs and revenue should be chief\nconsiderations. Not only is \xe2\x80\x9cimproving financial performance\xe2\x80\x9d a strategic goal of the company,39\nAmtrak also stated in its Fiscal Year 2011 Grant and Legislative Request that it is \xe2\x80\x9c\xe2\x80\xa6our plan\nto\xe2\x80\xa6purchase equipment in a manner that is economical to the taxpayer\xe2\x80\xa6.\xe2\x80\x9d40\n\nA clearly defined strategic focus for the Acela service would assist Amtrak in determining the\nbest alternative for replacing and enhancing the fleet.\n\nThe Fleet Strategy Contains Two Different Courses of Action for Acela Express,\nbut Neither Contains Sufficient Information for Making an Informed Decision on\nHow to Proceed\nThe Fleet Strategy and its draft implementation plan effectively identify factors that Amtrak\nneeds to consider in developing the best option for replacing and growing the Acela fleet.\n\nHowever, recognizing that Amtrak is \xe2\x80\x9cstill short of sufficient information to make firm\ndecisions,\xe2\x80\x9d41 the strategy contains two potential courses of action for Amtrak to pursue in\nreplacing and enhancing the Acela fleet. We have evaluated the two potential courses of action\nfor the Acela fleet by assessing if the alternatives:\n\n \xef\x82\xb7 satisfy Amtrak\xe2\x80\x99s forecast growth in demand, and\n \xef\x82\xb7 procure equipment in a manner that is economical to the taxpayer.\n\nThe first course of action, on page 42 of the Fleet Strategy, recommends that Amtrak\n \xef\x82\xb7 procure 40 additional Acela cars in 4 years (2014) to lengthen each of the existing 20\n train sets by two cars, for a total of eight cars per set;\n \xef\x82\xb7 procure two additional train sets in 2014 with eight cars per set, each powered by two\n Acela power cars or two HHP-8 locomotives; and\n \xef\x82\xb7 replace the whole Acela fleet in 2020.42\n\n\n\n39\n Amtrak\xe2\x80\x99s New Mission, October 2009, p. 5.\n40\n Fiscal Year 2011 Grant and Legislative Request, March 22, 2010, p. 2.\n41\n Amtrak Fleet Strategy, p. 44.\n42\n The Fleet Strategy is not specific about the capacity of the Acela fleet after the 2020 replacement. We assume for\nthis evaluation that the Acela fleet replacement in 2020 will consist of 20 train sets with eight cars each. Also, the\nfirst course of action does not mention that the two Acela train sets procured in 2014 would have to be replaced\nagain in 2034.\n\x0c 35\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nIn total, this approach provides approximately 3,414 additional seats, which is an increase in seat\ncapacity of 57 percent.43 The approximate procurement cost for the 40 additional cars and two\ncomplete new train sets would be $256 million based on the Fleet Strategy\xe2\x80\x99s pricing\nassumptions. An additional $960 million would be necessary to replace the 20 Acela train sets\n(with eight cars each) in 2020.\n\nThe second course of action44 is contained in the Fleet Strategy\xe2\x80\x99s procurement plan (Attachment\n2 of the Fleet Strategy) and recommends that Amtrak\n \xef\x82\xb7 procure five new Acela train sets with six cars each in 2014\xe2\x80\x932015, and\n \xef\x82\xb7 replace the current 20 train sets in 2019\xe2\x80\x932020.\n\nThis approach provides approximately 1,495 seats, a capacity increase of 25 percent. The\napproximate procurement cost for the five new train sets would be $200 million, based on the\npricing assumptions in the Fleet Strategy. The procurement cost for replacing 20 train sets in\n2019\xe2\x80\x932020, with six cars each, would require an additional $800 million. The cost for this course\nof action is included in the Fleet Strategy\xe2\x80\x99s estimate of a total funding requirement of $23 billion.\n\nAlthough both courses of action plan to replace the current Acela fleet around 2020, there is no\nplan to procure any additional capacity at that time.45\n\nThe Fleet Strategy did not reconcile the discrepancy between the course of action in the text of\nthe report and the one in the procurement plan, so we evaluated both.\n\nDoes the Fleet Strategy Satisfy Amtrak\xe2\x80\x99s Forecast Growth in Demand?\nTo assess at a high level how well the two courses of action for Acela satisfy the forecast\ndemand, we calculated and graphed the average Acela load factors based on Amtrak\xe2\x80\x99s projected\ndemand (in passenger miles) and capacity (in seat miles) in the Fleet Strategy over the next 20\nyears (see figure below).\n\n\n\n\n43\n This assumes that the new consist contains six business cars, one first class car, and one caf\xc3\xa9 car. In case of two\nfirst class cars and five business cars, the increase in capacity would be 2,866 seats (48 percent).\n44\n Amtrak told us that the first course of action was the preferred option.\n45\n The procurement plan also does not consider replacing the five train sets being introduced 2014\xe2\x80\x932015 (second\ncourse of action) after they have reached their expected economic life around 2035.\n\x0c 36\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Average Load Factors for Alternative Fleet Growth Scenarios\n Average - Based on Market Research Ridership Forecasts -\n Load Factor\n 90%\n Report: Add two cars per train set +\n Total Procurement: $256m plus $960m (~$102,000 per seat)\n add two train sets (8 cars)\n Procurement plan: Add five more Total Procurement: $200m plus $800m\n 80% train sets (6 cars each) (~$134,000 per seat)\n\n\n\n Capacity\n 70%\n Enhance-\n ment\n\n\n 60%\n\n\n\n\n 50% Planned\n Replace-\n ment\n w/o further capacity enhancement\n\n 40%\n 09\n\n\n\n\n 11\n\n\n\n\n 13\n\n 14\n\n\n\n\n 16\n\n\n\n\n 18\n\n 19\n\n\n\n\n 21\n\n\n\n\n 23\n\n\n\n\n 26\n\n\n\n\n 28\n 10\n\n\n\n\n 12\n\n\n\n\n 15\n\n\n\n\n 17\n\n\n\n\n 20\n\n\n\n\n 22\n\n\n\n\n 24\n\n 25\n\n\n\n\n 27\n\n\n\n\n 29\n\n 30\n 20\n\n\n\n\n 20\n\n\n\n\n 20\n\n\n\n\n 20\n\n\n\n\n 20\n\n\n\n\n 20\n\n\n\n\n 20\n 20\n\n\n\n\n 20\n\n 20\n\n\n\n\n 20\n\n\n\n\n 20\n\n 20\n\n\n\n\n 20\n\n\n\n\n 20\n\n 20\n\n 20\n\n 20\n\n\n\n\n 20\n\n 20\n\n 20\n\n 20\n Acela_ALF_Modeling.xls/Scenarios_II_III_WOCafe\n Procurement cost in 2014/2015 (capacity increase)\n Procurement cost in 2019/2020 (fleet replacement)\n\n\n\nIn 2008 Amtrak management expressed concerns with Acela capacity constraints.46 At that time,\nAcela\xe2\x80\x99s average load factor was 63 percent.47 Therefore, for this high-level analysis, we are\nusing a 60 percent load factor to indicate a capacity-constrained condition. As shown in the\nfigure above, the option of procuring five complete additional train sets (orange line) keeps the\naverage load factor below 60 percent only for about 2 years. The option to procure 40 new cars48\nand two train sets (blue line) provides significantly more capacity than needed in the early years\nbut then also fails to provide sufficient capacity to meet the demand after 2024.\n\nBased on this high-level analysis, neither of the Fleet Strategy\xe2\x80\x99s recommended courses of action\nappears to satisfy the forecast demand through 2030. Moreover, this analysis was based on\nmaintaining the average load factor below 60 percent, when in reality the demand for Acela seats\nis not constant and varies by season, day of week, time of day, direction of travel, and location\nwithin the NEC.\n\nFor example, the following illustration shows capacity constraints (when ridership demand\nexceeded Acela\xe2\x80\x99s seat capacities and passengers had to be turned away) in Business Class for\nAcela trains from August 2007 to July 2008.\n\n\n46\n Testimony before the House Committee on Transportation and Infrastructure on October 29, 2008, where details\nof the Acela peak load factors for July 2008 were discussed.\n47\n Amtrak Route Performance Report for July 2008, p. C-4A.\n48\n We assume that the two cars that are added per train set have Business Class seating.\n\x0c 37\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n\n Acela Express Capacity Constraints (Business Class August 2007 \xe2\x80\x93 July 2008)\n\n\n Northbound Trains\n\n\n \xe2\x80\xa2 Heavy early morning constraints\n Mon to Thu \xe2\x80\xa2 Heavy afternoon constraints\n WAS NY Thu, Fri, and Sun BOS\n \xe2\x80\xa2 Heavy afternoon constraints\n Tue to Fri and Sun\n\n\n\n\n Southbound Trains\n\n \xe2\x80\xa2 Heavy morning constraints \xe2\x80\xa2 Moderate early morning constraints\n Mon to Thu Mon to Wed, and Sat\n \xe2\x80\xa2 Heavy afternoon/evening constraints \xe2\x80\xa2 Moderate late morning constraints\n WAS Tue to Fri NY Fri to Sun BOS\n \xe2\x80\xa2 Moderate afternoon constraints \xe2\x80\xa2 Heavy afternoon constraints\n Sun Fri and Sun\n\n\n\n\nGiven the constraints shown in the figure above, adding capacity uniformly to all trains would\nnot be very efficient because trains that never reach their maximum capacity will carry most of\nthe extra seats. A more efficient use of new capacity would be to focus the additional seats at the\npeak periods by adding more cars or train sets at those times.\n\nDoes the Fleet Strategy Replace and Enhance the Acela Fleet in a Manner that is\nEconomical to the Taxpayer?\nBoth courses of action discussed in the Fleet Strategy require significant financial investments\nfor fleet procurements. The investment cost estimates are $1.2 billion for the first course of\naction and $1.0 billion for the second. However, the strategy lacks sufficient information with\nwhich to determine which course of action is more economical. In addition, unanswered\nquestions remain that could have a material impact on the estimates.\n\nThe first course of action\xe2\x80\x94adding two cars per existing train set and replacing the whole Acela\nfleet in 2019\xe2\x80\x932020\xe2\x80\x94would mean that the additional cars would run for only 5\xe2\x80\x936 years before\nreplacement. This is far shorter than their expected economic life.\n\nIn addition, the two additional train sets planned under this course of action would have to be\nvery similar to the current Acela technology,49 if they are to be delivered in 2014. If the\nadditional two train sets were to remain in service after the old Acela equipment is replaced in\n2020, Amtrak could be required to continue to maintain two different versions of the Acela\ntrains. This assumes that the Acela II will utilize a completely new generation of technology.\n\n\n49\n A deadline of 2014\xe2\x80\x9315 to deliver new Acela train sets does not allow time for new equipment design. Thus, only\nthe technologically relatively old Acela could be manufactured and delivered, if even it could be.\n\x0c 38\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nRetaining two different Acela train sets would require stocking and maintaining two sets of\nrepair parts and tools, along with maintenance expertise on both train sets.\n\nThis course of action would also require additional capital investments in Acela maintenance\nfacilities and infrastructure because the facilities and infrastructure are sized for six-car consists.\n\nThe second course of action\xe2\x80\x94procuring five additional train sets in 2014\xe2\x80\x932015\xe2\x80\x94does not\naddress whether sufficient NEC infrastructure slots are available to run these trains, given that\nthe peak demand occurs when most other operators (MARC, NJT, SEPTA,50 Metro North, Long\nIsland Railroad, etc.) are also using existing track capacity. If additional investments are needed\nto expand the NEC infrastructure capacity, they would be critical factors in a financial\nassessment of this course of action.\n\nFurther, running these additional sets with the replacement fleet in 2020 could require Amtrak to\nstock and maintain two sets of repair parts and tools, along with maintenance expertise on both\ntypes of equipment, which requires more maintenance staff than for a homogenous fleet.\n\nThe Fleet Strategy does not contain an operational and financial assessment of the two courses of\naction that could be used to simulate cost and revenue performance for various schedule and\ncapacity options to reach an informed decision on how to proceed.\n\n\nConclusion\n\nThe Fleet Strategy\xe2\x80\x99s plan for Acela Express\xe2\x80\x99 replacement and expansion lacks a disciplined and\ndetailed approach to identify the best operational and economic solution to satisfy projected\nridership demand. Such an approach would compare the different options using operational and\nfinancial assessments that simulate cost and revenue performance for various schedule and\ncapacity options, considering all of the relevant factors in the context of a strategic focus for\nAcela service.51\n\n\nRecommendation\n\nWe recommend that the President and CEO ensure that future strategy updates include the results\nof an Acela Express replacement and expansion plan that is linked to a clear strategic focus for\nthe service and considers alternatives in the context of strategic goals, forecast demand and\nrevenue scenarios, cost performance, and other relevant factors.\n\n\n\n50\n Maryland Area Regional Commuter, New Jersey Transit, Southeastern Pennsylvania Transportation Authority.\n51\n This exercise would calculate the net present value of expected revenue and cost flows over a predefined time\nperiod. Cost would include all relevant positions to operate the service, including all capital investments and\noperating expenses.\n\x0c 39\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nManagement Comments and OIG Analysis\n\nManagement responded as follows:\n\n \xe2\x80\x9cManagement agrees with the recommendation. In fact, Acela enhancement and\n replacement plans have been further addressed in the FY 2011 version of the Fleet\n Strategy Plan. This work has been aligned with the larger vision for Acela that has been\n developed and continues to be refined within Amtrak by the recently appointed Vice\n President\xe2\x80\x94High Speed Rail.\xe2\x80\x9d\n\nWe consider management\xe2\x80\x99s comments to be responsive to our recommendation.\n\x0c 40\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nROLLING STOCK ACQUISITION APPROACH\n\nFleet Strategy\xe2\x80\x99s Acquisition Approach Will Likely Result in Higher\nEquipment Prices and Maintenance Expenses; Amtrak Has Not\nDemonstrated that the Benefits Will Offset Potential Increased Costs\nOur research indicates that the quantities of cars called for in Amtrak\xe2\x80\x99s Fleet Strategy for annual\ndelivery\xe2\x80\x9465 single-level and 35 multi-level cars\xe2\x80\x94appears to be lower than needed for some\nmanufacturers to most efficiently operate their production lines. Further, Amtrak\xe2\x80\x99s plan of\nordering relatively small car quantities could prevent it from taking advantage of lower unit\nprices generally associated with larger orders. Taken together, Amtrak\xe2\x80\x99s approach will likely\nlead to higher unit costs. The unit price of Amtrak\xe2\x80\x99s equipment acquisitions will be a major\nfactor that determines Amtrak\xe2\x80\x99s total capital funding requirements over the 30-year planning\nperiod. For example, each 10-percent change in the unit price of cars, locomotives, and train sets,\nwould have a $1.4 billion impact on the capital-funding requirement for the program. Amtrak\nstates that this approach is intended to provide support for a competitive supplier base, but the\nFleet Strategy does not provide sufficient evidence to show that the likely higher unit costs\nwould be offset by the benefits gained.\n\nProcurement Approaches Can Influence Procurement Prices\nAmtrak can influence the cost of acquiring new equipment through its approach to the\nprocurements. For example, Amtrak can attempt to reduce the prices of manufacturers\xe2\x80\x99 proposals\nby\n \xef\x82\xb7 specifying large quantities of equipment per order, enabling manufacturers to realize\n efficiencies and economies of scale; and\n \xef\x82\xb7 defining production and delivery rates that will allow manufacturers to achieve efficient\n manufacturing cost performance.\n\x0c 41\n Amtrak Office\n e of Inspecto\n or General\n Evaluatio\n on of Amtraak\xe2\x80\x99s FY 2010 0 Fleet Stra\n ategy:\n A Com\n mmendable\n e High-Leve\n el Plan That Needs Dee eper Analys sis and Plan\n nning Integrration\n Reeport No. E--11-2, March\n h 31, 2011\n\nPlacing\n g Large Equ\n uipment Orders Enab\n bles Manuffacturers tto Offer Lo\n ower Unit\nPrices\nManufacturing costs consist of variable prod duction\ncosts (forr example, for\n fo labor and material) an nd fixed\ncosts (forr research an\n nd developm ment, producttion\nengineeriing, etc.). Laarger orders allow fixed costs to be\nspread ouut over moree units, resullting in loweer overall\nunit costss. Large ordeer quantitiess also enable\nmanufactturers to purrchase compo onents (for example,\n e\nHVAC52 systems) in bulk orders, with betterr unit\npricing th\n han small orrders.\n\nIn additioon, one of th\n he major facttors affectingg\nefficiencyy in the mannufacturing industry\n i is th\n he learning\ncurve. Acccording to this\n t concept, illustrated in i the\nfigure to the right, the number off labor hourss required\nto complete a unit off production will decreasse by a\nconstant percentage each\n e time the manufactu urer doubles its productioon quantity. This figure\nillustrates how the coost of a unit of\n o productio on varies for various learrning rates annd units of\nproductio on.53\n\nTo illustrrate the potential impact of the size of\n o the producction order oon unit costss, the followiing\nfigure haas been prepaared using thhe NASA Leearning Curvve Calculator.54 The bluee line, whichh\nrepresentts the margin nal productio\n on cost of eaach car, dem\n monstrates thee impact of tthe learning\ncurve on production unit costs. TheT orange liine demonstrrates the imppact of both the learningg\ncurve and d spreading fixed costs on\n o the total average\n a costt of each car.. A higher orrder size resuults\nin signifiicantly lowerr unit costs\xe2\x80\x94\n \xe2\x80\x94a lost oppoortunity if Am mtrak plans for relativelly small ordeer\nsizes.\n\n\n\n\n52\n Heating,, ventilation, an\n nd air conditionning.\n53\n The conccept of the learrning curve waas introduced to o the aircraft inndustry in 19366 when T.P. W\n Wright publishedd an\narticle in th\n he February 19 936 Journal off the Aeronauticcal Sciences. T The concept of the learning cuurve is still\napplicable to the manufaccturing industrry, and to the ro olling stock maanufacturing inndustry in partiicular. Discusssions\nof this concept with an acctive rolling stoock manufactu urer revealed thhat its managem ment definitelyy agreed that thhere\nwas a learn ning curve assoociated with the manufacturin ng and assemblly of rail passeenger equipmennt.\n54\n http://cost.jsc.nasa.gov\n v/learn.html. Th he learning currve model usess a percentage oof 85, which iss appropriate foor\nmajor man nufacturing processes such as aerospace and d shipbuilding, and is peggedd to the $3.5 miillion unit pricee for\nsingle-leveel cars in Amtraak\xe2\x80\x99s Fleet Straategy.\n\x0c 42\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Average Unit Cost vs. # Units\n $9,000\n -illustrative-\n $8,000\n\n $7,000\n Avg. Unit Cost with Fixed R&D Investment\n $6,000\n Cost (000)\n\n\n\n\n $5,000\n\n $4,000\n Lost Opportunity\n $3,000\n\n $2,000\n Marginal Production Unit\n $1,000 Cost (= Learning Curve)\n\n $0\n 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200\n # Units LearningCurveEstimates_2.xls/LC\n\n\n\n\nWe asked LTK to study past rail car orders to see if this concept is reflected in reality. Although\nother factors may also influence unit prices, LTK\xe2\x80\x99s review of recent procurements confirmed that\nlarger car orders generally resulted in lower unit prices.55\n\nMatching Delivery Rates to the Manufacturer\'s Production Line Capacity May\nResult in Higher Efficiency and Lower Unit Costs\nManufacturers of rail passenger cars use production lines to build and assemble body shells and\ncomponents. To determine the production rates of current manufacturers, we visited the\nKawasaki plant in Yonkers, N.Y. Interviews with key management and first-line supervisors\nrevealed that the assumed delivery and production rates in Amtrak\xe2\x80\x99s Fleet Strategy (maximum of\n65 single-level cars per year) are significantly lower than the most efficient capacity of any of the\nplant\xe2\x80\x99s production lines (100\xe2\x80\x93120 cars per year). If a manufacturer had to build only 65 cars per\nyear on a production line with this capacity, it would either have to run the line at a slower speed\nand less efficient rate, or start and stop the line during the year. Consequently, production costs\nwill be higher.\n\nIn a June 2010 report, Transit Rail: Potential Rail Car Cost-Saving Strategies Exist,56 the\nGovernment Accountability Office (GAO) addressed railcar manufacturing costs. GAO reported\n\xe2\x80\x9conce there is a break in production, expenses are incurred because manufacturers and\ncomponent suppliers may need to reconfigure or retool their production line before they can\nbegin producing rail cars and their component parts.\xe2\x80\x9d The report offered this example:\n55\n LTK Engineering Services: AMTRAK NEC NORTHEAST REGIONAL, Alternate Passenger Coach Study,\nSeptember 28, 2010, p. 44.\n56\n U.S. Government Accountability Office, Transit Rail: Potential Rail Car Cost-Saving Strategies Exist, GAO-10-\n730 (Washington, D.C., June 30, 2010).\n\x0c 43\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n VRE [Virginia Railway Express] was able to purchase cars for $1.6 million per\n car from an active production line, but then later paid $2.2 million per car\n \xe2\x80\x9cbecause the manufacturer had to restart the production line for this car design.\xe2\x80\x9d\n\nThe unit price of Amtrak\xe2\x80\x99s equipment acquisitions will be a major factor that determines\nAmtrak\xe2\x80\x99s total capital funding requirements over the 30-year planning period. Each 10-percent\nchange in the unit price of cars, locomotives, and train sets, would have a $1.4 billion impact on\nthe capital-funding requirement for the program.\n\nAmtrak May Incur Additional Operating Costs if it Procures from Many\nManufacturers\nIn addition to potentially higher unit procurement costs, Amtrak\xe2\x80\x99s procurement plan could also\nsignificantly affect the operating and maintenance expenses of the rolling stock fleet if multiple\nmanufacturers produce Amtrak\xe2\x80\x99s equipment. It is usually desirable to own and operate a\nstandardized equipment fleet. By owning and operating a non-standardized fleet produced by\nmultiple manufacturers, Amtrak may incur higher operating expenses in the future for a number\nof reasons, including the following:\n \xef\x82\xb7 Duplicate inventories of parts and equipment components will be required.\n \xef\x82\xb7 Additional training will be required to familiarize maintenance crews with the multiple\n types of equipment, components, and systems.\n \xef\x82\xb7 The efficiency of servicing and maintaining the equipment will suffer.\n\nAmtrak\xe2\x80\x99s Fleet Strategy Plans to Support a Competitive Passenger Rail Car\nSupplier Base\nOne of the goals of Amtrak\xe2\x80\x99s Fleet Strategy is \xe2\x80\x9cto support a competitive supplier base and avoid\nthe boom and bust cycles seen in the past.\xe2\x80\x9d57 The Fleet Strategy plans to accomplish this\nobjective by placing relatively small procurement orders, opening these procurement orders to\ncompetitive bids, and spreading out the equipment deliveries over an extended period of time\n(2011-2040), as illustrated in the following figure.58\n\n\n\n\n57\n Amtrak Fleet Strategy, p. 35\n58\n If Amtrak implements our recommendation to operate more cars that are multi-level, it would procure more multi-\nlevel and fewer single-level cars.\n\x0c 44\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Amtrak\n Amtrak Fleet Strategy\n Fleet Strategy - Introduction\n - Introduction ofCars\n of New New Cars\n\n 70\n\n 60 New Single-Level Introductions\n New Multi-Level Introductions\n 50\n Number of Cars\n\n\n\n\n 40\n\n 30\n\n 20\n\n 10\n\n 0\n 13\n\n\n\n 15\n\n\n\n 17\n\n\n\n\n 22\n\n\n\n 24\n\n\n\n 26\n\n\n\n 28\n\n\n\n\n 33\n\n\n\n 35\n\n\n\n 37\n 10\n\n 11\n\n 12\n\n\n\n 14\n\n\n\n 16\n\n\n\n 18\n\n 19\n\n 20\n\n 21\n\n\n\n 23\n\n\n\n 25\n\n\n\n 27\n\n\n\n 29\n\n 30\n\n 31\n\n 32\n\n\n\n 34\n\n\n\n 36\n\n\n\n 38\n\n 39\n\n 40\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n\n 20\n Fleetdata_Rob_Edgcumbe_Jim mods.xls/GraphNewCars\n\n\n\n\nTo assess the impact of Amtrak\xe2\x80\x99s plans on the rail car manufacturing industry in the United\nStates, we gathered data on the number of current active passenger rail cars built between 2000\nand 2009 for all U.S. public transportation agencies operating Heavy Rail and Commuter Rail\nequipment. 59 We considered manufacturers for Commuter Rail and Heavy Rail passenger cars as\nthe ones most likely to build intercity passenger rail cars. The left side of the figure below shows\nthat from 2000 to 2009, an average of 560 cars per year were delivered to U.S. public\ntransportation agencies.\n\n Active U.S. Fleet Passenger Rail Cars (Built 2000 \xe2\x80\x93 2009)\n Heavy Rail and Commuter Rail in U.S.\n Total: 5,604 Cars\n\n Passenger Cars by Year of Manufacturing Passenger Cars by Manufacturer\n Heavy Rail and Commuter Rail Heavy Rail and Commuter Rail\n 1,000 3,000\n Heavy Rail\n Heavy Rail\n Commuter Rail 2,500\n 800 Commuter Rail\n Annual Avg.\n 560 Cars 2,000\n 600\n 1,500\n 400\n 1,000\n\n 200 500\n\n 0 0\n Market_Passenger_Rail_Cars_US_2010.xls/By_Year\n \'00 \'01 \'02 \'03 \'04 \'05 \'06 \'07 \'08 \'09 Market_Passenger_Rail_Cars_US_2010.xls/By_Manuf\n n\n\n\n\n\n n\n\n\n\n\n )\n r\n\n\n\n\n yo\n r*\n\n\n\n\n (5\n Ca\n io\n\n\n\n\n io\n Ca\n\n\n\n\n ar\n at\n\n\n\n\n at\n\n\n\n\n s\n il\n\n\n\n\n Sh\n\n\n\n\n er\n or\n\n\n\n\n rt\n Ra\n il\n Ra\n\n\n\n\n o\n\n\n\n\n th\n rp\n\n\n\n\n n\n sp\n i\n\n\n\n\n O\n po\n Co\n\n\n\n\n ak\n i\n\n\n\n\n an\n ak\n\n\n\n as\n\n\n\n\n p\n er\n\n\n\n\n Tr\n as\n\n\n\n\n Ni\n aw\n i\n\n\n\n w\n rd\n\n\n\n\n m\n /K\n Ka\n ba\n\n\n\n\n o\n st\n m\n m\n\n\n\n\n Al\n\n\n\n\n * formerly Kawasaki Heavy Industries\n o\n Bo\n\n\n\n\n st\n\n\n\n\n Source: 2010 APTA Vehicle Report\n Al\n\n\n\n\n59\n Source of data and definitions of Commuter Rail and Heavy Rail: APTA 2010 PUBLIC TRANSPORTATION\nFACT BOOK, 61st Edition, April 2010, published by the American Public Transportation Association.\n\x0c 45\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nBased on the data from 2000 to 2009, the Fleet Strategy\xe2\x80\x99s plan to have 100 cars delivered every\nyear would represent an average increase of 18 percent in the passenger rail car market.\nHowever, Amtrak does not explain how this amount would be sufficient to create significant\nincreased competition among existing market players or attract new manufacturers to enter the\nmarket.\nAs seen in the above-described passenger rail market from the manufacturers\xe2\x80\x99 perspective (right-\nside figure above), there are already multiple firms in the market, with three dominant\nmanufacturers: Bombardier, Kawasaki, and Alstom. We expect that a considerable amount of\ncompetition already exists in this market.\n\n\nConclusion\n\nThe procurement approach can have a significant impact on manufacturers\xe2\x80\x99 production costs and\nconsequentially equipment prices. Amtrak plans for relatively small order quantities and annual\ndelivery rates that will likely lead to higher equipment prices. While Amtrak states that this\napproach is intended to provide support for a competitive supplier base, the Fleet Strategy does\nnot provide sufficient evidence to show that the likely higher unit costs would be offset by the\nbenefits gained.\n\n\nRecommendation\n\nWe recommend that the President and CEO ensure that future strategy updates clearly\ndemonstrate how Amtrak\xe2\x80\x99s procurement approach results in the most cost-effective use of its\nfunds while advancing support for a competitive supplier base.\n\n\nManagement Comments and OIG Analysis\n\nManagement responded as follows:\n\n \xe2\x80\x9cManagement agrees with the recommendation. The description of the current\n procurement approach has been more clearly outlined in the FY 2011 version of the Fleet\n Strategy Plan. Actual acquisitions will be batched as appropriate and delivery rates will\n be negotiated for best value.\n\n \xe2\x80\x9cManagement believes that the combination of the refinements made to the FY 2011\n Fleet Strategy Plan and the definition of the requirements at the acquisition stage will\n meet the needs of gaining best value for use of Amtrak\xe2\x80\x99s funds.\xe2\x80\x9d\n\nWe consider management\xe2\x80\x99s comments to be responsive to our recommendation.\n\x0c 46\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nINTEGRATION OF SYSTEMATIC FLEET PLANNING PROCESS INTO\nAMTRAK\xe2\x80\x99S OVERALL STRATEGY\n\nAmtrak Did Not Develop the Fleet Strategy as Part of an Overall Fleet\nPlanning Process that was Integrated with Other Strategic Plans and\nActivities\n\nAmtrak did a commendable job of developing its Fleet Strategy, particularly considering the\nbrief time frame available to meet the congressional deadline, and it plans to continually refine\nand update the strategy. However, the strategy was not developed as part of a systematic process\nintegrated with other strategic plans and activities. Using a systematic and integrated process for\nfuture updates would help ensure that the Fleet Strategy best meets Amtrak\xe2\x80\x99s needs in the most\ncost-effective way.\n\nA Comprehensive Model Would Help Amtrak Implement a Systematic Process for\nFleet Planning\nBased on our review of the Fleet Strategy and research into equipment planning processes and\npractices, we have outlined a model, shown in the figure below, of an overall process that could\nbe used for long-term equipment planning.\n\x0c 47\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Fleet Planning Process\n Rolling Stock Requirements Rolling Stock Availability\n Existing routes New routes and Pool of existing rolling stock\n route extensions (includes wrecked or stored equipment that\n can be refurbished)\n Ridership demand and ridership\n demand forecast\n (including scenario analyses)\n Economic useful life analysis\n (includes a technical condition\n Determination service and service level to assessment)\n meet projected ridership demand\n (equipment type and consist, schedules/\n frequencies, load factors, etc.)\n Long-term rolling stock\n Determination of number of rolling retirement profile\n stock required to operate the planned\n service\n\n Addition of rolling stock required for Equipment service availability\n workshop and operational protect improvement plan\n\n Total number of rolling stock Total number of rolling stock\n required for service available for service\n Procurement Plan\n \xe2\x80\xa2 Match required vs. available equipment \xe2\x80\xa2 Consider procurement and manufacturing\n \xe2\x80\xa2 Determine number and type of lead time\n equipment to be procured \xe2\x80\xa2 Determine procurement approach\n\n\n\n\nThis model includes the key factors that should be considered and is organized into three main\nsections:\n \xef\x82\xb7 Rolling Stock Requirements. These determine how much and what kind of equipment is\n required to run planned services. As discussed, the demand for rolling stock depends\n heavily on the projected ridership demand on existing routes, but also on plans for new\n routes. According to the route-specific ridership demand patterns, existing load factors,\n and other surrounding circumstances, the service levels are selected, train schedules are\n developed, and suitable equipment types are identified. This then determines the number\n of pieces of equipment necessary to run the service. To account for mechanical and\n operational issues, an additional percentage of equipment is added.\n \xef\x82\xb7 Rolling Stock Availability. This determines how much of the existing fleet is available\n for the planned services and when it is economically reasonable to retire the equipment.\n Based on the determination of the equipment\'s optimal economic useful life and the\n existing pool of rolling stock, a long-term retirement profile is developed. The\n availability improvement plan is taken into consideration.\n \xef\x82\xb7 Procurement Plan. This determines when and how much of what type of equipment\n should be procured, and the most economical procurement approach for Amtrak and the\n taxpayer. Finally, after long-term rolling stock requirements and availability have been\n\x0c 48\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n matched, a procurement plan is developed for the different types of equipment. It also\n considers procurement and manufacturing lead time and the optimally economical\n procurement approach (under the specific circumstances).\n\nThe process should be applied to each route and service and is ultimately aggregated and\nconsolidated. On an annual basis, this plan should be revised with the latest updates on strategic\nfocus, adjustments in demand projections, and improvements in the planning methodology.\n\nThe Fleet Planning Process Needs to Be Linked to Other Strategic Plans and\nActivities Embedded in Amtrak\xe2\x80\x99s Overall Strategy\nThe fleet plan needs to be an integrated part of an overall business plan that incorporates all of\nthe individual plans necessary to run passenger rail services. As discussed throughout Amtrak\xe2\x80\x99s\nFleet Strategy and this report, the Fleet Strategy supports and depends on many other Amtrak\nstrategies and plans, including the following:\n \xef\x82\xb7 Business Strategy and Goals. The plan for new procurements depends heavily on\n Amtrak\xe2\x80\x99s network strategy. Amtrak has not yet finalized this strategy; therefore,\n questions have yet to be answered about new service developments and future changes to\n existing services that are necessary to properly project fleet requirements. In addition, the\n states will decide in the future on equipment purchases for their state services (existing\n and potential). The Fleet Strategy at this point plans for replacing all existing equipment\n used in Amtrak\xe2\x80\x99s state services but cannot take for granted that all states will ask Amtrak\n to procure rolling stock to run their services. As states solidify their future plans for rail\n services, the impact on Amtrak\xe2\x80\x99s fleet requirements should be integrated into the Fleet\n Strategy.\n \xef\x82\xb7 Infrastructure Plan. Decisions on the number of cars that Amtrak can add to a train to\n accommodate growth are limited by the space available on platforms, in stations, yards,\n and maintenance facilities. However, the Fleet Strategy is not integrated with the long-\n term facility and station master plans. In addition, new train services (frequencies and\n new routes) depend heavily on available access to track infrastructure. Currently,\n infrastructure capacity constraints exist on both the NEC and host railroad routes.\n Therefore, any new frequencies and routes will need to be coordinated with the\n infrastructure expansion plans.\n \xef\x82\xb7 Human Capital Management Plan. Amtrak employees need to have the knowledge,\n skills, and abilities to meet requirements associated with new equipment procurements.\n New generations of rolling stock will use new technologies that may require expertise\n that maintenance and operations staffs may not currently possess. In addition, there may\n not be a sufficient number of employees with expertise in major procurements and\n project management to implement the Fleet Strategy and equipment procurements. To\n ensure that human capital requirements are properly addressed, the Fleet Strategy should\n be linked to a comprehensive Human Capital Management Plan.\n\x0c 49\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\nEmbedding the Fleet Strategy into an overall business planning process, such as the one shown\nin the following figure, would help Amtrak ensure that the fleet plan is properly integrated with\nAmtrak\xe2\x80\x99s overall strategy and other plans.\n\n Integration of the Fleet Plan into\n Amtrak\xe2\x80\x99s overall Business Planning\n\n Amtrak\xe2\x80\x99s Overall Business Strategy and Goals\n\n SD\n LD\n NEC\n Business Plan \xe2\x80\x94 Profit & Loss\n Operating and Capital\n\n\n Pricing Fleet\n Plan Human Infra-\n and Capital struc- Other\n Revenue\n Rolling Stock Availability of\n Requirements Rolling Stock\n Manage- ture\n Plan Plans\xe2\x80\xa6\n Procurement Plan\n ment Plan\n Plan\n\n\n\n\n Fleet Plan\n Rolling Stock Availability of\n Requirements Rolling Stock\n\n\n Procurement Plan\n\n\n\n\nThese business plans start on a route level, roll up to business lines, and finally aggregate to a\ncorporate-wide business plan supporting Amtrak\xe2\x80\x99s strategic goals. The business plans provide\nthe methodology for revenue as well as capital and operating cost planning to assess the financial\nperformance of different service, revenue, and cost scenarios. This would enable Amtrak to\nselect the economically best solution out of various possible and feasible service options.\n\n\nConclusion\n\nA more sophisticated and detailed planning process is needed to help ensure that the estimates\nand assumptions in the Fleet Strategy are accurate and reliable. In addition, a more integrated\nplanning approach will help to ensure that the Fleet Strategy is tied to other strategic plans and\nactivities. Therefore, embedding a sophisticated and detailed fleet planning process into the\ncorporate planning process is essential to improving the quality of Amtrak\'s planning.\n\x0c 50\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n\nRecommendation\n\nWe recommend that the President and CEO ensure that future updates of the Fleet Strategy are\nbased on a more systematic and iterative planning process, one that is integrated with Amtrak\xe2\x80\x99s\noverall strategy and linked to other strategic plans and activities. This should include a financial\nassessment to identify the most economical solution for Amtrak and the taxpayer.\n\n\nManagement Comments and OIG Analysis\n\nManagement responded as follows:\n\n \xe2\x80\x9cManagement agrees with the recommendation. We are in the process of strengthening the\n fleet strategy planning process and have begun recruiting a fleet strategy manager. We will\n also ensure that fleet planning is appropriately integrated with other strategic planning\n activities and published documents. Some of the more detailed analyses contained in the\n report recommendations, such as use of multi-level cars, improved availability\n opportunities, replacement vs. overhaul decisions, and economic useful life decisions will\n be part of the strategic planning process for the company as a whole and each line of\n business. We will ensure that the results of those analyses are reflected in our annual fleet\n strategy updates.\xe2\x80\x9d\n\nWe consider management\xe2\x80\x99s comments to be responsive to our recommendation.\n\x0c 51\n Amtrak Office\n e of Inspecto\n or General\n Evaluatio\n on of Amtraak\xe2\x80\x99s FY 2010 0 Fleet Stra\n ategy:\nA Com\n mmendable\n e High-Leve\n el Plan That Needs Dee eper Analys sis and Plan\n nning Integrration\n Reeport No. E--11-2, March\n h 31, 2011\n\n Ap\n ppendix I\n\n COMMENTS FR\n ROM AMT\n TRAK\xe2\x80\x99S P\n PRESIDEN\n NT AND C\n CEO\n\x0c 52\n Amtrak Office\n e of Inspecto\n or General\n Evaluatio\n on of Amtraak\xe2\x80\x99s FY 2010 0 Fleet Stra\n ategy:\nA Com\n mmendable\n e High-Leve\n el Plan That Needs Dee eper Analys sis and Plan\n nning Integrration\n Reeport No. E--11-2, March\n h 31, 2011\n\x0c 53\n Amtrak Office\n e of Inspecto\n or General\n Evaluatio\n on of Amtraak\xe2\x80\x99s FY 2010 0 Fleet Stra\n ategy:\nA Com\n mmendable\n e High-Leve\n el Plan That Needs Dee eper Analys sis and Plan\n nning Integrration\n Reeport No. E--11-2, March\n h 31, 2011\n\x0c 54\n Amtrak Office\n e of Inspecto\n or General\n Evaluatio\n on of Amtraak\xe2\x80\x99s FY 2010 0 Fleet Stra\n ategy:\nA Com\n mmendable\n e High-Leve\n el Plan That Needs Dee eper Analys sis and Plan\n nning Integrration\n Reeport No. E--11-2, March\n h 31, 2011\n\x0c 55\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Appendix II\n\n EVALUATION METHODOLOGY\nTo review Amtrak\xe2\x80\x99s Fleet Strategy, we used a combination of qualitative and quantitative\ntechniques. We conducted a comprehensive set of interviews with key Amtrak employees and\ncontractors involved in the preparation of the strategy. We interviewed people who provided\ncritical support data, made policy and program decisions, and/or prepared the written strategy\ndocument. The information obtained through these interviews, in combination with the\ninformation in the Fleet Strategy itself and other supporting documents, identified the specific\ndata and assumptions Amtrak used to support the projected investment of $23 billion.\n\nTo assess the reasonableness of the data and assumptions, we analyzed the supporting data to\ndetermine its accuracy and relevance, considered the applicability of the assumptions, and\nreviewed available literature to identify the typical processes used to support major asset\nreplacements. In reviewing rolling stock retirement criteria, we benchmarked Amtrak\xe2\x80\x99s\nmethodology against typical asset-replacement ages and decision drivers for equipment\nreplacements from European railroads by using the services of SCI Verkehr, a German company\nspecializing in international railroad rolling stock consulting. On the question of whether it is\nfeasible and practical to run multi-level cars on Amtrak\xe2\x80\x99s Northeast Corridor, we asked LTK\nEngineering Services to study the issue and provide us with a report analyzing the relevant\nconcerns. To understand equipment availabilities achieved by other passenger rail operators, we\nused benchmark data provided by BSL Transportation Consultants. Finally, to obtain\ninformation on rail car manufacturing practices, we visited Kawasaki\xe2\x80\x99s plant in Yonkers, New\nYork.\n\x0c 56\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n Appendix III\n\n OIG TEAM\n\n\nThis evaluation was carried out and the report written under the direction of Calvin Evans,\nAssistant Inspector General for Inspections and Evaluations (I&E). Team members included\nNico Lindenau (Director I&E), and Jim Simpson (Chief I&E).\n\x0c 57\n Amtrak Office of Inspector General\n Evaluation of Amtrak\xe2\x80\x99s FY 2010 Fleet Strategy:\n A Commendable High-Level Plan That Needs Deeper Analysis and Planning Integration\n Report No. E-11-2, March 31, 2011\n\n\n OIG MISSION AND CONTACT INFORMATION\nAmtrak OIG\xe2\x80\x99s Mission Amtrak OIG\xe2\x80\x99s mission is to\n\n \xef\x82\xa7 conduct and supervise independent and objective\n audits, inspections, evaluations, and investigations\n relating to Amtrak programs and operations;\n\n \xef\x82\xa7 promote economy, effectiveness, and efficiency within\n Amtrak;\n\n \xef\x82\xa7 prevent and detect fraud, waste, and abuse in Amtrak\'s\n programs and operations;\n\n \xef\x82\xa7 review security and safety policies and programs; and\n\n \xef\x82\xa7 review and make recommendations regarding existing\n and proposed legislation and regulations relating to\n Amtrak\'s programs and operations.\n\nObtaining Copies of OIG Available at our website: www.amtrakoig.gov.\nReports and Testimony\nTo Report Fraud, Waste, Report suspicious or illegal activities to the OIG Hotline\nand Abuse (you can remain anonymous):\n\n Web: www.amtrakoig.gov/hotline\n Phone: 800-468-5469\nCongressional Affairs & E. Bret Coulson\nPublic Relations Congressional Affairs & Public Relations\n\n Mail: Amtrak OIG\n 10 G Street, N.E., 3W-300\n Washington, DC 20002\n Phone: 202-906-4134\n Email: bret.coulson@amtrakoig.gov\n\x0c'