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Iowa Pacific Holdings: A Unique Short Line Company

Published: August 7, 2024

By: Adam Burns

Iowa Pacific Holdings was a relatively recent short line conglomerate, formed in 2001 by Ed Ellis. Before its 2021 bankruptcy, IHP had grown to own nearly a dozen railroads in the United States and England while also expanding into other fields within the industry.

Mr. Ellis was long been a railfan in his own right with a particular infinity for the "Main Line Of Mid-America," the Illinois Central.

As such, he often purchased historic EMD cab locomotives - if he deemed them a good investment - and painted the units in IC's classic chocolate and yellow passenger livery.

During IHP's final years he attempted to rejuvenate an industry long believed extinct, privatized passenger rail service, via Pullman Rail Journeys.  Operated in conjunction with Amtrak the operation was well-received but not profitable.

Santa Cruz & Monterey Bay's pair of beautifully restored F units lead a passenger excursion through stunning Monterey, California along Monterey Bay in late November of 2012. Drew Jacksich photo.

Founding

Iowa Pacific Holdings, LLC (IPH), established in March, 2001, was a prominent name in the short-line and regional railroad industry in the United States.

Founded by Edwin “Ed” Ellis, a seasoned railway executive with extensive experience with Amtrak and other railroads, Iowa Pacific set out to create an extensive network of short line railroads and passenger rail services by acquiring numerous rail lines across the country.

The company quickly expanded its operations through strategic acquisitions, innovative thinking, and a diverse approach to service offerings.

A pair of San Luis & Rio Grande F40PH's have been pressed into service on the Piedmont & Northern short line. They are seen here on September 20, 2015. Iowa Pacific began providing freight service on the line on August 1, 2015. Warren Calloway photo.

Early Years & Expansion

The early 2000s were marked by IPH’s aggressive expansion strategy. The company’s first significant acquisition was the Texas-New Mexico Railroad via IHP's railroad arm, Permian Basin Railways.

T-NM served west Texas and southeast New Mexico via 104 miles of track with a traffic base geared towards the energy/oil industry in the Permian Basin, a region known for its oil production.

This early acquisition set the stage for further growth and demonstrated IPH’s ability to turn around underperforming rail lines into profitable ventures. Following this, IHP progressively acquired an array of rail lines across the United States, ranging from freight services to scenic passenger excursions.

Its next portfolio was the West Texas & Lubbock Railway.  It owned more than 100 miles of former AT&SF lines in the Lubbock area with traffic largely centered around agriculture and the energy industry.

Both the T-NM and WT&L were later sold to the Watco Companies, another short line conglomerate, in May of 2015 and renamed as the Texas & New Mexico Railway and Lubbock & Western Railway.

In 2004 IHP acquired the Arizona Eastern Railway, a 1988 startup using former Southern Pacific trackage in Arizona's southeastern corner (also later sold, in 2011 to Genesee & Wyoming).

Since then it continued acquiring ventures it believed could be operated profitably.  These other holdings included:

• San Luis & Rio Grande Railroad (2005)
• Chicago Terminal Railway (2006)
• Mount Hood Railroad (2008)
• Saratoga & North Creek (2011),
• Massachusetts Coastal Railroad/Cape Cod Central Railroad (both divisions of Cape Rail, Inc. acquired in 2012)
• Piedmont & Northern (2015)
• Grenada Railway (2015).

In addition, it went international in 2008 by acquiring the Dartmoor Railway and holds an interest in the Weardale Railway, both located in Great Britain; these properties are operated via their British American Railway Services arm. The company also branched out into transload services, rail car leasing/repair, and marketing to create new business along all of its properties.

Passenger Rail Services

The Pullman Rail Journeys, launched in November, 2012, aimed at recreating the luxury rail travel experience reminiscent of the "Silver Age" of railroads.

PRJ - running between Chicago and New Orleans - attempted to bring back the romance of the rails by offering services authentic to those provided by Pullman, which included the use of porters, chefs/cooks, and related personnel. Although the service was highly acclaimed, it was a niche market and faced significant operational challenges.

Illinois Central-Inspired Livery

Iowa Pacific's equipment was adorned in a chocolate brown and orange livery with yellow pinstriping. Since Mr. Ed. Ellis was been a longtime fan of the classic Illinois Central, the company's equipment was draped in a similar scheme, even using the IC's old green diamond logo.

For the CEO, the acquisition of the Grenada Railway in late 2015 hit especially close to home. This segment of track was originally the IC's "Grenada District" main line; located across much of central Mississippi it hosted the railroad's premier passenger trains such as the City Of New Orleans and Panama Limited at high speeds.

By 2015 it was in danger of being abandoned before it being acquired by Iowa Pacific that year. It was hoped that efforts to revitalize business along the property could sustain its future, the route made famous by IC engineer J. L. “Casey” Jones in 1900.

Santa Cruz & Monterey Bay's F units tote a pair of reefers down Walker Street in Watsonville, California for delivery to Union Pacific on August 6, 2014. Drew Jacksich photo.

Challenges and Financial Struggles

Despite its ambitious vision and rapid expansion, Iowa Pacific faced numerous financial struggles over the years. The challenges were multifaceted, including high operational costs, regulatory hurdles, and deferred maintenance on many acquired rail lines.

Moreover, the inherent challenges of the freight rail industry—fluctuating commodity prices, competition from trucking, and changing market dynamics—exacerbated these difficulties.

A significant setback came in the form of litigation and regulatory fines. For instance, in 2017, the Federal Railroad Administration imposed penalties for violating safety regulations, adding strain to IPH's already tight financial resources.

Furthermore, some of their passenger services, although critically acclaimed, were not financially sustainable in the long term.

Santa Cruz & Monterey Bay's F units are in freight service as they pass the ex-Southern Pacific depot at Watsonville, California on October 1, 2014. Drew Jacksich photo.

Restructuring and Asset Sales

To mitigate its financial woes, Iowa Pacific Holdings began divesting some of its assets. The company sold several of its railroads to focus on its core and more profitable operations.

Noteworthy transactions included the sale of the San Luis & Rio Grande Railroad and the Mount Hood Railroad. These sales were aimed at reducing debt and generating liquidity, but they also marked a significant contraction in the scale of IPH's operations.

In 2019 and 2020, numerous subsidiaries of IPH were placed under receivership. Facing severe financial distress, Iowa Pacific's key rolling stock holding companies, Heritage Rail Leasing and the San Luis & Rio Grande Railroad, sought Chapter 11 bankruptcy protection. A U.S. bankruptcy court in Denver subsequently appointed a trustee to oversee their operations.

In late March 2021, Iowa Pacific Holdings itself filed for Chapter 7 bankruptcy in the U.S. bankruptcy court for the Northern District of Illinois. By 2021, the company's former rolling stock and subsidiary railroads had been sold and auctioned off under the direction of the appointed trustees.

Iowa Pacific subsidiary Saratoga & North Creek using a rare BL2 (ex-Bangor & Aroostook #552) on a former Delaware & Hudson branch line in New York. It is seen here parked at the station in Saratoga Springs on November 25, 2011 with the "Santa Train." Doug Kroll photo.

Legacy and Industry Impact

Despite its financial struggles and eventual downsizing, Iowa Pacific left an indelible mark on the railroad industry in the United States. The company demonstrated the viability of innovative approaches to both freight and passenger rail services, even in an industry dominated by larger Class I railroads. It was instrumental in revitalizing several regional rail lines, preserving jobs, and maintaining essential transportation links in various communities.

The company's vision for luxury passenger services, through endeavors like Pullman Rail Journeys, reignited public interest in rail travel's nostalgic charm and premium service, setting a benchmark for others in the industry.

Although not all of its passenger ventures were financially sustainable, they contributed to the broader discourse on the potential and challenges of passenger rail in America.

Conclusion

Iowa Pacific's narrative is one of ambition, innovation, and the harsh realities of the transportation industry. Founded with a vision to create an expansive network of profitable short-line and passenger railroads, IPH's journey was fraught with financial hurdles and operational complexities.

The company's rise and fall serve as a case study in the dynamic and often unpredictable nature of the railroad industry, underscoring both its significant achievements and the challenges that ultimately defined its path.

Even as Iowa Pacific faced difficulties, its impact on the industry remains noteworthy. The company's efforts in reviving neglected rail lines and exploring the potential of luxury passenger services have left lasting impressions.

While its eventual downsizing marked a sobering chapter, IPH’s ambitious foray into the world of railroads offers valuable lessons in the constant balancing act of innovation and financial sustainability in the transportation sector.