CP RAIL MEETING MAY HOLD KEY TO D&H FUTURE

CP RAIL MEETING MAY HOLD KEY TO D&H FUTURE

CP Rail's pursuit of Delaware & Hudson Railway Co. may be at the make-or- break stage.

Officials of CP Rail, a unit of Canadian Pacific Ltd., are scheduled to meet today with Guilford Transportation Industries and attempt to hammer out a final agreement covering traffic interchanges at Mechanicsville, N.Y.An agreement to upgrade interchange levels at the Mechanicsville gateway is a key condition to CP Rail's $25 million offer to acquire D&H, a 1,600-mile rail system in bankruptcy since June 1988.

For years, Mechanicsville has been the primary interchange point between D&H and Guilford's Boston & Maine Corp. line. As much as 25 percent of D&H's traffic moved through this interchange.

Last month, Guilford started to interchange traffic with Conrail at Ayr, Mass., rather than D&H at Mechanicsville.

The change has caused traffic moving along D&H to drop off dramatically. Some estimate that traffic interchanged between B&M and D&H has fallen off by as much as 40 percent.

That is a big problem for D&H because few shipments originate or terminate on its lines and that forces it to depend on traffic it interchanges with other carriers to remain viable.

CP Rail officials are hopeful an interchange agreement can be reached.

"We have nothing on paper yet but we're not having Conrail-type negotiating problems," said John Coxe, an official in Canadian Pacific's communications office.

Mr. Coxe was referring to a bitter dispute between Conrail and CP over trackage rights on a Conrail line between Harrisburg, Pa., and Hagerstown, Md. CP Rail wanted those rights as a condition to an earlier offer to acquire D&H.

Access over the line would have given the CP Rail system a direct connection to the Norfolk Southern Corp. system and direct access to the Southeastern United States.

Talks broke down and CP withdrew its offer after Conrail demanded access to serve 80 percent of Canada's industrial base in exchange for permitting D&H to operate over the 70 miles of Conrail track.

Mr. Coxe refused to give further details about today's meeting but he denied reports CP intended to make any offer to acquire the Guilford rail system.

According to an attorney watching the case, a CP acquisition of Guilford would make sense because it would ensure D&H would have enough interchange traffic to remain viable.

But Conrail would strongly oppose any CP Rail application to acquire both D&H and the Guilford system, the attorney added. That could create problems in obtaining Interstate Commerce Commission approval of the transaction.

Guilford appears to want rights to expand its service area in exchange for upgrading traffic flows at the Mechanicsville interchange.

That can be done in a variety of ways, according to another observer. He cited running rights and trackage lease arrangements as examples of those options.

"There are a lot of options available that can allow a workable package to be puttogether," another attorney following the discussions said.

A CP-Guilford agreement would set the stage for the final round of talks with Francis P. DiCello, the trustee overseeing D&H's reorganization under the federal bankruptcy laws.