MONTREAL, Que. – Canadian National has ended its hopes of forming the largest railway in North America, dropping its bid for a $28-billion merger with Burlington Northern Santa Fe (BNSF).

For now, at least.

Both rail giants dropped their plans for what was to be known as North American Railways, blaming a temporary moratorium on rail mergers that had been introduced by U.S. regulators in March.

CN currently runs 25,000 kilometres of track across Canada and down the Mississippi, but with the merger would have seen its reach stretch along 80,000 km of rails from one end of the continent to the other.

“We had looked forward to creating a company that could have been the leader in every aspect of the rail industry,” CN president Paul Tellier said in a statement. “But the delay and uncertainty caused by the (U.S.) Surface Transportation Board’s moratorium and proposed rulemaking made it impossible for us to continue.”

According to Tellier, the 11 months left in the moratorium – and the likelihood that the approval process would require another 15 months in addition to that – would push any merger into 2002.

A U.S. court rejected the railways’ appeal to have the moratorium overturned.

U.S. regulators were afraid that the deal would have forced North America’s remaining four large railways to merge as well, creating trouble similar to the logistical nightmares created by earlier rail mergers in the southern U.S.

Canadian National and Burlington say they still have hopes of sharing resources.

Despite the collapsed deal, CN announced strong second-quarter results.

The railway’s second-quarter income of of $230 million was up 18 per cent over the corresponding period last year.

When comparing the figures to the second quarter of 1999, Tellier cited a 25 per cent increase in the automotive business and a nine per cent jump in intermodal work for the increase.

In the meantime, Tellier has not ruled out a future merger once the U.S. Surface Transportation Board finally releases its merger guidelines.

And in what seemed to be a shot against rival railways who fought the merger (CP was among them), Tellier said they should all focus on regaining market share that has been lost to the trucking industry. n