OTTAWA -- The National Post reports that despite uncertainties in the economy, Canadian Pacific Railway Co. is anxious to set out as an independent company, says Hugh MacDiarmid, executive vice-president.

"There is a good positive buzz around our hallways. People are excited at the prospect," he said having recently toured CPR to discuss with its 17,500 employees the breakup of parent Canadian Pacific Ltd.

CP said last month it will divest all its units into five publicly-traded companies by fall. Of its operations, which include coal, energy, hotels and shipping, the railway is attracting attention not only because it is seen as a strong stand-alone but because it is viewed as a takeover candidate due to industry consolidation.

"We believe we have the strength and potential to be an even stronger, bigger and more robust competitor," he said.

Over the past four years, CP has invested $3-billion upgrading the railway. As a result, CPR, with operating income of $845.2-million in 2000, is tied for the second-most efficient railway in North America, behind arch-rival Canadian National Railway Co.

To improve on those results, Mr. MacDiarmid said CPR will concentrate on turning around the Delaware & Hudson Railway Co. Inc., its subsidiary in the U.S. Northeast. As well, it will continue with its $250-million service excellence plan and further develop its inter-modal operation, which is now the single largest segment of the business.

The immediate aim is to hit operating income of $1-billion within the next few years, which will require cutting its operating ratio -- the percentage of revenue needed to run the railway -- to the low 70s from 76.9% in 2000, he said. But CPR will have to achieve its goals against a backdrop of a declining economy, which has seen a drop-off of 3.3% in carloadings this year, with a 3.2% increase in less-lucrative intermodal traffic.

"We expect to grow year over year in our revenue and our loading, but perhaps the rate of growth will be lower than we had thought when we put together our budget," he said.

Further clouding the future is the size of a special dividend CPR will likely pay its parent before the spinoff. It is expected at least some of the dividend will be paid with debt, and that could affect the borrowing ability of the railway -- an important consideration, given the industry typically demands 18% to 20% of revenue be reinvested in capital expenditures each year.

So far, CP has not said how big the dividend will be, but it has promised each unit spun out will be investment grade. Given CPR's current debt-to-capitalization level in the mid-40% range and the cut-off rate for investment grade at the 70% to 75% level, some observers believe the railway could take on up to $1-billion in additional debt.

Others think it should be less. James David, an equity analyst UBS Warburg, suggests a dividend in the $300-million to $500-million range. In a recent report, he argued the railway should not have to pay a dividend, given that its debt rating will already be weakened by separating from the parent. Depending on the size of the payout, from zero to $1-billion, the value of the railway could be affected by about $3 per share.

Mr. MacDiarmid would not comment on the dividend, noting that is for CP to decide. But he was less reticent on the question of a takeover. With the moratorium on major rail mergers in the U.S. expiring in June, there is speculation another round of mergers could begin and that CPR, the smallest class 1 carrier, will be a target.

"We are absolutely determined to be an independent, stand-alone railway. We believe that we've delivered good results to this point, but we believe there is a lot more we can do," he said. "In fact, when you look at the intent of Canada's transportation policy, it's to have a competitive environment, so our goal is absolutely to be an independent railway."