Milwaukee Road sale may herald the end of mid-size railroads

The Milwaukee Road has reached the end of the line. The railroad - formally called the Chicago, Milwaukee, St. Paul & Pacific Railroad - is bankrupt. Next week a federal judge is scheduled to begin hearings to determine what railroad will merge with it.

In an era of giant railroad mergers, the debate over the mid-sized Milwaukee Road may sound small-time. Nevertheless, railroad analysts say, the merger poses important questions. At stake is not only who will get the railroad, but also whether mid-sized railroads can survive at all.

In recent years, railroad giants like the Santa Fe Railway and Southern Pacific Transportation Company - themselves products of previously merged railroads - have been merging, says Richard Saunders, an associate history professor at Clemson University who has written a book about Conrail and railroad mergers.

But ''in these mega-mergers ... there have been a few leftovers,'' Saunders says. These include not only the Milwaukee Road, but its two suitors as well - the Soo Line Railroad and the Chicago & North Western Transportation Company. All three have felt the pressure of these huge networks, analysts say.

''It's tougher for the smaller railroads to fight in that (environment),'' agrees Michael Sullivan, general solicitor for the trustee of the Milwaukee.

The Milwaukee didn't make it, in part, because it was trying to operate too much track for too little business. After filing for bankruptcy in 1977, the railroad was ordered to cut its size and seek a merger. The results have been dramatic. Its rail system, which used to stretch 10,000 miles, has been pared to 3,100. Instead of reaching to Seattle, the Milwaukee goes only as far west as Ortonville, Minn.

But the Soo and the Chicago & North Western have remained mostly profitable. Both see acquisition of the Milwaukee as aiding their attempts to strengthen themselves. ''I wouldn't key it to survival,'' says John Bergene, corporate communications director for the Soo, which is majority owned by Canadian Pacific Ltd. But ''we want to get larger and expand into new markets.''

Recently the Interstate Commerce Commission unanimously recommended a merger of Milwaukee with the Soo Line. The commission split 2-2, however, on the bid by Chicago & North Western.

Many shippers and state officials in Iowa, Minnesota, and Wisconsin agree the Soo should run the Milwaukee.

If the Chicago & North Western were allowed to instead, it would acquire lots of duplicate track, they argue, and thus would make it a dominant force in the region. A Soo takeover would involve less duplicate track and would bring in an effective competitor, they add.

''There's a lot of grain in the Midwest - and there's more than enough for two carriers,'' says Les Holland, director of the rail-and-water division of the Iowa transportation department.

Even with the merger, prospects for survival are uncertain for both railroads , no matter which one gets the Milwaukee, some analysts say.

''They see themselves surrounded by giants,'' says John Fuller, regional planning professor at the University of Iowa. But ''I am not fully convinced we're going down to ... five main operators in this country.''

Thomas Ploss, former general solicitor of commerce for the Milwaukee, is more pessimistic. There is ''no room for them,'' he says. ''They're being engulfed.''