REFILE-Troublesome locomotives among CP Rail "headwinds"

(Refiles to correct CFO's first name to Mike from Mark in second paragraph)

VANCOUVER, British Columbia, Feb 21 (Reuters) - Troublesome new locomotives are among the problems that have made life difficult for Canadian Pacific Railway Ltd. (CP.TO) in the first quarter, executives said on Thursday.

But the railway is still bullish on its performance for 2008, and in a better position than its rivals to weather a further downturn in the U.S economy, Chief Financial Officer Mike Lambert said.

The railway was facing "headwinds", such as weather, fuel costs and a regulatory ruling, that have put pressure on near-term results, Lambert told the CIBC investment conference in Whistler, British Columbia.

It has also had problems with 40 locomotives it recently bought from General Electric in a bid to improve the reliability of its engine fleet, chief operating officer Kathryn McQuade said.

"Unfortunately, the performance of those new locomotives has been less than desired. We actually have had a lot of reliability problems with those new locomotives," McQuade told the conference.

The locomotive problems has caused "choppiness in the network in the first quarter," but the railway and GE were working on the issue, she said.

Canadian Pacific was keeping an eye on its domestic intermodal traffic, but the drop it was expecting because of the slowing U.S. economy had not yet materialized, Lambert said.

CP Rail has operations in both Canada and the United States.

On Wednesday, the company lowered its 2008 earnings guidance by 5 Canadian cents to a range of between C$4.65 and C$4.80 a share, after regulators cut the amount of revenue Canadian railways can earn from hauling Prairie grain.

CP and Canadian National Railway (CNR.TO) both plan to appeal the ruling, which is retroactive to the beginning of the current crop year on Aug. 1, 2007.

($1=$1.01 Canadian) (Reporting Allan Dowd, Editing by Rob Wilson)