Grand Trunk Railway - Bankruptcy and Nationalization

Bankruptcy and Nationalization

As the dominant railway in British North America, GTR was reportedly asked by the federal government soon after Confederation to consider building a rail line to the Pacific coast at British Columbia but refused, forcing the government to enact legislation creating the Canadian Pacific Railway (CPR) to meet British Columbia's conditions for joining Confederation. By the early 20th century, GTR desired to operate in Western Canada, particularly given the virtual monopoly of service that CPR maintained and the lucrative increasing flows of immigrants west of Ontario. The federal government encouraged GTR to co-operate with a local railway company operating on the Prairies, the Canadian Northern Railway (CNoR), but an agreement was never reached.

CNoR decided to build its own transcontinental system at this time, forcing GTR in 1903 to enter into an agreement with Wilfrid Laurier's government to build a third railway system from the Atlantic to the Pacific. GTR would build (with federal assistance) and operate the Grand Trunk Pacific Railway (GTPR) from Winnipeg, Manitoba to Prince Rupert, British Columbia, while the government would build and own the National Transcontinental Railway (NTR) from Winnipeg to Moncton, New Brunswick via Quebec City, which the GTR would also operate.

As part of this program, the federal government encouraged the GTR to purchase the Canada Atlantic Railway (CAR) with lines southeast from Ottawa to Vermont, and west from Ottawa to Georgian Bay. The GTR took effective control of the CAR in 1905, although the purchase was not ratified by Parliament until 1914.

The routing of these systems was extremely speculative, as GTPR's main line was located farther north than the profitable CPR main line in the Prairies, and NTR was located even farther north of populous centres in Ontario and Quebec. Construction costs on the GTPR escalated, despite having the most favourable crossing of the Continental Divide in North America at Yellowhead Pass. GTR's cost-conscious president Charles Melville Hays was one of the victims on board RMS Titanic on April 15, 1912. His death is speculated to have contributed to poor management of GTR over the ensuing decade, and also contributed to the abandonment of the uncompleted Southern New England Railway to Providence, Rhode Island, begun in 1910.

Construction started on the GTPR/NTR in 1905, and the GTPR opened to traffic in 1914, followed by the NTR in 1915. It was a transcontinental system, with the only exception being the NTR's ill-fated Quebec Bridge, which would not be completed for several more years.

The first indication the arrangement with the government was faltering came when GTR refused to operate the NTR, citing economic reasons. With the enormous cost of building the GTPR and the limited financial returns being realized, GTR defaulted on loan payments to the federal government in 1919. GTPR was nationalized on March 7 of that year, being operated under a federal government Board of Management until finally being placed under the control of the Crown corporation Canadian National Railways (CNR) on July 20, 1920.

GTR underwent serious financial difficulties as a result of the GTPR, and its shareholders, primarily in the United Kingdom, were determined to prevent the company from being nationalized as well. Eventually on July 12, 1920, GTR was placed under control of another federal government Board of Management while legal battles continued for several more years. Finally, on January 20, 1923, GTR was fully absorbed into the CNR on a date when all constituent companies were merged into the Crown corporation.

At the time that the GTR was fully merged into CNR, approximately 125 smaller railway companies comprised the Grand Trunk system, totaling 12,800 kilometres (8,000 mi) in Canada and 1,873 kilometres (1,164 mi) in the United States.