CHARLOTTE, N.C. -- The chairman of Norfolk Southern Corp., the giant railroad company that was outbid for Piedmont Airlines, denies that his company put Piedmont into play simply to raise the value of its investment in the airline.

In an interview last week in Charlotte, Arnold McKinnon said he was happy Norfolk Southern will earn a handsome return on its investment in Piedmont, but added that he was still somewhat disappointed the merger didn't work out. Piedmont agreed in March to a takeover by USAir.

"It was a mixed feeling because we did own 20 percent of the stock," McKinnon said.

But he added: "The disappointment was more human than economic."

The giant railroad will realize more than $100 million in profits on the sale of its stock to USAir if the merger receives regulatory approval. Recalling his company's discussions last winter about Piedmont, McKinnon said the Norfolk Southern board had been scheduled to approve the Piedmont acquisition at $65 per share on the February day that McKinnon returned to work after recuperating from heart bypass surgery.

Instead, the directors learned that USAir had come forward with a higher offer valued at $69 per share. Norfolk Southern did not raise its bid. One Piedmont director, Thomas Davis, has said the airline's board was disappointed that Norfolk Southern did not increase its bid.

"We debated it and concluded from a standpoint of our return requirements and the risk we'd acquire in moving into a different business" not to increase the offer, McKinnon said. "The price got too high."

Some analysts have speculated that Norfolk Southern put Piedmont into play to raise the stock price. But McKinnon said the railroad's $65 offer, arrived at after extensive negotiations with Piedmont, offered a substantial premium over the $45 range at which Piedmont's stock had been trading.

"You have to be disciplined in not getting carried away in the excitement and going beyond what is a reasonable price," McKinnon said. "The temptation is to go up a few more dollars, and a few more dollars, as so many of these mergers do." Piedmont's Davis said recently that Norfolk Southern had tried to buy Piedmont in 1982. Instead, the two companies negotiated a five-year standstill agreement that limited Norfolk Southern's investment to 19.4 percent until 1987.

Norfolk Southern, now flush with about $1 billion cash earned from an abortive attempt to buy Conrail, is looking for acquisitions, McKinnon said.

While conceding that he's learned to "never say never," McKinnon said the railroad has no plans to bid on the combined USAir-Piedmont. "We have enough things on our plate not to have to look at airlines."

Norfolk Southern, he said, would prefer to take over a transportation-related company, since it is "what we know the most about," or invest in real estate.