Posted 13th November 2009 | 4 Comments

As National Express bows out, what is East Coast worth now?

Railnews Business Newsdesk

National Express is the second operator to default on East Coast in three years, and now observers are wondering what kind of financial return from the line the government can hope for in future.

When GNER failed in 2006, having contracted to pay premiums of £1.2 billion over ten years, the problem was attributed to exceptional factors, including the London bombings of 2005, which depressed traffic, and also the financial meltdown of GNER's owner Sea Containers. National Express was the winner of the competition to find a replacement, offering some £1.4 billion.

In fact, because the new franchise was to run for just under eight years, this total was a lot more than it looked, being equal to £500,000 a day, whereas GNER had contracted to pay £350,000. Again, such a level of premiums has proved to be too much, with the economic downturn prompting thousands of formerly full-fare premium passengers to downgrade.

From Saturday, East Coast will be run by a subsidiary of the DfT's Directly Operated Railways. The East Coast managing director is Karen Boswell, but DOR itself is being chaired by Elaine Holt.

The DfT has already said that profits from the route will go directly to the public purse, but we don't know whether the equivalent of a premium profile has been worked out -- in other words, whether East Coast will be expected to make payments at an agreed level, as many privately owned franchises do.

We've had one hint: Elaine Holt said a few days ago that the premiums, if that is the right word, will be "nothing like £180 million a year". So presumably they'll be less, and also presumably they will have to be published in due course.

The industry will be watching closely. It will want to see how the Government really values a rail franchise when it isn't merely the franchisor -- but franchisee as well. 



 

Reader Comments:

Views expressed in submitted comments are that of the author, and not necessarily shared by Railnews.

  • Innocent Abroad, London, England

    When SouthEastern Trains was taken back in-house, the working of the trains became noticeably smarter - until, of course, the staff clocked that this was just making the day of their re-privatization happen so much sooner...

  • Geoff Steel, Northampton, United Kingdom

    How can NX be allowed to walk away from East Coast (at the tax payers expense) and yet retain their other franchises which are no doubt making profits for the company.

    If no real punitive action is taken against NX what sort of message will that send out to other TOC's who may be thinking about handing back the keys when times are hard and margins are being squeezed.

  • Simon Adams, Haslemere

    If there's so much money to be made then why re-franchise at all?

  • N O'S, Grantham, UK

    The debate about payments is irrelevant: it's government run. While in this state any profits generated will surely ALL go to the government. It should increase the Treasury's take since there will no longer be a train operator's overheads reducing the profits.

    See Christian Wolmar's superb book "On The Wrong Line".