Franchise bid derails National Express
Updated on 01 July 2009
The government seizes back the east coast rail service from National Express, after it became clear the private company could not meet its financial obligations.
National Express had made an ambitious billion-pound bid to win the east coast line, but the recession blew a hole in its plans.
Now the company and ministers are trading insults. The former Deputy Prime Minister John Prescott says the franchise should now be left in public ownership.
The troubled rail franchise has been hit by falling passenger numbers, but ministers have refused the company's requests for its contract to be renegotiated.
Ray O'Toole, chief operating officer at National Express, praised the company's handling of the east coast mainline service since they took over the franchise. "All bar the financials, we have delivered a good railway," he told Channel 4 News.
When asked about the company's ability to operate its two other rail franchises, Mr O'Toole said: "The other two franchises we operate very clearly are delivering everything, all the franchise commitments, as is east coast at this point in time."
"There are about five or six franchises in the rail industry at the moment who are getting revenue support directly from the government, so you can see from that statistic that the bids never envisaged this coming along."
The announcement of the takeover came as National Express revealed its chief executive Richard Bowker, a former boss of the now-defunct Strategic Rail Authority, was leaving to take up a rail job in the Middle East.
'Very good deal'
Speaking to Channel 4 News at Noon, Lord Adonis defended government's actions.
"We have not jumped the gun at all," Lord Adonis said. "National Express said this morning that it did not expect to meet its commitments by the end of the year - it expected that its subsidiary, which runs the services on the east coast main line, would become insolvent by the end of the year. That is National Express's own statement.
"As a result of that statement I had a duty to take appropriate action and have therefore set up a company which will take over the east coast main line services at the point of which National Express if unable to do so."
On the reports that National Express had offered the government money to end the contract, Lord Adonis said: "I was not prepared to agree that National Express could break the terms of their contract. Had I done so that would have driven a coach and horses through the whole franchising model for the railways which in fact is proving successful.
"This is the only operator that has come to us and told us it doesn't expect to be able to continue. If I had been prepared to agree that National Express could walk away from their contract in return for a fee, then other rail franchise operators who are also facing losses, would of course immediately have come to me and said: 'We want a similar deal'.
"That would have been a very, very poor deal for the taxpayer and the travelling public."
He said he did not believe the arrangement would cost the taxpayer more, adding: "We've had a very good deal over the last two years from National Express.
"We will now operate the franchise for about a year, but we will the re-let the franchise, and by having a competitive process for re-letting that franchise I believe we will get another good deal for the taxpayer.
"The alternative, which is that we don't have a competitive process and we do sweetheart deals with one operator, would be much, much worse for the public.
"The east coast main line business is operating at a profit at the moment. The reason why the National Express group is experiencing a loss is because of the commitment to pay the government premium payments over and above the profits that they are making.
"They had expected to be making much larger profits from the operation because they had projected much larger passenger growth. But the underlying business is profitable.
"When we manage this contract in the public sector, we will of course take the full income from the franchise and that includes the profitability that there is in the underlying business."
