With the August issue even now at the printers, it has only just dawned on me that this month’s column has a theme – malfunctions in the franchise system. Transport Secretary Lord Adonis claims that the collapse of National Express East Coast (NXEC) is an anomaly, but Brian Souter says DfT’s approach is a dog’s breakfast and Virgin wants to go back to 1996.
Not exactly ground-hog day but in August 2006, the Inter-City East Coast Franchise was in trouble. So before covering the announcement by National Express Group (NEG) on 1 July that with growth at NXEC only 1% instead of the projected 9-10% it would default when the committed funds ran out, I thought it might be instructive to see how that first failure informs the present. And there are some interesting ‘pre-echoes’.
I also revisit NEG’s current bid and, with a table or two, compare it with the GNER premium profile it replaced. It’s worth noting that DfT Rail rejected the higher Arriva bid for Inter-City East Coast as ‘high risk’, preferring the ‘medium risk’ offer from National Express offer.
Those of us who remember the sudden end to revenue growth experienced by British Rail’s InterCity business at the start of the 1990s have been waiting for an action replay in the current recession. Revenue growth has been defying economic gravity for longer than many old-BR hands expected, but has now fallen of the edge of a cliff.
NXEC saw 1% growth in the first half of the year. Arriva Cross Country is 2.4% when it needs 10% to offset falling subsidy. First Great Western is already receiving the maximum 80% support from cap & collar which suggests very low single figure growth.
National Express, with no cap & collar (and I hope you found last month’s item on the subject useful) sought to negotiate it’s way out of the squeeze only to run into the same DfT Rail mantra that faced GNER three years ago ‘The Department does not renegotiate franchises’.
Having set the scene I move on to the anticipated collapse of NXEC later this year. On 1 July when National Express was due to issue a trading statement, including what was happening with NXEC. I had been booked to do some instant analysis on the Today programme’s 07.15 business slot. But next morning I was ‘gazumped’ Lord Adonis.
NEG’s update explained that NXEC had lost over £20 million. Discussions with DfT Rail had got nowhere. So NEG would continue to support NXEC ‘until the committed funding is fully utilised, expected to be later in 2009’.
And 1 July was the day, at least in my book, when the much praised Lord Adonis blew it. What drove him into a tizzy, was NEG’s explanation that ‘like all rail franchises’, NXEC is a free standing company. Because of this separation, NEG ‘is not a party to, or a guarantor of, NXEC's obligations under the East Coast franchise agreement’.
NEG’s only financial obligations to NXEC are a £40 million subordinated loan, of which £17.5 million has already been drawn down, plus a £32 million performance bond. Lord Adonis seemed to believe that when a franchise got through the committed support, which his department had deemed adequate, the parent company had an open-ended commitment to pour in more cash to keep it afloat.
Much was also made of the maximum cost to NEG of pulling the plus of £72 million, with the taxpayer losing the thick end of £1.4 billion. As I show about £1 billion of that ‘commitment’ has either been paid or is conditional.
I have a suspicion that Lord A went on the radio unbriefed. Take this fighting talk ‘This Government is not in the business of bailing out operators who can’t meet their commitments [because] all the other train operators would wish to receive a bail-out. We are dealing with 16 franchises and 15 of them are operating fine’.
So what about the franchises already receiving revenue support? Does receiving 80% revenue support from Government under the collar mean that FGW, FFC and NXEA are still ‘doing fine’?
There was, I sensed, a degree of vindictiveness in the Transport Secretary’s interviews. How about this: ‘The biggest penalty National Express will pay is the trashing of its reputation by walking away.’
But, of course, NEG was, in fact meeting its commitments to NXEC in full.
And it seems that DfT Rail civil servants soon realised that its trash-talkin’ Secretary of State had gone over the top. Because a House of Commons debate on the East Coast franchise on 14 July, saw a massive turn-round with an unfortunate junior minister having to eat humble pie which might have choked his Lord and master.
More on this cringe-worthy session next month, but here is Chris Mole with a very different set of signals to those sent out on 1 July.
‘Punctuality, which is passengers' No. 1 concern, has improved dramatically. It has risen steadily since National Express East Coast took over the franchise. We have seen tremendous innovation on the route’.
And what about that ‘trashed’ reputation? Here is the revised version, courtesy Chris Mole again ‘Under the NXEC franchise National Express Group is obliged to meet its parent company loan obligation of a £40 million loan facility. It is also open to National Express Group, at their discretion, to make available support in excess of this’
A Freedom of Information Act request resulted in the release of the Net Present Values of the bids for South West Trains. That they are anonymous doesn’t matter because the winning bid was well ahead of the rest. Well, that’s a bit of an understatement. In joining the £1 billion franchise premium club Stagecoach won by bidding an NPV worth £555m more than the nearest offer and double that of the other two runners up.
To meet this premium profile Stagecoach’s Finance Director told me he was expecting to double revenue over the 10 year life of the franchise. And SWT is one of the 15 franchises that are ‘doing fine’ I assume.
Currently Stagecoach is disputing four issues with DfT Rail, worth over £200 million if they all come off. After trying to bring cap & collar forward by a year, the next biggest claim, worth £40-80 million results from DfT’s failure to get ITSO on Prestige (ITSO/Oyster compatibility) up and running to schedule. Stagecoach claims this has triggered the change mechanism in the SWT franchise agreement. When you run the change through the franchise financial model it comes up with a revenue shortfall of £40-80 million.
So perhaps NXEC isn’t the odd franchise out.
With Greater Manchester up in arms about Northern’s allocation of additional vehicles in the Rolling Stock Plan (RSP) being slashed I thought it was time for a mini-update on what’s happening on the new trains front. And the answer is ‘not a lot’. And that may be over-optimistic.
In the case of Northern 182 ‘net additional vehicles’ has become 106. Within that total 158 DMU vehicles has become 69, part of DfT Rail’s 202 vehicle DMU Project (DMUP).
And the DMUP no longer totals 202, but is now 158 because the 44 vehicles for FGW’s Cardiff-Portsmouth services, which didn’t feature in the RSP, seem to have gone AWOL.
However, great news Citizens! The ‘remit and requirements’ for the Independent Expert (IE) who will ‘consider and make recommendations’ on the lease rentals for the DMUP fleet has been published. When appointed, the individual or organisation will have 30 days to produce a draft report, with the final version following 20 days later.
So we could have some lease rentals in October, with a bit of luck. Only problem is that the tender validities for the new vehicles expire in August.
Bids for the new Thameslink fleet went in on 25 June from Alstom, Bombardier and Siemens. Siemens is bidding the new
Siemens’ Principle Engineer made a point of telling me that he reads the column and had been stung by my frequent remarks about his ‘Lardbutt’ Desiros. Full analysis next month, but the
As you will recall, the Thameslink fleet has been sliced into two batches. In this month’s column I publish the Table for Batch 2 which shows the allocations of the remainder of the diagrams – totalling just over 860 vehicles.
According to Informed Sources, DfT Rail thinks it knows how to keep IEP moving forward on the East Coast Main Line. Why you need IEP on the East Coast is beyond me. Replacing IC225 prematurely was always a stupid idea and in a financially strapped railway life extending IC125 is more cost effective than building a handful of embarrassing Bi-modes.
Obviously, deferring the flagship project would be hugely embarrassing. But I can’t see a sensible requirement until Great Western Main Line electrification starts.
In March 2012 Inter-City West Coast (ICWC) will have a new franchise operator. Virgin Trains has launched a campaign to have the rules of engagement re-written to play to the company’s perceived strengths when it seeks to retain the franchise.
So instead of the tightly-specified, micro-managed management contract that passes for a franchise today, Virgin wants the new ICWC to be a long franchise let ‘in response to visionary bids’ – just like 1997. When it comes to longer franchises I suspect that Virgin is pushing on an open door with the politicians. But whether Virgins ’20-30’ years is what they have in mind is another matter!
Virgin’s vision is real back-to-the-future stuff. It wants to see train operators responsible for developing timetables and taking back control of rolling stock specification and procurement. Train operators would also be responsible for the development of stations and even the planning and construction of new routes.
Virgin is proposing line speed improvements at the southern end of the route to give a 60 min London-Birmingham journey time and ‘selective’ infrastructure upgrades to reduce London-Glasgow timings. I’ll be covering the proposal for running at up to 135mile/h at certain locations next month.
Tucked away in the Virgin wish list is ‘an effective regulatory system of Network Rail’. This is shorthand for fines for poor performance that will really get the attention of Network Rail management.
The Fourth Friday Club (FFC) meeting on 26 June, which also incorporated the 2009 Innovation Awards was a big success. When the awards started they were the first of the big black tie, gala dinner ceremonies which subsequently proliferated.
As co-sponsors Modern Railways and the Railway Forum thought that changing times were overtaking the monster thrashes and the format changed to an awards-cum- exhibition function, where the shortlisted entries could display what they had achieved.
Meanwhile my Golden Spanners train reliability awards, which had begun as a bit of fun at the November FFC, have really taken off. In a busy, cash-strapped, industry the simple format of the Spanners seems to match the mood of the times. So we decided to see if it worked with innovations.
With Lord Adonis, newly promoted to Transport Secretary, as guest speaker and award giver, plus me as the whip cracking master of ceremonies, it ran to time, everyone seemed to like the new format and my only complaint was that, faced with the chance to put a question to Lord Adonis, the top folk in the industry, couldn’t think of anything to say.
High spot of the past month was 1 July when the NXEC blew up. As usual, the phone rings continually, as journalists ask for brain dumps or opinions, there are radio interviews down the line and I even had time to write an article for the Times newspaper. You probably won’t believe this, but when I sent in the first draft the Times Editor asked if I could make it more opinionated!
Last week it was the
Today, (20 July), is likely to be busy because the announcement on a commitment to a rolling programme of railway electrification is expected – although it may roll back to later in the week. When I chided Lord Adonis at the FFC for minimal coverage of electrification in his speeches, compared with high speed rail, he replied ‘Electrification’s accepted’.
I took this to mean that the case has been made but I now think that Andrew was referring to acceptance by the Treasury. Having occasionally been critical of DfT Rail officials, I have to congratulate them on the way the Department has got its act together after the infamous 2007 ‘anything but electrification White Paper’.
Next week it’s off by Eurostar for three days in
Enjoy the summer.
Roger