War of words over move to take East Coast rail line back in public ownership

A WAR of words has broken out over the future of the East coast rail franchise that runs between Edinburgh and London after transport minister Lord Adonis announced this morning that the loss making franchise is being transferred from National Express and taken over by the government.

But the statement was barely on the news wires than National Express's chief operating officer Ray O'Toole said the minister had "jumped the gun" and that the franchise would continue to be operated by the company.

National Express, he said, had not reneged on any commitments to the government to date, blaming the problems on the recession. "We are not in default of any of our franchise commitments. Services, passengers and staff will be unaffected by what is going on." He said he "did not understand" Adonis's statement that the company could lose more franchises."

The government said it believed it had also had grounds to end National Express's two other rail franchises - East Anglia and c2c. But the company said it felt the government had "no grounds" to do this and would challenge any such attempt in court.

The development is set to spark a political storm over the rail franchise system. It sends a clear signal to other passenger rail operators that the government will not re-negotiate their rail franchises despite the recession. But it will spark intense debate over the workings of the franchise system and the squeeze on competit6ive pricing, passenger services and comfort.

Shares in National Express, which has been struggling under a £1.2 billion debt pile, which rejected a takeover bid from rival FirstGroup earlier this week, slumped eight per cent to 284.25 p on the news this morning.

The company which was to hold the East Coast rail franchise until 2015, said financing for the business was now expected to run out later on this year. Handing the franchise back should not affect its other rail franchises, it said. But Lord Adonis did not agree.

"The government believes it may have grounds to terminate these (other National Express) franchises, and we are exploring all options," said Adonis, adding he would set up a public company to operate the East Coast franchise.


National Express also confirmed that chief executive Richard Bowker, the former head of Britain's Strategic Rail Authority who negotiated the terms of the £1.4 billion pound East Coast agreement, would leave the company to head up the yet-to-be-built railways of the United Arab Emirates.

National Express has struggled with falling passenger numbers twinned with extensive premiums it pledged to pay to the government when it won the East Coast franchise.Chief operating officer Ray O'Toole told reporters the company had not reneged on any commitments to the government to date, blaming the problems on the recession. He said the performance of the East Coast route would hit first-half profit, and the franchise would make a loss of £20 million.

National Express said it had tried and failed to renegotiate the terms of the franchise with the government, and could only commit to funding it later in 2009.

It will become the second company in three years to be stripped of the East Coast rail franchise after GNER in 2007.