The government is to take the East Coast rail service run by National Express into public ownership.
The troubled rail franchise, which is expected to have lost £20m in the first half of the year, is suffering from slumping passenger numbers.
Ministers have refused the company's requests for its contract with the government to be renegotiated.
The Department of Transport said that all East Coast services would continue and that tickets would be honoured. The government is to take the East Coast rail service run by National Express into public ownership.
The troubled rail franchise, which is expected to have lost £20m in the first half of the year, is suffering from slumping passenger numbers.
Ministers have refused the company's requests for its contract with the government to be renegotiated.
The Department of Transport said that all East Coast services would continue and that tickets would be honoured.
http://news.bbc.co.uk/1/hi/business/8127851.stm
UK Rail
The Rail business has continued to experience declining revenue growth rates, in common with the rest of the UK industry. To help offset this impact, the Rail business implemented a cost reduction programme during the first half year.
Underlying growth in the East Anglia franchise ('NXEA') in the first half year was 5 per cent. Yield continues to be resilient, although passenger journeys have been impacted by rising unemployment. Under the terms of its agreement with the DfT, the franchise receives 80 per cent revenue support from the DfT. This, together with excellent cost control, has fully protected profits during the first half year. Underlying revenue growth in c2c has slowed somewhat but profitability has been successfully maintained.
NXEA is also expected to benefit from its new contract with the DfT to expand capacity during the peak commuter travelling period, expected to be worth £180 million over the remaining franchise period.
Consistent with other long distance rail operators, the East Coast franchise, operated by National Express' subsidiary NXEC Trains Ltd ('NXEC'), has been most impacted by the challenging economic environment. Underlying revenue grew by 1 per cent in the first half year, with fewer passenger journeys and lower yield growth, due to significant down trading from full and first class fares. Combined with an increase in franchise premium from April 2009, NXEC is expected to record a loss of over £20 million in the first half year.
Update on East Coast franchise
As a result of NXEC's substantial operating loss, the Group has been engaged in discussions with the DfT since January 2009 to explore opportunities to manage the impact of the recession on the East Coast franchise. Despite these extensive discussions, it has not proved possible to agree a solution with the DfT that would meet the needs of all stakeholders. It has been recognised that the challenges facing NXEC are purely financial and brought about by the economic downturn. NXEC continues to meet or exceed all its franchise commitments and has made significant improvements in the performance of the service since taking charge in December 2007.
While disappointed that discussions have failed to achieve a negotiated agreement, NXEC continues to comply with the terms and conditions of its franchise. We have advised the DfT that National Express will encourage NXEC to continue to operate its franchise on all its existing terms, with the contractual support of National Express. The performance and season ticket bonds will remain in place. This will continue until such time as National Express' committed financial support has been fully utilised. National Express anticipates this committed funding should allow NXEC to continue to operate in accordance with its franchise commitments until later in 2009, although this will depend on trading conditions. National Express has confirmed that it will continue to work closely with the DfT within its existing funding commitments, in order to ensure high standards of passenger service delivery by NXEC and, in the event that the Secretary of State reassumes control of the franchise, to ensure an orderly handover of the franchise.
Under the DfT's model for franchise bidding, the Group's financial obligations under the East Coast franchise are strictly limited. Like all rail franchises, NXEC is a special purpose vehicle, set up to meet the DfT's requirement as a standalone legal entity, with its own assets, management team and franchise agreement with the DfT. National Express is not a party to, or a guarantor of, NXEC's obligations under the East Coast franchise agreement. Instead, National Express' committed financial obligations are restricted to a £40 million subordinated loan to NXEC, available to NXEC to maintain contractual liquidity ratios, and a performance bond to meet the DfT's costs in the event of franchise default by NXEC, up to a maximum of £32 million5. Other than these commitments, National Express has no further financial obligations under the East Coast franchise agreement or to NXEC. At the half year, £17.5 million of the subordinated loan had been drawn down, in compliance with the liquidity requirements set by the DfT. The performance bond remains uncalled.
If, despite the best efforts of NXEC and the full utilisation of National Express' committed financial support, trading conditions result in NXEC being unable to meet its financial obligations under the terms of the East Coast franchise agreement, the Board believes that the Secretary of State would have a duty to reassume control of the franchise. Should such circumstances arise, National Express believes that the Secretary of State would not be permitted either to recover from National Express any losses arising from any possible breach of the franchise agreement by NXEC or to execute the right of cross default contained in the franchise agreements for NXEA and c2c. Cross default can only be applied where the Secretary of State can reasonably expect that the default under one franchise within an owning group has a material impact on the other franchises within that group. However, the Group believes that the Secretary of State would have no grounds on which to come to this conclusion in circumstances where the Group has satisfied in full all of the parental support obligations to which the DfT asked it to commit at the time of tendering the East Coast franchise and awarding it to NXEC, and will continue to do so at both NXEA and c2c. National Express has taken and received clear and detailed advice from leading legal Counsel upon its, and its subsidiaries', positions under the East Coast and other franchise agreements and is confident that the implication of any NXEC default should be confined to the NXEC franchise. The Group would oppose any attempt by the DfT to cross default, in order to protect shareholder value5.
http://www.nationalexpressgroup.com/nx1/media/news/corp_news/pr2009/2009-07-01/
The troubled rail franchise, which is expected to have lost £20m in the first half of the year, is suffering from slumping passenger numbers.
Ministers have refused the company's requests for its contract with the government to be renegotiated.
The Department of Transport said that all East Coast services would continue and that tickets would be honoured. The government is to take the East Coast rail service run by National Express into public ownership.
The troubled rail franchise, which is expected to have lost £20m in the first half of the year, is suffering from slumping passenger numbers.
Ministers have refused the company's requests for its contract with the government to be renegotiated.
The Department of Transport said that all East Coast services would continue and that tickets would be honoured.
http://news.bbc.co.uk/1/hi/business/8127851.stm
UK Rail
The Rail business has continued to experience declining revenue growth rates, in common with the rest of the UK industry. To help offset this impact, the Rail business implemented a cost reduction programme during the first half year.
Underlying growth in the East Anglia franchise ('NXEA') in the first half year was 5 per cent. Yield continues to be resilient, although passenger journeys have been impacted by rising unemployment. Under the terms of its agreement with the DfT, the franchise receives 80 per cent revenue support from the DfT. This, together with excellent cost control, has fully protected profits during the first half year. Underlying revenue growth in c2c has slowed somewhat but profitability has been successfully maintained.
NXEA is also expected to benefit from its new contract with the DfT to expand capacity during the peak commuter travelling period, expected to be worth £180 million over the remaining franchise period.
Consistent with other long distance rail operators, the East Coast franchise, operated by National Express' subsidiary NXEC Trains Ltd ('NXEC'), has been most impacted by the challenging economic environment. Underlying revenue grew by 1 per cent in the first half year, with fewer passenger journeys and lower yield growth, due to significant down trading from full and first class fares. Combined with an increase in franchise premium from April 2009, NXEC is expected to record a loss of over £20 million in the first half year.
Update on East Coast franchise
As a result of NXEC's substantial operating loss, the Group has been engaged in discussions with the DfT since January 2009 to explore opportunities to manage the impact of the recession on the East Coast franchise. Despite these extensive discussions, it has not proved possible to agree a solution with the DfT that would meet the needs of all stakeholders. It has been recognised that the challenges facing NXEC are purely financial and brought about by the economic downturn. NXEC continues to meet or exceed all its franchise commitments and has made significant improvements in the performance of the service since taking charge in December 2007.
While disappointed that discussions have failed to achieve a negotiated agreement, NXEC continues to comply with the terms and conditions of its franchise. We have advised the DfT that National Express will encourage NXEC to continue to operate its franchise on all its existing terms, with the contractual support of National Express. The performance and season ticket bonds will remain in place. This will continue until such time as National Express' committed financial support has been fully utilised. National Express anticipates this committed funding should allow NXEC to continue to operate in accordance with its franchise commitments until later in 2009, although this will depend on trading conditions. National Express has confirmed that it will continue to work closely with the DfT within its existing funding commitments, in order to ensure high standards of passenger service delivery by NXEC and, in the event that the Secretary of State reassumes control of the franchise, to ensure an orderly handover of the franchise.
Under the DfT's model for franchise bidding, the Group's financial obligations under the East Coast franchise are strictly limited. Like all rail franchises, NXEC is a special purpose vehicle, set up to meet the DfT's requirement as a standalone legal entity, with its own assets, management team and franchise agreement with the DfT. National Express is not a party to, or a guarantor of, NXEC's obligations under the East Coast franchise agreement. Instead, National Express' committed financial obligations are restricted to a £40 million subordinated loan to NXEC, available to NXEC to maintain contractual liquidity ratios, and a performance bond to meet the DfT's costs in the event of franchise default by NXEC, up to a maximum of £32 million5. Other than these commitments, National Express has no further financial obligations under the East Coast franchise agreement or to NXEC. At the half year, £17.5 million of the subordinated loan had been drawn down, in compliance with the liquidity requirements set by the DfT. The performance bond remains uncalled.
If, despite the best efforts of NXEC and the full utilisation of National Express' committed financial support, trading conditions result in NXEC being unable to meet its financial obligations under the terms of the East Coast franchise agreement, the Board believes that the Secretary of State would have a duty to reassume control of the franchise. Should such circumstances arise, National Express believes that the Secretary of State would not be permitted either to recover from National Express any losses arising from any possible breach of the franchise agreement by NXEC or to execute the right of cross default contained in the franchise agreements for NXEA and c2c. Cross default can only be applied where the Secretary of State can reasonably expect that the default under one franchise within an owning group has a material impact on the other franchises within that group. However, the Group believes that the Secretary of State would have no grounds on which to come to this conclusion in circumstances where the Group has satisfied in full all of the parental support obligations to which the DfT asked it to commit at the time of tendering the East Coast franchise and awarding it to NXEC, and will continue to do so at both NXEA and c2c. National Express has taken and received clear and detailed advice from leading legal Counsel upon its, and its subsidiaries', positions under the East Coast and other franchise agreements and is confident that the implication of any NXEC default should be confined to the NXEC franchise. The Group would oppose any attempt by the DfT to cross default, in order to protect shareholder value5.
http://www.nationalexpressgroup.com/nx1/media/news/corp_news/pr2009/2009-07-01/
