I think it's incidental - if it had still been council owned, chances are it would have started making a loss at some point as costs escalated and pressures came to bear on local government finances.
I don't think you can try and argue that "the rot started" when some vehicles were transferred out.
Agree with most of your points. The realities are that the usual arguments on economies of scale aren't really appropriate. Most back office functions can and were done elsewhere, as you say. However, you will always have to have a level of fixed depot overhead, especially in relation to a big old place like St James.
The downward spiral wasn't caused or started by the transfer of 6 x 10 yr old Olympians northbound! The issues really surround the internal rates of return/profit that First demanded. A route may have been profitable but marginal, yet didn't hit that hurdle rate. Hence, you had withdrawals which meant spreading those fixed elements (e.g. the depot) over a smaller number of routes.
Also, Stagecoach were pretty smart in upping frequencies on inter-urban routes running into Northampton so this began to undermine First's local routes. There was also the fact that they didn't keep on top of fleet replacement so older kit was drafted in or had to "make do". That affected reliability and so affected the patronage and viability of some routes.
What I would say is that there are plenty of depots of 60 or so vehicles that run quite happily with different businesses. Fact is that Stagecoach had a good strategy and First made some really bad decisions. Where size is important (
) is that some businesses are big enough to make those mistakes and survive. For First in Northampton, it wasn't.
