Friends of the Rail Forum

FirstGroup set to win Virgin's west coast rail franchise

Insiders say fares will rise from 2020 on busy line as unions fear job cuts and changes to staff terms

Dan Milmo and Ian Griffiths
guardian.co.uk, Wednesday 8 August 2012 23.36 BST

FirstGroup is close to securing the prestigious west coast rail franchise, with an announcement pencilled in for next week that is likely to provoke angry reactions from the current operator, Virgin Rail, and trade unions.

It is understood that the Department for Transport has set Tuesday as the provisional date for declaring the winner of the contract race on the London-Glasgow line and FirstGroup remains the frontrunner on price, having bid an estimated £6.5bn-7bn for the 14-year franchise.

The other bidders – Abellio, Keolis/SNCF and Virgin Rail – are no longer in active talks with the DfT, it is believed.

However, a victory for FirstGroup, which is thought to have bid 20% more than Virgin, is likely to bring objections from Sir Richard Branson, the rail unions and Labour MPs.

Rail industry insiders believe FirstGroup will have to increase fares significantly from 2020 onwards because the west coast line will be full to capacity by then and it will not be possible to increase revenues by carrying more passengers.

The new-look west coast franchise could also include changes to staff terms and conditions or staff cuts, bringing the threat of industrial action from unions and objections from opposition politicians.

Branson, who co-owns Virgin Rail with Stagecoach, the bus and rail group, said in a recent letter to the transport secretary, Justine Greening, that the only way FirstGroup can meet the premium payments is to "drastically cut the quality of services".

Virgin, which has been operating the west coast line for 15 years, pays about £160m a year to the DfT in premium payments – or excess profits – but a bid of £7bn implies annual payments of about £500m. If the route is at full capacity, the premium payments under the new franchise will have to be met by revenue growth rather than passenger increases.

It is thought that the first few years of the new contract will be heavily subsidised by the taxpayer or, at best, will require low premium payments, particularly if, as expected, there is an industrial standoff over cost cuts. A recent independent review into the rail industry led by Sir Roy McNulty, the former chairman of the Civil Aviation Authority, recommended that franchises should have leaner costs.

FirstGroup, which is based in Aberdeen and also owns Greyhound buses in the US, declined to comment, but a recent filing at Companies House indicates that the group is gearing up to take over the line in December.

Having registered the name of First West Coast, the new company posted a filing on Monday announcing that Richard Parry, former acting boss of London Underground, is now managing director. However, it is thought that the official name of the FirstGroup-operated franchise will not be First West Coast.

According to one report, FirstGroup will be required to underwrite the franchise with a performance bond of £70m and a shareholder loan of £300m, payable if the franchise owner hands back the keys to the route – as National Express did in 2009 on the £1.4bn east coast contract.

The DfT has also been considering a cross-default clause, which would see FirstGroup lose its other rail contracts – including First Great Western and First Capital Connect — if it reneged on the London-to-Glasgow deal.

Analysts at JPMorgan Cazenove said this week that if reports of a £300m loan were true, then, with FirstGroup already owing £1.8bn, "it is likely to increase investor fears that FirstGroup may be overbidding for west coast".

They added that FirstGroup's record with other franchises points to a strong record in holding down costs and meeting the ambitious-looking premium target. They said: "We share these fears if the bid depends on cutting costs in the absence of government support to do so. However, FirstGroup has a good reputation in UK rail, with costs in Great Western/Capital Connect reducing."

The DfT appears to have decided that both Virgin and FirstGroup's bids can be delivered, with FirstGroup's bigger financial offer giving it the edge in the post-McNulty era.

RMT and First in row over West Coat rail franchise

Aug 9 2012 Runcorn and Widnes Weekly News

RAIL union RMT has slammed private rail franchising ahead of a move which could see an end to Virgin Trains’ presence at Runcorn Station.

The West Coast franchise, which includes Runcorn station, is currently a subject of controversy because of a potential change of operator on the line.

First Group is being touted as favourite to take over the running of the route.

The firm, which began operating in 1995, has been criticised by the RMT for alleged avoidance of payments to the tax payer, a claim it has strongly rejected.

The RMT has also been stinging in its criticism of the system of private companies acting as rail operators – calling it ‘profiteering chaos’.

A union spokesman said: “Only months ago First Group pulled the plug on their Great Western franchise to dodge over £800m in payments to the UK taxpayer.

“First are rumoured to be talking about 20% ‘cost-cuts’ – 800 catering and train staff jobs are on the block with shops and catering axed from the trains to jam in more seats and fatten up profits.”

First has declined to comment on the West Coast line speculation and has strongly denied any accusation of failing to pay money due to the Government in return for their ownership of the Great Western franchise.

The group says that it withdrew from the Great Western contract not to evade payments, but to negotiate a more lengthy contract.

A group spokesperson said: “We announced in May 2011 that we would not be taking up the option to extend the First Great Western franchise for a further three years beyond the initial franchise term to 2013.

“At that time, the Government had announced franchise reform and major investment in the region.

“With our unique knowledge of the franchise we believe we are best placed to manage these projects and capture the benefits through a longer-term 15-year franchise.”

RMT general secretary Bob Crow has been scathing about the tendering process, First Group and privatisation in general.

He said: “The West Coast tendering has descended into a shambles with arm twisting, empty promises and a poisonous cocktail of fare increases and job cuts contaminating the atmosphere.”

The announcement as to which company has been awarded the West Coast franchise will be made on or around August 13.

End of the line for Virgin Trains?

Last updated Tue 14 Aug 2012 ITV

Oxfordshire tycoon, Sir Richard Branson, is expected to exit the UK rail market this week with Virgin Trains looking likely to lose its last remaining train franchise.

First Group - which runs services in much of the region are expected to win the high profile West Coast route.

First is understood to have put in a bid that would mean them paying the Government up to half a billion pounds a year to run the service, around £100,000 a year more than Virgin.

They run services in the Thames Valley and from Reading to Gatwick and Wales to Portsmouth and Garwick.

Sir Richard Branson is reported as saying he will mount a legal challenge because he believes the First Group proposal would mean a worse service. The union RMT agrees saying hundreds of jobs would be at risk.

The Government say bids are balanced on a mixture of quality of service and cost.