FirstGroup consortium to replace Virgin on west coast mainline

Guardian Web |

FirstGroup has been named the winner of the West Coast Partnership competition to run intercity trains, despite opposition from its own shareholders, fears over the financial viability of its other rail operations and legal action by rival bidders.

The government announced that First, the majority partner in a joint venture with the Italian state operator Trenitalia, will take over intercity services on the London-Glasgow line from December. The line, which links the capital with cities including Birmingham, Manchester and Liverpool, has been run since privatisation by Virgin Rail.

The First-Trenitalia bid was chosen over a Chinese consortium led by the Hong Kong operator MTR, First’s partner on South Western.

Trenitalia has been named “shadow operator” for HS2, with responsibility for introducing new services but with a caveat that it may not go ahead, depending on the outcome of reviews into the construction of the high-speed network and the shape of the entire rail industry.

First-Trenitalia will pay £1.6bn in premiums to run the lucrative west coast line from this December until 2026, with a second phase of payments to depend on HS2. The contract could run until 2034 with an extension.

Although Keith Williams, who is leading the rail review, has said that franchising must change, he has endorsed the West Coast Partnership contract as “a step forward that is firmly in line with the review … capable of incorporating the reforms needed for the future”.

The transport secretary, Grant Shapps, said the contract was “a decisive shift towards a new model for rail … built with the flexibility to respond to his recommendations and deliver fundamental reform to a flawed system”.

Shapps also confirmed he would be pressing ahead with a white paper for reforming rail, based on Williams’ findings due in the autumn, continuing a review commissioned by his predecessor Chris Grayling.

The Department for Transport has pressed ahead with the West Coast award despite a high court case being brought by Stagecoach, the partner with Sir Richard Branson in Virgin Rail. Stagecoach was disqualified for a non-compliant bid, refusing to accept pension liabilities, but sought to have the decision overturned – a legal action that recalls the fiasco in 2012 when the West Coast contract was awarded to First Group before being rescinded after Virgin’s complaints.

Stagecoach said the award of the franchise would not impact its continuing litigation against the DfT.

First’s biggest shareholder, Coast Capital, has also threatened to sue the board of the company if it enters into a new rail franchise. James Rasteh, partner at Coast, told the Guardian earlier this year it would “hold each member of management team and board member personally and fully accountable if the company enters any new rail franchise – especially in light of the value already destroyed by that division, and the added and unknowable pension liabilities.”

The previous two UK rail franchise competitions won by First, TransPennine and South Western, have both proved far more costly than expected to the company. Although directors vehemently denied overbidding, First wrote down by £106m the value of its TransPennine franchise last year and last month followed up with an “onerous contract provision” of £102m for South Western.

Earlier this year, First indicated it might turn its back on UK rail after the expiry of its current contracts, which also include Great Western Railway and the small, open access Hull Trains.

On Wednesday, First said its board “remains very aware of concerns expressed by shareholders regarding rail … however it has unanimously concluded that signing the partnership agreement is in the best interests of all shareholders”.

Labour queried the award given the scale of First’s debts and recent losses. Shadow transport secretary Andy McDonald said that giving the contract to run the line to the financially unstable transport group would be “an act of economic vandalism”, adding: “The west coast mainline railway is of huge strategic and economic importance to the UK.

The contract will involve handling the first HS2 services from 2026 until 2031, should the project survive despite budget challenges. High-speed trains are planned to run north on the existing mainline after the first phase of the high-speed network opens between London and Birmingham. All bidders had to demonstrate experience of running high-speed rail services, which saw First bring on board Trenitalia, which runs TGVs in Italy.

Direct, conventional trains from London to new destinations including Gobowen, Walsall and Liverpool South Parkway are also promised in the new Partnership contract.

The RMT union said the award, coming on the day higher rail fares are confirmed, was “anothe?r political fix by a government whose privatised franchise model is collapsing around their ears”.

General secretary Mick Cash said the government was “taking yet another gamble on the crucial West Coast lines with one of the dwindling number of private operator consortia left in the game”.

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