21 July 2009

At arms length

In the first of a few 'while we were away' entries, we look at the ongoing saga of National Express East Coast and shed some more light on proceedings.

Perhaps the most significant news story to be made while we've been away is the debacle surrounding the East Coast rail franchise. Following our initial post, we’ve since learned that, crucially, the contract to run the flagship rail line until 2015 was between the Department for Transport (DfT) and National Express East Coast (NXEC) NOT the DfT and National Express Group (NEG). What does this mean? Well, this is the technicality that we assumed would rear its head that would preclude the DfT from taking back NEG’s other rail franchises, National Express East Anglia (NXEA) and top-performing c2c.

There are 31 Class 91 'Intercity 225' electric locos in NXEC's fleet; all will pass to the new, nationalised undertaking, headed by the DfT by the end of the year.

While NXEC is a wholly-owned subsidiary of NEG, the latter has no binding contract with the DfT in any way. Similarly, the East Anglia franchise is between the DfT and NXEA, and so too is the franchise between city and coast, c2c. In fact, all rail franchises are between the DfT and the actual franchisee NOT the group who owns it. This is NEG’s get-out clause if you like. This is why it believes the DfT is not entitled to its more profitable and efficient NXEA and c2c franchises. Rather astonishingly, NEG distanced itself from NXEC (and its associated woes) to an unprecedented level by saying: “[NEG] are not a party to, nor a guarantor of, NXEC’s obligations under the East Coast franchise agreement”.

NEG continued: “National Express believes that the Secretary of State would not be permitted… to execute the right of cross default contained in the franchise agreements for NXEA and c2c.Lord Adonis had other thoughts, stating: “The Government believes it may have grounds to terminate these franchises, and we are exploring all options in the light of the group’s statement.” We understand that a cross-default clause is inserted into all rail franchises, but again, it is legally binding only between the franchise operator and the DfT – i.e. NXEC and the DfT not NEG and the DfT. This technicality has never been tested it court….yet.

NEG are then legitimately entitled to say “It’s over to you….” to Adonis’ staff and hand back the keys. It is understood that the NEG Board chose to cut its losses with its NXEC expenditure being £72 million right now, rather than £1.4 billion by 2015. With the assets NXEC paid for totaling £30 million, the total loss NEG will incur is £102 million, fourteen times LESS than the loss they could well make.

After NXEC has gone, NEG's arms-length companies NXEA and c2c will continue to operate train services. Don't count on NEG ever being awarded another rail franchise though!

To keep things in perspective though, right here and now, the East Coast franchise has not been nationalised; nor has its operator been stripped of its franchise; NXEC is not insolvent; and the DfT is not running the trains – it is continuing to be done so by NXEC, who’s seeing growth of 0.3% annually.

RAIL magazine kindly gave us a list of NXEC’s rolling stock, viz:
Class 08: 08472, 08571/596, 08615.
Class 43: 43206/8/38/9/51/7/77/95/6/9, 43300/2/5-20/67.
Class 91: 91101-22/4-32.
Class 180: 180102/4.

The Class 08s are hired from Wabtec Rail; Class 180s are leased but not in traffic; there are 122 Mk3 carriages (for the HSTs); 271 Mk4 carriages (for the Class 91s) and 31 Mk4 DVTs (running at opposite ends of the trains hauled by Class 91s).

There has been a development regarding the Lincoln journeys, given authorisation for NXEC to operate from December next year. Full details in the forthcoming LEYTR magazine. (GL)