Stagecoach hopes to retain East Coast rail after 2020 despite bailout

Stagecoach has said it hopes to continue running the East Coast rail route after 2020, when it will exit its current contract three years early with a potential £2bn shortfall for the taxpayer.

Labour said the firm should be barred from bidding again, amid warnings that the effective bailout on its Virgin Trains East Coast franchise could cause a crisis across the rail industry.

The government has waived the majority of payments due under the Scottish transport group’s £3.3bn contract to run the London to Edinburgh route, agreeing to replace it with a less onerous partnership model at the end of the decade.

Stagecoach, which could pay only £1bn to the Treasury under the current deal, indicated it would bid to run the line once more.

Martin Griffiths, chief executive of Stagecoach, said: “The secretary of state has said [East Coast Partnership] would be a more joined-up railway between the public and private sector. From our point of view being the operator would be important.”

Announcing increased group profits on Wednesday, the transport company said it also expects to be given further direct awards, without competition, to continue operating two more franchises – East Midland and West Coast – after 2019.

A rail strategy published by the transport secretary, Chris Grayling, last week revealed that from 2020 an East Coast Partnership would replace the Stagecoach-Virgin franchise contract, which was due to expire in 2023. Stagecoach is also seeking to renegotiate terms and payments of its contract until 2020, after admitting having overbid to run a line that had been in public sector operation for six years before reprivatisation in 2015.

Labour’s shadow transport secretary, Andy McDonald, said: “The idea that Stagecoach may again bid for rail contracts following the company’s failure on the East Coast line shows that the rail franchising system is truly broken beyond repair.

“Labour would ban Stagecoach from running passenger rail operations in the UK. Grayling should commit to doing the same and come clean about the taxpayer bailout to the company he signed off last week.”

Stagecoach said it would honour its financial commitments, which would see it forfeiting a £165m guarantee. Griffiths said the firm wwas likely to bid to continue running the East Coast under Grayling’s proposed partnership model.

“We are a big operator in UK rail,” Griffiths said. “We are looking at Southeastern and the West Coast partnership. We’ll assess them on their merits.

“[Grayling] has announced that he’s got a different vision for railway post 2020, part of that includes the East Coast. In the intervening period, while the revenue growth has been lower and the franchises has been loss-making, there is significant investment in the stations and upgrading the fleet, the technology and the customer experience. These are all significant benefits to the passenger today and to the franchise in the long term.”

However, Lord Adonis, chairman of the National Infrastructure Commission and former transport secretary, said the bailout was sparking a crisis in rail. He claimed that FirstGroup – which was shortlisted for the East Coast line – could use the precedent to seek a way out of another struggling franchise.

He said on Twitter that FirstGroup was “losing big money” on TransPennine Express after overbidding, adding that he had been told FirstGroup’s lawyers were “looking very carefully” at the bailout of Stagecoach-Virgin.


RAIL FRANCHISING CRISIS: First Group losing big money on Trans-Pennine Express, having overbid for it, and I’m told its lawyers looking ‘very carefully’ at Chris Grayling’s bail-out of Stagecoach/Virgin on East Coast last week. Cost to HMG of bailout could run into the billions!

A spokesman for FirstGroup denied Adonis’s claims, adding that revenue growth was running slightly lower than the group’s projections but most growth would come from new trains due in 2018.

Stagecoach’s pre-tax profits for the first half of 2017-18 were up 8% to £96.7m. The group’s share price rose another 5% on Wednesday morning, following a 15% leap last week on news of the bailout.