Government nationalises National Express route

The government has taken the poorly-performing East Coast Mainline run by National Express into public ownership and refused all requests for the contract to be renegotiated. The Edinburgh to London operation lost £20m in the first half of the year as passenger levels dropped, leading to problems for National Express, which had committed to pay the government £1.4bn for the franchise up to 2015. This morning the company told the government that it was unable to continue to meet its obligations over the line, which carries 17m passengers a year and has over 3,000 staff.

Transport Secretary Lord Adonis said "The government is not prepared to renegotiate rail franchises, because I'm simply not prepared to bail out companies that are unable to meet their commitments." It has committed to honour all passenger tickets and will continue to run the service in its current form, with all staff transferred to the new entity. Adonis said the government would run the operation for about a year until it comes up for renewal. It is also looking at National Express’s other two franchises Easy Anglia and c2c.

National Express has debts of £1.2bn and has been restructuring its business as a result of poor earnings. And chief executive Richard Bowker shocked the group by tendering his resignation just days after the company rejected a bid approach from Scottish rival First Group earlier this week.

WHAT THEY ARE SAYING

Dan Milmo in the Guardian: "[National Express] announced the rejection of a nil-premium approach from rival FirstGroup earlier this week… However, analysts believe that a deal could be attractive to both sets of shareholders if the east coast contract is scrapped or renegotiated before a takeover is agreed. The effective default on the NXEC franchise means the DfT will have to plug a £1.4bn hole in its rail budget in the depths of a recession or hand over the running of the franchises to an interim operator while it waits for the market to recover."

Alistair Osborne in the Daily Telegraph: "Earlier this month National Express won a reprieve from its bankers over a looming covenant breach – but analysts expect the company to be forced into a £400m-plus rights issue once it finds a solution to the East Coast. Sir Moir Lockhead, the FirstGroup chief executive, may see Mr Bowker's departure – and the resulting management vacuum – as the catalyst for a renewed assault on National Express."