14 May 2011

Great Western franchise to be handed back early

FirstGroup is handing back its £1.1bn Great Western rail contract three years ahead of schedule after admitting that the deal, one of several £1bn-plus franchises struck at the height of the credit boom, had become unsustainable.

The company is exercising an option to terminate the franchise in March 2013 and avoid £826.6m in payments to the government due by 2016. It will join a new round of bidders over the next 18 months for a longer franchise to run trains from London Paddington to the west country, Wales and Oxford.

Read full article in Guardian here

The article refers to changed economic circumstances, but what seems to have been missed is that the Great Western route is going to be a headache for whoever runs it over the next few years, what with electrification, works associated with Crossrail, continuing disruption at Reading with the construction of a grade-separated junction in a built-up area with a high water table, and the introduction of fleets of new rolling stock to new designs - always a difficult time for operators having to maintain services whilst dealing with teething troubles.

Taking advantage of the provisions of the franchise, the decision to cut and run sounds like prudence. It could also pose a knotty problem for the future since FGW owns the fleet of HSTs (photograph) that operate on the route at present. If FGW is not awarded the franchise, where will the new incumbent get its trains from? So who else is going to bid for the franchise? Could First Group end up leasing and maintaining rolling stock for another train operating company? Or will no-one else even be interested?


  1. This appears to underline the incompetence of the DfT. Of £1,100 million to be paid by firstGroup over the ten year period £826million (over 70%) was in the optional final three years.

    In other words only ~£270 million of the supposed £1100 franchise bid has been paid.

    The only people likely to be convince by firstGroups's characterisation of the early withdrawal as a "tactical move" are their fools (chums?) in the DfT.

    In other news firstGroup paid £128 last year for the franchise but received in return a £141 million top up from the government. Other figures include a 6.8% increase in revenues and a 23% increase in profit for firstGroup's rail operations in the same period...

    It's difficult to believe that firstGroup ever intended to complete the franchise.

    see also or google the quote "thinly-capitalised equity profiteers of the worst kind" (Shriti Baroness Vadera)

  2. Franchise can enable a company to take advantage of the geographically vast Indian market (with a population of over 900 million) at a rate and with range of control that more traditional forms of distribution are unable to match.