Rail operator to fight East Coast ruling

Published on Saturday 4 July 2009 14:41

NATIONAL Express has vowed to maintain the fight to hold on to the prestigious London-Scotland rail line which is in danger of being nationalised.

The embattled train and bus operator insists that it has not yet defaulted on its East Coast Main Line contract and will continue to do "absolutely everything it can" to increase passenger numbers, which have collapsed under the weight of the recession.

Ray O'Toole, who took over from departing chief executive Richard Bowker last week, argued that the government is not yet in a position to legally strip National Express of the franchise despite an admission last week that it was not likely to meet its latest payment on the 1.4 billion contract.

O'Toole has accused the government of "jumping the gun" after transport minister Lord Adonis declared on Wednesday that the line was to be taken back into public hands.

He said the franchise would only be handed over at Christmas if it fails to lure back passengers.

"It (nationalisation] is not a definite outcome," O'Toole told Scotland on Sunday. "The government can't suddenly come along and decide that it wants to take it off us."

O'Toole is hoping to entice Britons who can't afford to travel abroad this summer to visit destinations such as York and Edinburgh with tickets from as little as 9.

National Express is also preparing to put up a further 22.5 million towards a 40m subordinated loan required under the franchising agreement. It has already paid out 17.5m.

The City is braced for a legal battle between National Express and the Department for Transport over the operator's other franchises, c2c and East Anglia.

In a statement to the House of Lords last week, the transport minister stated that the government believes it "may have grounds to terminate these franchises".

Technically if an operator defaults on one line then a "cross default" clause kicks in, allowing it to be stripped of its remaining franchises.

National Express has already hired a "leading" barrister to defend its case.

O'Toole declined to name him but warned: "If anybody attempts to come and take them off us, we have got a leading QC who tells us that we have got a very, very strong case and we will fight it rigorously."

The company argues that it has not yet defaulted on any of its three franchises.

It is also expected to argue that the East Coast line is a separate entity from c2c and East Anglia and cross default does not, therefore, apply.

However, the Department for Transport will come under renewed pressure from rail unions who have accused the operators of "throwing in the keys" on loss-making lines while keeping hold of profitable franchises.

Speculation is also growing in the City that National Express, which has debts of 1.2bn, will soon be forced to seek extra funds from shareholders regardless of the outcome on the East Coast Main Line.

It is thought it will have to tap investors for as much as 400m to 500m.