STRUGGLING transport group National Express is set to walk away from its loss-making East Coast rail franchise by the end of the year, the firm said today.
The company has failed to agree a renegotiation of the deal – agreed on over-optimistic assumptions before the recession – with the Department for Transport (DfT).
Unless there is a dramatic improvement in trading, National Express said the DfT was likely to take back control of the franchise later this year.
Following the trading announcement this morning, Transport Secretary Lord Adonis confirmed the government would take over the running of the East Coast Mainline through a publicly-owned company when National Express East Coast ceases to operate.
The franchise is suffering from slumping passenger numbers, and National Express said it now expected to lose 20 million in the first half of the year.
Negotiations with the government to alter the terms of the franchise contract have failed.
The Department of Transport said that all East Coast services would continue and that tickets would be honoured.
National Express was contracted to pay the government 1.4 billion to run the East Coast Mainline, which runs between Edinburgh and London, until 2015.
Edinburgh North and Leith MP Mark Lazarowicz welcomed the announcement, and said the government should take its time in deciding the future of the East Coast rail services.
"I hope it will give people confidence in the future of services on the East Coast route. Passengers have had to put up with a lot of problems in recent years, and the government must not rush into appointing a new franchise."
In a trading statement, National Express said that the "challenging economic environment" meant it was seeing fewer passengers and "significant" levels of people downgrading from first-class and full fares.
The firm is trying to reduce a debt of about 1.2bn, and cuts have been made in dividend payouts to shareholders, while 750 jobs have also been lost.
It was also confirmed this morning that National Express chief executive Richard Bowker, the man who oversaw the bid which won the company the blue-riband East Cost route linking London and Edinburgh, is to resign from his post.
John Devaney, National Express executive chairman, said: "Our performance in the first half year has been resilient across most of our businesses, with the exception of the East Coast franchise.
"It is disappointing that it has not been possible to find a solution that protects the best interests of all stakeholders."