First Great Western to Give up Franchise?

[whole diary]

[ChrisB]

Exactly - no change from current in this respect then.

[andrewr]

To add a little to the debate here, there's a school of thought from the finance sector that says First Group would be well off outside the rail industry. A research paper from Charles Stanley stockbrokers certainly claims that, and while I'm not sure how much I can quote here, the gist is that the company's is over-leveraged and to invest substantially in the rail sector would require increasing debts or issuing new shares, neither of which are palatable options. (The opening quote is: "FirstGroup has no future in UK^▸ (United Kingdom) rail", which is unusually bold for a financial analysis, but if they're right in the detail, spot on I think.)

Throw in the uncertainty of what's going to happen to Network Rail, the cost of IC125 life extension and so on, and it's very difficult to make a sane case for retaining GW^▸ (Great Western) for the final three years. IF FirstGroup does intend to hand back the keys after seven years, one could hardly blame them.

As to what happens in the next franchise, well, that's another question and I worry that we may face some lean times again. Shades of 2005 anyone?

Andy

[ChrisB]

I've read the same in some news report (some financial press, I think) and completely concur with the post above.

[anthony215]

If first group do pull out of the rail industry then maybe they will have more money availble to sort out some of their bus operation's

We certainly need new reliable vehicles down here  in south wales instead of 2nd hand   low floor dennis darts from London, slough & bristol  etc

Certainly the more recent beatch  which has arrived are a perfect example of how bad some of these vhicles can be.

[andrewr]

Funnily enough Anthony, that's another strand from the CS research note - that First Group would do well to ensure it has enough capital to take advantage of opportunities in the UK^▸ (United Kingdom) bus industry...

Andy

[IndustryInsider]

Probably unrelated, but the First Group share price has dropped steadily since the turn of the New Year, and is now almost 25% down in the last three months from the high then of 413 (down to 320 yesterday) - clearly the quake didn't help much, but the decline was fairly steady before that too.

[ChrisB]

Shareholders might see it as a good thing to gove it up early and save ^800million, so you might expect the share price to actually rise if ghete were legs for this rumour.

I can't work out what would be better for shareholders actually. There are plusses and minuses for each scenario

[IndustryInsider]

Yes, I agree.

[Chris from Nailsea]

From The Cornishman:

FirstGroup could quit ^1.2 billion Great Western rail franchise

FirstGroup may be about to pull the plug on its ^1.2 billion Great Western rail franchise three years ahead of schedule after delays to a new fleet of trains and weaker-than-expected revenue.

The company is considering whether to trigger a unique get-out clause which could save it more than ^826 million in repayments.

Termination of the 10-year deal in 2013 by way of 12 months' notice next April would leave the Government just 12 months to find a new operator at a time of massive upheaval in the rail industry.

A spokesman for FirstGroup yesterday told the Western Morning News it would make a decision "before the end of the year" whether to "exercise our contractual right to extend the franchise to March 2016".

Passenger groups in the region say the timetable for a comprehensive re-tender is tight and are calling on the Department for Transport (DfT^» (Department for Transport - about)) to act quickly.

Experts say delays to the process or an ill-thought-out contract could see a return to the service reductions and subsequent protests which blighted the start of the current deal five years ago.

Gordon Edwards, director of Travel Watch South West, said there was "nervousness" within the DfT that FirstGroup might take the decision "right down to the wire" on March 31 next year.

"Some people doubt the DfT's ability to let the franchise in 12 months," he added. "They might have to go cap in hand to First to extend the contract for six months but they won't get a good deal in such a bad bargaining position. If we go back to 2006, the franchise got off to an appalling start with the December timetable prompting fare strikes and castigation for the company in the House of Commons."

First Group took on the 10-year franchise in April 2006 but concerns about the Government's ability to deliver a new fleet of replacements for the ageing intercity125 trains by 2013 led to the insertion of a get-out clause.

This allows the company to walk away three years early and lets the Government call time if performance indicators are not met.

The contract includes a "cap and collar" agreement whereby revenue of more than 6 per cent below projections is subsidised with 6 per cent rises above targets triggering payments to Government.

FirstGroup is currently receiving a rebate because its income is lower than expected, as the recession hits demand for services, and it also faces an escalation in fees payable to the Government from 2013 to 2016.

The Government's announcement earlier this month that the trains would be unable to deliver the new fleet until 2016 has further threatened the viability of the franchise.

Added to this, planned upheaval across the network, including disruption at London Paddington from the building of the ^16 billion Crossrail line, the reconfiguration of Reading station and electrification, has also made the near future uncertain.

Passenger groups are concerned that hard-won improvements in the Westcountry, such as the extra trains laid on by First Group over and above the franchise and the booming branch line sector be maintained.

Richard Burningham, manager of the Devon and Cornwall Rail Partnership, is urging the DfT not to risk a row with passengers and user groups. He said the retention of existing services should be "an absolute baseline", adding: "Last time around we had a bad experience and nobody wants a repeat of what happened in 2006."

Mr Burningham said there would be no shortage of suitors when the franchise is finally offered. He said: "It is a very competitive market."

A DfT spokesman refused to say if discussions had taken place or if plans were in place should the franchise end, describing it as "speculation".

[JayMac]

Temporary state ownership anyone? I think there's a precedent......

Actually, may not be a bad thing. Put the franchise out to tender once the IEP^▸ (Intercity Express Program / Project.) programme is up and running. Although whether the Conservatives will consider state ownership as readily as Labour did is another matter.

I'm sure there are many scenarios the DfT^» (Department for Transport - about) and First Group are looking into. A bit of poker style bluff and counter-bluff may well be going on behind the scenes.

[vacman]

mystic vacman predicts that the final 3 years will be "re-negotiaed" in FG's favour on a management type contract......... watch this space........

[JayMac]

Could well be vacman. The DfT^» (Department for Transport - about) are going to struggle to get ^860 million in premium payments for those three years from any other source. A management contract is a bigger bargaining chip for First Group than having a few of their own trains.

That said, NatEx tried to get a management contract out of the DfT for NXEC^▸ (National Express East Coast), but Andrew Adonis refused. I wonder whether Philip Hammond will also play hardball should First go fishing for a deal that is in their (ie shareholders) best interests.

[tramway]

Throw in the uncertainty of what's going to happen to Network Rail, the cost of IC125 life extension and so on, and it's very difficult to make a sane case for retaining GW^▸ (Great Western) for the final three years. IF FirstGroup does intend to hand back the keys after seven years, one could hardly blame them.

Andy

Returning to the argument that First may not want anyone to play with their HST^▸ (High Speed Train)'s, I don't think they would like to be left as a ROSCO^» (Rolling Stock Owning Company - about) with half a dozen trains they have to update just so they can rent them out. Sell them asap.

[woody]

Can anyone make a success of train services in the West?
http://www.thisisplymouth.co.uk/regionalnews/make-success-train-service-West/article-3340069-detail/article.html

[6 OF 2 redundant adjunct of unimatrix 01]

Throw in the uncertainty of what's going to happen to Network Rail, the cost of IC125 life extension and so on, and it's very difficult to make a sane case for retaining GW^▸ (Great Western) for the final three years. IF FirstGroup does intend to hand back the keys after seven years, one could hardly blame them.

Andy

Returning to the argument that First may not want anyone to play with their HST^▸ (High Speed Train)'s, I don't think they would like to be left as a ROSCO^» (Rolling Stock Owning Company - about) with half a dozen trains they have to update just so they can rent them out. Sell them asap.

i wouldnt be so sure on that when the wests hst fleet was refurbed (the whole fleet not just the owned ones) who paid for that.......