Posted on: 01/12/2009 

National Express, the troubled transport group, won a stay of execution yesterday when the Government held back from an immediate withdrawal of its profit-making rail franchises.

Lord Adonis, the Transport Secretary, announced that the company’s East Anglia franchise would end in March 2011, ruling out a further three-year extension.

However, the rail industry was in little doubt that the ruling marked the end of the line for National Express’s involvement in the British railways. The company that once ran half of the national network will return to its roots as a bus and coach operator.

The beginning of the end came in July, when the company abandonded its financial obligations on Britain’s busiest long-distance route. The East Coast franchise passed back to state control this month when Lord Adonis demonstrated that operators cannot expect a public bailout.

Its default effectively rules National Express out of future tenders. “Some one who has defaulted on a franchise in the way that they have would not qualify to run a franchise,” a spokesman for the Department for Transport said.

A rail industry insider added: “They are out of the railway business. It is a very sad end to a company that was very influential in the heady days of privatisation.”

Another seasoned observer said: “Within 18 months they are going to be off the railway one way or another.”

Norman Baker, Liberal Democrat transport spokesman, said: “Clearly, the Government’s intention is to end National Express’s involvement in the rail network. What hope is there that the company will deliver a decent service when they’re operating under sentence of execution?”

The departure from the cash-rich railway sector would mark a dramatic fall from grace for a company that once ran key routes across Britain, including the West Anglia Great Northern, Silverlink, Central, Wessex, Scotrail and Midland Mainline franchises as well as its failed East Coast operation. Its last remaining franchise, Essex Thameside, which is running under the C2C brand, expires in May 2011.

However, National Express, which has fended off two hostile takeover bids, is operating with a bitterly divided board without a chief executive and has £1.1 billion in debt, is not yet ready to rule the railways offlimits.

“It is too early to make a call like that,” a spokesman said. “We are foc-using on our current franchises and that is it. I would not rule the group out of being a train operator.”

Certainly, investors did not take fright at the announcement. Shares closed down 1¼p at 336¾p.

The company said it was “disappointed” that time had been called on its East Anglia franchise “given the excellent improvement in performance delivered by the group over the past five-and-a-half years of operating the franchise”.

In his assessment, Lord Adonis said that a transition period should ensure minimal disruption to passengers on services out of Liverpool Street station.

Nedrail, Deutsche Bahn, Stagecoach, FirstGroup, Arriva and Go-Ahead are all expected to enter a competitive round of bidding to take on East Anglia and Essex Thameside.

The services cover robust commuter routes. A new train fleet arrives in 2011 and the winning bidder will have the cachet of servicing the 2012 Olympic Games. While the industry showed little surprise at the announcement, it did reignite calls to reform the franchise system. Operators are calling for franchises to be extended beyond the average of seven-year terms.

• National Express is expected to comfortably win approval for a £360 million rescue rights issue today, in spite of opposition from its largest shareholder, the Cosmen family.

The fundraising is expected to win the support of all the bus and train company’s other big investors — leaving the Cosmen family, who hold 20 per cent, relatively isolated. Proceeds from the cash call will be used to trim debts that have ballooned to more than £1 billion.

Gerald Khoo, an analyst at Arbuthnot Securities, said: “Although the Cosmen family has increased its stake to just under 20 per cent and we expect a material protest vote against the rights issue, we believe the group will have secured sufficient support from institutional shareholders.”

The journey

1969 The State-owned National Bus Company is set up, offering a co-ordinated express coach service across Britain by 1972

1992 National Express Group floats

1995 Acquisition of West Midlands Travel, one of the UK’s largest bus companies

1996 Enters UK rail market with acquisition of Gatwick Express and Midland Mainline

1998 Goes into US, buying Durham School Services

2004 Enters London bus market with acquisition of Travel London

2005 Enters Spanish coach and bus market, acquiring Alsa

2009 Hands back East Coast Main Line franchise in July