Virgin and GNER link up for East Coast bid
By Michael Harrison Independent
Published:07 April 2007
The deadly rail rivals Virgin and GNER are teaming up to bid for the East Coast Main Line, one of Britain's flagship train routes.
Sir Richard Branson announced yesterday that GNER, which is losing the franchise after running into acute financial difficulties, is to take a 10 per cent stake in Inter-City Railways - the joint venture his Virgin Rail group has set up with Stagecoach to compete for a new seven-year contract to operate the London-Edinburgh route.
If the bid is successful, then GNER's existing management, led by Jonathan Metcalfe, will continue to run the east coast service. All other GNER staff will also transfer over to Inter-City Railways.
The last time the franchise was put out to tender in 2004, GNER beat off a rival bid from Virgin and Stagecoach by agreeing to pay a £1.3bn premium to the Government for the right to run east coast services for the next 10 years.
However, less than a year into the contract GNER and its parent company, Sea Containers, ran into severe financial trouble because of an unexpected rise in costs and lower-than-expected passenger revenues, forcing GNER to hand back the franchise to the Department for Transport. It now runs it on a management contract for a fixed fee.
Commenting on its past failure and the decision to join the Virgin-Stagecoach bid, a GNER spokesman said: "The previous franchise is ancient history. We could all have PhDs in hindsight. There is a great deal more certainty now about the east coast route going forward."
GNER is not paying anything for its 10 per cent stake in Inter-City Railways, but does have the option to invest in the future.
There are three rival bidders for the franchise: National Express, FirstGroup and Arriva. National Express is now run by Richard Bowker, the former Virgin executive who advised it on its original bid for the East Coast Main Line.
The deadline for bids is 6 June, and the DfT plans to announce the winner in the late summer, enabling the new franchise to begin at the end of this year.
The East Coast Main Line carries 17.4 million passengers a year between London's King's Cross station and the Midlands, Yorkshire, North-east England and Scotland, generating revenues of about £400m.
GNER is currently refurbishing its 13-strong fleet of high-speed diesel trains and next month plans to begin half-hourly services between London and Leeds with the introduction of 12 extra frequencies.
In a joint statement, Sir Richard and the Stagecoach chief executive, Brian Souter, said the inclusion of GNER's management would create an even stronger bidding team.
The Inter-City Railways bid is likely to involve additional rolling stock to expand services and possibly the building of brand new trains, although the existing Inter-City 225 fleet will remain the workhorse of the franchise.