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Wednesday 24 April 2019

Virgin Trains - It’s Not Over Yet

In the world of Britain’s sort-of-private passenger rail services, operators change every few years. Few operations that came on the scene in the 1990s are still there. But Virgin Trains, operating inter-city services on the West Coast Main Line out of London’s Euston terminus, had been a constant since 1997. Until the DfT decided it would be no more.
A Virgin Pendolino train passes Tamworth

Or so it seemed, as the headlines earlier this month indicated. From the Guardian’sBranson: Virgin trains will vanish from UK after Stagecoach ban”, to ITV News tellingWhy Virgin Trains is set to disappear from Britain’s railways” to the Independent confirmingVIRGIN TRAINS TO DISAPPEAR IN LESS THAN A YEAR DUE TO PENSIONS ROW”, it looked like the end. So what had gone wrong?

Virgin Trains, run by Virgin Rail Group, which is 51% Virgin Group and 49% Stagecoach owned, runs the trains right now. Those companies had added SNCF of France in their bid to run the new West Coast Partnership, which will include trains operating via HS2 from 2026, but the sticking point came with the DfT’s insistence that liability for historical pension obligations should be included in the franchise commitments.

And to that, Stagecoach CEO Martin Griffiths had this to say: “Forcing rail companies to take these [pension] risks could lead to the failure of more rail franchises and cannot be in the best long-term interests of either customers, employees, taxpayers or the investors the railway needs”. He also had this ominous coda to offer: “The department has had full knowledge of these bids [now disqualified by the DfT] for a lengthy period and we are seeking an urgent meeting to discuss our significant concerns”.
Think he's gone? Maybe not ...

Why should that comment be significant? Ah well. We’re talking about a Government department overseen by Chris Grayling here. Consider these snippets from Roger Ford of Modern Railways magazine, his initial reaction to the news that Stagecoach had been disqualified from bidding for franchises. “As I’m writing this, the aftershocks from the decisions on … Stagecoach barred from bidding for the West Coast Partnership by DfT, are still reverberating”. Note the choice of words from industry watchers.

Then came the interesting bit. “Having watched a hapless Transport Minister floundering under a barrage of some well briefed questions in Parliament, I can sniff an action replay of the 2012 Intercity West Coast franchise award scandal in the making”.

Remember that? For those with short memories, 2012 was the last time Virgin Trains was down and out - but then it wasn’t. VT had lost out to First Group in a bid to continue operating trains on the West Coast route. But then Virgin Rail Group launched a legal challenge against the decision - on the grounds that First Group should have been asked to pony up rather more money in case they defaulted on the franchise.
... not when he's in charge at the DfT

This was a contingency against them handing back the keys and walking away. VRG and First had been asked to post the same £190 million subordinated loan facility. VRG pointed out that First’s bid was significantly riskier, and so they should have been required to put up around three times that amount. And then came the moment of truth.

The DfT did not contest the legal challenge. There was no court appearance; the franchise award to First was cancelled, bidding costs were reimbursed. DfT had fouled up. The whole system for evaluating and awarding franchises appeared well and truly bust.

Moreover, that was some time before the hapless Grayling got his feet under the desk in the DfT. The thought that the department sat on the franchise bid they have just thrown out  without letting the bidders know of their concerns is not one that bodes well for the Government. This one has some way to run yet.

So pro and anti Richard Branson forces can stand down their wakes and celebrations. It was going to happen in 2012 and it didn’t. As they say, it ain’t over until it’s over.
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