Published on : Wednesday, May 16, 2018
After experiencing heavy losses for operators Stagecoach and Virgin, ministers will pull the plug on the East Coast rail line franchise in the coming days and announcement will be made before the end of the week.
It was reported that after 14 weeks post the transport secretary, Chris Grayling agreed that the existing franchise was unsustainable.
It will be the third time within a decade that the government was forced to interfere in the line from London to Edinburgh.
The minister either has the option of nationalizing the temporary line or renegotiating a temporary not-for-profit management agreement with the two operators.
Chances are high that the latter option will be considered due to the minister’s aversion to nationalization.
The main line franchise of the East Coast is owned 90 percent by Stagecoach and 10 percent by the Virgin. Both entered the joint venture in 2015 but the franchise ran into heavy losses due to shortage in passenger numbers.
In November it was announced by Grayling that franchise would be replaced in 2020. This will be three years earlier than expected allowing the companies from not paying the large premium.
But in February it was found that the consortium breached a key financial covenant and will only be able to continue for a few months.
The Minister confirmed the denial of companies being bailed out mentioning that they will lose a £165m performance bond and face other penalties. In the next two years a short-term solution is expected.
The government will introduce a new ‘public-private partnership model’ beyond 2020.
Last month it was found by the public accounts committee that the passenger growth forecasts by Virgin and Stagecoach was wildly wrong and showed the broken model of the rail franchising.