The franchise operates long-distance trains on the East
Coast Main Line (ECML) from London King’s Cross to Leeds, Newcastle, Edinburgh,
Aberdeen, and Inverness, and was due to run until 2015 with premium payments
totalling £1.4 billion over its life.

In a trading statement issued this morning, National Express
acknowledged NXEC was expected to lose more than £20 million in the first half
of the year. It added that the parent group’s commitments to the franchise –
which is a separate company – were restricted to a £40 million subordinated
loan, of which £17.5 million has been used so far. Once this funding is
consumed, NE said it believed that the secretary of state would have a duty to
reassume control of the franchise. Under the terms of British passenger franchise
agreements, should the franchisee fail to meet its contractual commitments, the
government can take over the services as ‘operator of last resort’.

Transport secretary Lord Andrew Adonis said: “The government
is not in the business of baling out train operators who can’t meet their
commitments and that wouldn’t be a responsible thing for me to do.”

The DfT is setting up a state-owned company which will take
over NXEC when it ceases to operate. All staff will be transferred to the new
company and all services will continue to operate. Following the government’s
acquisition of NXEC, it will look to re-tender the franchise at the end of

While NE believes its two other British passenger franchises
– National Express East Anglia and c2c – will continue unaffected by the
government’s decision, Lord Adonis said the DfT was “exploring options”
including the possibility of using legal powers to bring them into state

National Express Group chief executive, Mr Richard Bowker
(who was formerly chairman of the Strategic Rail Authority), is to leave
National Express at the end of August to become chief executive designate of
Union Railway, United Arab Emirates. The current chief executive of the UK
division, Mr Ray O’Toole, will become chief operating officer, while
non-executive chairman Mr John Devany becomes executive chairman. No
replacement for Mr Bowker has yet been named.


IRJ Comment The
government’s decision to strip National Express of the flagship Intercity East
Coast franchise raises huge questions about the franchising process – and of
the purpose of passenger franchises themselves, writes Contributing Editor
Andrew Roden.

In 2007, when the contract was awarded, there was widespread
surprise at the level of premium payments to the DfT, which were even higher
than the £1.3 billion which scuppered NXEC’s predecessor GNER. Faced with high
payments and the inability to cut services to better match demand because of the
highly-specified franchise agreement, NXEC was always likely to struggle should
the economy turn sour. So it has proved.

The question for the government is what to do next. NXEC’s
impending failure means that the last two attempts to re-let the franchise have
failed spectacularly – on a route hitherto regarded as amongst the most
profitable in Britain. One thing is certain: no bidder in their right mind will
approach the £1.4 billion promised by National Express.

So, with re-tendering the franchise unlikely to offer
anything like the promised level of return, and state control only lasting
until the end of next year, perhaps it’s time to try something completely different.
The ECML already has two highly-successful open-access operators - Grand
Central and Hull Trains – and good regional services along its whole length
other than between Doncaster and Peterborough, so why not open the bidding and
make Intercity East Coast an entirely open-access operation?

The process would need some serious consideration (as would
the protection of passengers’ interests) but given how spectacularly the Intercity
East Coast franchise has failed, perhaps now is the time to make the ECML a
truly free-market railway – it must at least be worth a go.