GNER in turmoil over East Coast line franchise

The flagship rail operator was in turmoil today after it gave up its franchise to operate trains from York to London and Edinburgh.

Transport Secretary Douglas Alexander is now inviting fresh bids for the franchise, although GNER - which was recently named Britain's best rail operator - will continue operating services until March, 2008, under a temporary management agreement, to help ensure a smooth transition.

Rival operators such as Virgin and First, who lost out in the race to win the franchise last year, are thought to be planning to pitch fresh bids this time round.

But there are concerns such companies might seek to manage the line from offices elsewhere in Britain, putting about 400 GNER York management jobs at risk.

York MP Hugh Bayley revealed today he is urging GNER's management team to launch their own, independent bid for the franchise, and that Mr Alexander has told him they would be entitled to lodge such a bid.

Mr Bayley said the fact the Government was allowing the managers to continue running the trains for the next 18 months was a clear indication that it had confidence in their abilities.

He said that when another firm, Connex, had previously lost its franchise, the Government had acted to take away its management role.

Mr Bayley said he had told GNER managers he would support an independent bid if it involved keeping the HQ in York. He said he had also stressed to the Transport Secretary how important it was for the East Coast Main Line to be managed from York - no matter who won the new franchise - and press for the Government to try to ensure it remained here.

He said: "He has given me an undertaking to speak to his legal advisers about the franchise conditions and speak to me again on Monday or Tuesday."

City of York council leader Steve Galloway said GNER was a quality company with a committed management team.

He said: "I hope that they will come through this new challenge even stronger. York must remain the HQ for this franchise, whoever the long-term owner may be."

The Government and GNER have both stressed that services will continue to operate as normal, despite the latest turmoil.

A Department of Transport spokesman said: "All tickets will be valid and passengers can book and reserve tickets in exactly the same way they do today."

GNER chairman Bob Mackenzie, who is also chief executive officer of its troubled parent company Sea Containers Ltd, said GNER would not have been able to meet a big increase in franchise payments to the Government due from next May.

He said the company's original bid for the franchise had been "bullish", adding: "We were knocked sideways by the July, 2005, bombings, the hike in electricity prices and regulatory approval for Grand Central, which will compete for our passengers calling at our stations on the same line, but will not have the same charges imposed upon them. We would have preferred a renegotiation of the current contract, but that was not available. The management agreement is therefore a sensible solution for all parties.

"It enables GNER, which is recognised as a first-class rail operator, to continue to deliver the high level of customer service for which it is known, and allow passengers to continue to benefit from this commitment.

"It also limits the exposure for Sea Containers, which is important in our financial restructuring process."

Mr Alexander said the Government had made it clear that rail operators which fell into financial difficulty should expect to surrender the franchise and not receive financial support.

"To do otherwise could set the precedent that we are willing to bail out operators at extra cost to the taxpayer," the Transport Secretary said.

"This agreement protects the interests of both passengers and taxpayers. It will ensure services operate as normal until a private sector franchise operator can be put in place."

Rail unions criticised the Government for throwing the franchise system into disarray and exposing rail workers to the threat of job losses.

Bob Crow, general secretary for the Rail, Maritime and Transport Union, said: "The Government must tell GNER its plans to cut jobs across the franchise will not be allowed. GNER's operations should be brought back in-house.

"Sea Containers' disastrous tenure has destabilised a key part of Britain's railways and sends a signal to other privateers that if you get into financial difficulties you will be bailed out with public money. The franchising process is now in complete disarray."

• The announcement will have no effect on The Press's current cheap travel promotion with GNER.

Crisis sparks bidding war among rival rail operators

Ron Godfrey assesses the likely front runners in the race for the new East Coast Main Line franchise.

POTENTIAL bidders are circling around the prospect of running one of Britain's most important rail routes.

It looks like being a rerun of the battle which ended in GNER's victory in 2005, when it won the right to continue running trains from York to London and Edinburgh.

Then, GNER outbid Virgin Stagecoach, as well as a joint bid between EWS (English Welsh Scottish) and the Danish State Railways, and the First Group.

But within hours of the Department of Transport's (DfT) announcement yesterday that the route was once again up for grabs, the same players were poring over the figures.

All three bidders indicated they are likely to make a formal declaration of interest by mid-January, but will carefully study the complex guidelines which will be specified by the Government.

A spokesman for Virgin Rail, which already operates the West Coast line from London Euston to the north west of England and the West Midlands, as well as a cross-country network from the south west of England to the north west of Scotland, said: "We will be interested in bidding and we are studying the documentation at the moment."

First Group, the largest rail operator in the UK, which already has franchises for the Great Western, Capital Connect, ScotRail and TransPennine lines today declared its intention to throw its hat into the ring.

A statement said: "We have a strong track record of successful franchise bidding and of delivering investment and innovation in all of our rail operations. We look forward to receiving further details from the DfT and submitting plans for the East Coast franchise."

A spokesman for EWS, which largely handles rail freight, said: "We have noted the Department of Transport's announcement and we will be looking at any potential opportunities to operate the East Coast Main Line with interest.

"From a rail freight viewpoint we will be seeking assurances that any new franchise will ensure that capacity is used effectively for both freight and passengers."

As things stand, a renewed bid by Sea Containers' GNER subsidiary for the franchise would "probably be impossible", according to a spokeswoman for the ailing Sea Containers. However, she stressed: "We are not giving up hope."

She said GNER would be unable to tender for the rail route while Sea Containers remained under Chapter 11 status - the US legal process which protects bankrupt organisations from litigation by hostile creditors.

She said: "We feel that we are not going to be able to meet the obligations of the franchise going forward so we came up with the arrangement announced by the Government. In any case, it would probably be impossible for GNER to tender. It will be focused on delivering its management contract up to March, 2008."

She refused to comment to speculation GNER's management might seek to pitch for the franchise with City backing.