End of the line for GNER?

Debt laden GNER owner Sea Containers has denied making a threat to abandon its East Coast Main Line rail business.

Debt laden GNER owner Sea Containers has denied making a threat to abandon its East Coast Main Line rail business.

But the company does appear to be heading for a showdown with the Department for Transport as it claims circumstances beyond its control mean it can't carry on with its £1.3bn, 10-year deal agreed just 17 months ago.

And one vital detail of its franchise deal means the cost of leaving the franchise will almost double next May to nearly £30m - which Sea Containers could use as a bargaining chip in talks with the DfT.

Abandoning the East Coast Main Line before May would cost the company a £15.3m `performance bond' lodged with the Department for Transport when it won the franchise last March. But a close examination of the franchise agreement reveals this bond is due to rise to £28.7m next May, so if Sea Containers was to make an exit, it would be in the company's interests to do this in the next nine months.

Yesterday industry observers said that with Sea Containers currently so deep in the red, the prospect of losing this bond increasingly would put the company off walking away.

Sea Containers' main arguments for re-negotiating its deal include the imminent launch of rival operator Grand Central, steeply rising electricity prices, and the impact of 7/7 on travel to London. The company has even blamed Network Rail's better-than-expected performance levels for its woes, as payments for disruption have been below expectations.

The company based its franchise bid on making a profit margin of just 3.75% each year from GNER's operations, equating to less than £19m a year on revenues of £500m even with the business performing as expected.

That leaves GNER with very little room to manoeuvre - and Sea Containers' current £320m debt mountain adds more pressure.

A spokesman for Sea Containers said: "We have to meet the Department for Transport to discuss the matters we raised in August, but it's far too early to say what may come of those talks." Meanwhile, the Government has restated its position that it will not consider renegotiating a fresh deal with GNER.

If Sea Containers was to ditch the franchise, then the services could be forced back into public ownership - a move which the RMT union is demanding to secure jobs and safeguard against further fare hikes.

RMT general secretary Bob Crow said: "The number one priority is to ensure our members' jobs and the services they provide do not fall victim to Sea Containers' deepening financial crisis."

There is provision under the Railways Act for the Transport Secretary to take over a franchise should the circumstances warrant it.

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