Showdown talks

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

GNER train

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.

One detail of its deal means the cost of leaving the franchise will almost double next May to nearly £30m.

Abandoning the East Coast Main Line before May would cost the company a £15.3m 'performance bond' lodged with the DfT 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 were to make an exit, it would be in the company's interests to do this in the next nine months.

Industry observers say 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 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 DfT to discuss the matters we raised in August, but it's far too early to say what may come of those talks." The Government has restated its position that it will not consider renegotiating a fresh deal with GNER.

If Sea Containers were to ditch the franchise, then the services could be forced back into public ownership - a move demanded by the RMT union to secure jobs and prevent fare hikes.

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

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