Train bosses expect line price to tumble

A key executive at Virgin Trains has said the price required to win the East Coast Main Line railway service must be several hundred million pounds below the sum GNER paid for the franchise.

A key executive at Virgin Trains has said the price required to win the East Coast Main Line railway service must be several hundred million pounds below the sum GNER paid for the franchise.

Will Whitehorn, head of corporate affairs at Virgin Group and a close colleague of Sir Richard Branson, said GNER had paid almost 50% more than any other bidders to hang on to its prized asset.

But this time around, the Department for Transport must be more realistic, he says, particularly as it is expected there will be calls for investment in new trains.

Despite having accepted GNER's ambitious bid, offering a £1.3bn premium, in March 2005, the Department for Transport said yesterday the east coast franchise would not necessarily go to the highest bidder as the Government was "concerned about both deliverability and price."

Companies expected to bid for the east coast route besides Virgin include FirstGroup and National Express, with Newcastle's Go-Ahead also a potential competitor.

Those interested have until January 15 to express an interest, before the DfT shortlists a handful of companies to put together full bids.

Talking to a Sunday newspaper, Mr Whitehorn said Virgin Group, which owns 51% of Virgin Rail through a joint venture with Stagecoach, was interested in the east coast line. He added: "Sea Containers paid far too high a price to take control of GNER when it was last up for auction - perhaps £350m or £400m more than anyone else.

"It was a knock-out bid which left no margin of error. In a railway franchise you always need room for the unexpected. It's hard to see that price being matched this time around."

And with potential operators already stung by the DfT agreeing to release GNER from its £1.3bn contract, it is unlikely they will be willing to pay any more than they offered in the original franchise bidding process.

Mr Whitehorn added that investment was expected to be key to the new franchise. He said: "I would be very surprised if the Government did not include additional requirements for investment as part of the franchise.

"The trains that are running on the network were mostly brought into service between 1988 and 1990. There are not enough of them anyway - overcrowding is a very real problem already. All that additional investment would have to be factored into the price."

GNER was forced to give up the £1.3bn East Coast Main Line rail franchise last week after admitting it would not be able to make a payment due to the Government in May next year. The move follows the collapse of Sea Containers, its parent company, into Chapter 11 bankruptcy protection in the US.

GNER blamed higher electricity costs and a drop in ticket sales following the July 2005 tube bombings for its woes.

A spokesman for Virgin Trains said last night: "The Government will take the most realistic bid - whatever that is - on the specification they put out. "

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