Franchise row could drive Virgin out of UK rail industry

Daily news Economy

The Virgin brand could disappear from the UK rail network after the Government banned its business partner from a trio of franchise bids.

Virgin’s boss Sir Richard Branson said he was ‘devastated’ that Stagecoach had been ruled out of the race to run three rail lines.

Stagecoach has a 49 per cent stake in Virgin Trains and the two companies had bid to renew the West Coast franchise with France’s SNCF.

The East Midlands and South Eastern franchises were also subject to bids from Stagecoach, which were rejected by the Department of Transport (DfT).

Officials said Stagecoach was not prepared to put more cash in to help plug a deficit in the rail industry’s pensions pot.

The rejection of Stagecoach as a bidder meant that Virgin Trains could be gone from the UK industry before the end of the year, said Branson.

Writing on Virgin’s website, he said: “We’re baffled why the DfT did not tell us we would be disqualified… they have known about this qualification in our bid on pensions for months.

“The pensions regulator has warned that more cash will be needed in the future, but no one knows how big that bill might eventually be.

“No responsible company could take that risk with pensions. We can’t accept a risk we can’t manage – this would have been reckless.

“This is an industry-wide issue and forcing rail companies to take these risks could lead to the failure of more rail franchises.”

But the DfT said Stagecoach had ‘repeatedly ignored’ bidding rules and that other companies had met its requirements.

A DfT spokesman said: “Stagecoach is an experienced bidder and fully aware of the rules of franchise competitions.

“It is regrettable that they submitted non-compliant bids for all current competitions which breached established rules. In doing so, they are responsible for their own disqualification.

“Stagecoach chose to propose significant changes to the commercial terms for the East Midlands, West Coast Partnership and South Eastern contracts, leading to bids which proposed a significantly different deal to the ones on offer.

It revealed that the East Midlands franchise had been awarded to Dutch firm Abellio, who has agreed to meet the pension requirements.

Martin Griffiths, chief executive of Stagecoach, said: “We are extremely concerned at both the DfT’s decision and its timing.

“The department has had full knowledge of these bids for a lengthy period and we are seeking an urgent meeting to discuss our significant concerns.”

He added: “Forcing rail companies to take these risks could lead to the failure of more rail franchises.

Griiffiths said that “cannot be in the best long-term interests of customers, employees, taxpayers or the investors the railway needs for it to prosper.”

He said the DfT’s demands proved that the current franchising model is ‘not fit for purpose.’ and damages investor confidence in the rail sector.

The Pensions Regulator estimates that the UK rail industry needs £5-6bn to plug a pensions shortfall.

Rail firms have called on the government to help make up the deficit and Stagecoach said it was being asked to take on risks it ‘cannot control and manage.’

Stagecoach bid independently for the East Midlands franchise and planned to team up with Alstom for the South Eastern operation – its shares fell 9.3% today.

The deadline for bids has passed and there are believed to be two applicants in contention for the West Coast franchise.

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