January 17, 2014 4:20 pm

SNCF, First Group and Stagecoach shortlisted for East Coast

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FirstGroup and Stagecoach will face stiff competition from SNCF, the French state-owned rail operator, in a race to secure the franchise to run the prestigious East Coast mainline when it is privatised next year.

The UK government on Friday announced a shortlist of three bidders for its controversial plans to sell off East Coast Trains, the state-run operator of intercity services between London, Leeds, Newcastle and Edinburgh.

FirstGroup, the UK’s largest operator of rail franchises by revenue, has made the cut and is up against a joint bid from Stagecoach and Sir Richard Branson’s Virgin Group.

The third bid team is led by Keolis, a subsidiary of SNCF that has been active in the UK for almost a decade, which has joined up with Eurostar, the operator of cross-Channel trains majority owned by the French state operator.

Analysts said it was too early to draw any conclusions about who might be best positioned to win the competition. The privatisation of East Coast is the first rail franchise that is being let under the new rules drawn up in the wake of the West Coast fiasco more than a year ago.

The plans by the government to privatise the operation has caused outrage among the opposition Labour party and unions, who accused the government of pursuing an ideological agenda. They demanded the state-owned operator, Directly Operated Railways, should have been allowed to bid, saying that it had made a financial success of running the line.

The presence of the two SNCF subsidiaries has raised some eyebrows, however. Stephen Hammond, the rail minister, said on Friday that the government needed “strong private sector partners who can invest and innovate in ways that deliver a world class service”.

Keolis is 70 per cent owned by SNCF, while the French state operator owns 55 per cent of Eurostar. The UK government holds a 40 per cent stake in Eurostar, which it recently announced it would sell, while Belgian state railways owns the remaining 5 per cent.

“You could argue that if you are going to let a foreign state-owned entity have a go you should let a UK state-owned entity have a go,” said Gerald Khoo, transport analyst at Liberum Capital in London. “If an ideological point is going to be made, it should be consistent.”

Stagecoach confirmed on Friday that in its joint bid with Virgin, Sir Richard’s group would take just a 10 per cent stake in the vehicle, with the UK-listed transport group holding the remainder. This contrasts with the 51 per cent stake Virgin holds in the Virgin Trains joint venture with Stagecoach that runs the West Coast franchise.

Virgin has said previously it remains committed to the UK rail industry and that the smaller stake reflected its global strategy of taking smaller equity holdings.

All three bidders welcomed the government’s decision.

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