National Express, the heavily indebted public transport company, has appointed a new chairman, replacing David Ross, the Carphone Warehouse co-founder who quit last December after disclosing he had used a stake in the company as collateral for loans.
John Devaney, chairman of National Air Traffic Systems and a non-executive director of Northern Rock since November 2007, was appointed on Thursday, ending months of uncertainty for the group.
He will take over from Tim Score, acting chairman for the past three months, who becomes a non-executive director.
The announcement came as the Department for Transport said it would pay for National Express to boost its fleet by 188 carriages – or 17 per cent – on its East Anglia route, the biggest change to a rail franchise agreement yet. About 11,000 seats will be added in an attempt to ease overcrowding, particularly on the Stansted Express route into Liverpool Street.
Geoff Hoon, transport secretary, said: “This is one of the biggest upgrades to an existing franchise since rail privatisation and is a mark of our continued commitment to invest in long-term projects to improve the railways.”
Shares rose on speculation that the deal signalled the DfT was willing to renegotiate rail franchise agreements. “A 17 per cent increase in capacity is substantial,” said Douglas McNeill, a London-based transport analyst at Blue Oar Securities. “National Express currently pays a premium to the government for the right to run this franchise. We surmise that the payments will be reduced to offset the cost.”
The shares, which have fallen more than 60 per cent since the start of the year, rose 9p to 196p.
Mr Delaney joins amid some concerns that National Express may have to renegotiate or hand back rail franchises as it struggles with a £1.2bn debt pile. In February the company cut its dividend, axed jobs and promised further cost-saving measures on top of the 750 job cuts it has already announced.
It must refinance £484m of the debt next year. Consensus forecasts are for earnings per share to fall 26 per cent between December 2008 and 2010.
Jez Maiden, finance director, has said he was “confident” further cost-cutting measures and the £30m reduction in the dividend would stop it defaulting on the deal. But some analysts are less sanguine.
Rail accounts for a third of profits at the group, making it vulnerable to passenger revenue falls. Notably, the East Coast rail franchise was negotiated after an aggressive bidding war at the height of the economic boom in 2007 and assumed passenger growth of 10 per cent. Instead, the rise in unemployment and a slowdown in leisure and commuter travel have hit ticket sales and growth could be flat.
The latest industry figures do not bode well. According to the Office of Rail Regulation, the number of passenger journeys in the three months to December 2008 fell 0.3 per cent, year-on-year, across the industry.
Under the franchise National Express must pay the DfT £1.4bn over a seven- year contract until 2016. The DfT has so far said it will not renegotiate any franchises and that after years of profits rail operators should bear the pain of any fall in ticket revenues.