East Coast main line operator takes £84m hit
East Coast Main Line operator Stagecoach, which runs the Edinburgh-London line with Virgin, has entered discussions with the Department for Transport after being hit by a major loss.
It is being hit with an £84.1m exceptional charge to provide for “anticipated losses” over the next two years on the operation which is has called an “onerous contract”.
The DfT said it expected Stagecoach to honour its financial commitments.
The £84m calculation takes into account Stagecoach parent company’s £165m loan commitment to Virgin Trains East Coast, from which £57.5m was already loaned in April 2017. 10% of any loan is funded by Virgin. It also recorded a £44.8m impairment of intangible assets associated with the right to operate the franchise.
Profitability for the company has plummeted, with pre-tax profits dropping from £104.4m in the year to April 2016, to £17.9m this year.
The company said it was engaging in discussions with the Department of Transport to renegotiate the terms of its continued operation with the East Coast line, which it has signed up to until 2023. It said the business, which is 90% owned by Stagecoach and 10% owned by Virgin, is expected to be profitable from 2019.
Stagecoach insisted it was still going to receive the 65 Hitachi trains it ordered for the line as part of £140m of improvements.
Chief executive, Martin Griffiths, said: “We are engaged in discussions with the Department for Transport regarding our respective contractual rights and obligations under the current Virgin Trains East Coast franchise and reflecting the reprioritisation of Network Rail’s infrastructure programme.
“However, separately we have made financial provisions to reflect the short-term outlook for that business over the next two years, including in view of the weak growth environment affecting the UK rail sector as a whole.
“We are disappointed to report losses at Virgin Trains East Coast. However, I am confident that we can return the business to profitability and build on the significant benefits we have delivered to date for customers and taxpayers.”
Unions have weighed in with RMT saying the operation was “close to collapse” and criticising the third crisis the privatised line
Mick Cash RMT General Secretary said: “RMT warned that re-privatising East Coast, after it had been successfully run in the public sector following the last private failure, was a gamble doomed to failure. We have been proved right.
“This is the third private operator to run the vital East Coast inter-city routes into the ground and rather than waiting for the inevitable financial collapse it should be brought back into public ownership immediately. ”
This comes amid ongoing strikes for the Arriva Rail Northern and Southern lines, with another three days planned for July as disputes continue with RMT over driver-only operations.
