Wednesday July 1, 10:31 AM
UPDATE 3-National Express to give up East Coast franchise
By John Bowker
LONDON, July 1 (Reuters) - British transport operator National Express (LSE: NEX.L - news) , a takeover target, is
to hand a major rail franchise back to the government, after the recession hit its business plan for loss-making London to Edinburgh trains.
Shares in National Express, which rejected a takeover bid from rival FirstGroup (LSE: FGP.L - news) on Monday, fell 8.3 percent to 283.75 pence by 0910 GMT after a government minister said it could lose other franchises.
National Express, which has the East Coast franchise until 2015, said money it had committed to the business would run out later this year. Handing the franchise back should not affect its other rail franchises, it said.
Transport minister, Andrew Adonis, did not agree and painted a bleak future for National Express in the rail sector.
'The government believes it may have grounds to terminate these (other National Express) franchises, and we are exploring all options,' said Adonis, adding he would set up a public company to operate the East Coast franchise.
'I think given the track record that National Express has demonstrated today, they'll have some difficulty in getting into this business again,' he said.
The handover will mark the second time in three years a company operating the Flying Scotsman service has had to give up the franchise, after the demise of GNER in 2007.
'This shows the extent of Labour's failure and incompetence in running the rail franchising process. They clearly learned nothing when the GNER franchise collapsed,' said the opposition Conservative Party's shadow transport secretary, Theresa Villiers.
CEO LEAVING
National Express said chief executive Richard Bowker, the former head of Britain's Strategic Rail Authority who negotiated the 1.4 billion pound East Coast agreement, would leave to head up planned railways in the United Arab Emirates.
National Express has struggled with falling passenger numbers twinned with rising premiums pledged to the government when it was awarded the East Coast franchise in August 2007, days after the start of the global credit crunch.
Chief operating officer Ray O'Toole told reporters the company had not reneged on any commitments to the government to date, blaming the problems on the recession. 'We are not in default of any of our franchise commitments. Services, passengers and staff will be unaffected by what is going on.'
O'Toole said he 'did not understand' Adonis's statement that the company could lose more franchises,' and that Bowker's departure was unconnected to the problems at the group.
National Express said the performance of the East Coast route would hit first-half profit, and the franchise would make a loss of 20 million pounds.
The company has been working to manage a billion pound debt-pile, and has not ruled out a rights issue.
National Express said it had tried and failed to renegotiate the terms of the franchise with the government, and could only commit to funding it later in 2009.
Adonis said he refused to bail out companies that do not meet their promises.
National Express said it had 40 million pounds in place to cover losses, and has already used over 17 million.
(Reporting by John Bowker; Editing by Hans Peters and Dan Lalor)
($1 = 0.6029 pound) Keywords: NATIONALEXPRESS/
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