Financial News

The transport secretary on Wednesday signalled the end of National Express (LSE: NEX.L - news) 's hopes of running a big rail business after the government announced it would nationalise the struggling operator's East Coast rail franchise.

The Department for Transport could still try to strip the debt-laden bus and rail operator of the two franchises it will retain after it gives up the London-Edinburgh operation this year.

However, speaking to the Financial Times, Lord Adonis made clear the company would struggle to find any new UK rail business even if it hung on to these c2c and National Express East Anglia operations for the rest of their contracts.

Lord Adonis's remarks underline the fall from grace of National Express, which has been the UK's largest train operator for most of the decade from privatisation until 2006. Richard Bowker, who announced his resignation as chief executive on Wednesday, was appointed in 2006 mainly to win new rail business.

The company's flagship East Coast operation, won in 2007 with a pledge to pay the government £1.4bn over the contract's eight-year life, will be handed to a government-run company this year. The route was expected to announce losses of more than £20m for the first six months of this year, the company said in a statement, and would have to be abandoned once its financing expired this year.

Lord Adonis said National Express would not have qualified to take part in any recent bidding competitions for rail services if it had already reneged on its commitments to a franchise - as it was planning to do on the East Coast. "The track record that they are now establishing will put them in a very poor position to bid for future contracts," he said.

He also insisted - in spite of denials by National Express - that he could strip the company of its remaining franchises, even if he chose not to do so. Most rail franchises contain a "cross-default" clause giving the DfT the right to remove a group's other franchises if it defaults on its obligations on one.

"We do have powers over cross-defaults but I'm required to take full account of the circumstances in the case," Lord Adonis said.

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He insisted the East Coast route's effective nationalisation would be temporary - probably about a year - until a new private sector operator was found.

The decision delighted leftwing Labour MPs already celebrating the government's climbdown over the proposed part-privatisation of Royal Mail.

"I thoroughly enjoyed having a nationalised cup of tea and a nationalised bacon sandwich," John Prescott, former deputy prime minister, said after taking an East Coast train.