Partner Article

FirstGroup named as west coast franchise frontrunner

The highest bid for the west coast rail franchise has been named as FirstGroup, who are now the frontrunner to take over the London to Glasgow route.

It is believed that the bus, coach and rail group placed an offer which was 15% - 20% higher than their nearest contender, Virgin Rail.

The two rail companies have vied for the contract since the other two bidders, Dutch owned Abellio and French SNCF moved out of contention.

It is rumored that the Department for Transport has offered the biggest bidder a premium of between £6.5 billion and £7 billion over the course of the 14 year contract. This is more than the bids paid by Virgin, but many in the industry believe that £5 billion would be the par bid for such a sought after franchise.

Procurement officials are likely to scrutinise the bid, following criticism of the vetting process of the failed £1.4 billion bid for the London to Edinburgh east coast contract by National Express.

The rail operator won the contract in 2007, but the deal collapsed in 2009. it was later revealed that National Express was not the highest bidder.

FirstGroup have an excellent reputation for cost management, and have looked closely at running costs if they were to be given responsibility for the service. However, they have also considered cutting staff numbers by around 20%, costing around 500 jobs.

FirstGroup is now attempting to lower its £1.8 billion debt burden, a process which is attracting close attention from investors. There are now concerns that the franchise will be forced to launch a rights issue to reduce debt - which would meet strong disapproval if it means that shareholder cash would be diverted into lending banks rather than the business itself.

A spokesperson from FirstGroup told the Guardian: “We do not comment on speculation or market rumours of any kind. All decisions relating to the tendering of rail franchises are the responsibility of the Department for Transport.”

If FirstGroup is successful, it will be the first time that Virgin has been out of the UK rail business in 15 years.

A final decision is expected in Autumn.

This was posted in Bdaily's Members' News section by Ruth Mitchell .