Nat Exp east coast to be nationalised

National Express currently runs services on the line between London and Edinburgh. But the firm is walking away from the line after it failed to renegotiate the £1.4bn it was required to pay the government over the seven-year life of the franchise, which was due to expire in 2015.

It said it would book a loss of £20m on the franchise in the first half of the year, after the recession took its toll on passenger numbers, which rose by one per cent – not the nine per cent it needed to make a profit.

Ministers criticised National Express for not making enough cash available to the special purpose vehicle (SPV) through which it ran the franchise, NXEC.

Running the contract through NXEC enabled National Express to cap its liabilities at £72m, made up of a £40m loan to the SPV and a bond of up to £32m which is payable on default.

The government will step in and manage the firm when National Express fails to make its next payment.

In recent weeks, the firm has desperately been trying to cut the £1.4bn it was required to pay the government. Talks failed, prompting chief executive Richard Bowker to quit the firm on Tuesday. Bowker will now help build a £20bn rail network in the United Arab Emirates.

“This is a failure for Bowker,” industry expert Christian Wolmar said.

“National Express won’t be able to bid for the franchise again and has lost its standing as one of the big players in the industry,” he added.

The DfT will set up a publicly-owned firm to run the franchise once National Express has withdrawn.

Transport secretary Lord Adonis said: “It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging.”