David Prosser: FirstGroup offers Adonis a cheap fare

In public, the Department for Transport has given the impression that it will
not compromise with National Express over the terms of its under-performing
East Coast Main Line franchise. Quite right, too: never mind the political
hue and cry were the Government to cave in to National Express’s demands,
there would also be the small matter of every other rail operator running to
the DfT for a similar handout.

In private, however, Lord Adonis knows he has a problem. National Express may
have no one but itself to blame for the predicament in which it finds itself
over the East Coast, but the parlous state of its finances means it does
need a deal.

The Transport minister can play hardball ? he has already threatened to strip
National Express of its other franchises if it walks away from the East
Coast ? but it’s not the strongest hand. If he were to re-auction those
licences, there is a good chance none would raise what National Express has
been paying for them.

However, were National Express to come under new ownership, Lord Adonis might
find it easier to come to some sort of accommodation on this issue. One
could imagine him justifying some sort of relaxation of the terms of the
East Coast franchise if he could say, in the same breath, that the
management responsible for getting National Express into its pickle had

There would be some competition issues to wrestle with, because the
combination of FirstGroup and National Express would have a stranglehold on
certain types of service, particularly commuter journeys into London. Still,
this too might present Lord Adonis with a PR opportunity: if he were able to
force the combined group to give up certain franchises, he could argue that
further sanctions had been imposed in return for an East Coast deal.

The speed with which National Express has rejected FirstGroup suggests that it
thinks there may be interest from other parties ? either domestic or
international. Maybe so, though given the anti-Government outburst launched
only last week by one obvious bidder, Stagecoach, the DfT isn’t likely to be
so keen on it.

As for an overseas bidder, the possibility of one of Europe’s bigger players,
particularly Germany’s Deutsche Bahn, moving in on the UK has been mooted
for some years. It may yet happen, but the regulatory issues peculiar to
Britain’s transport sector are distinctly offputting, as Ferrovial has
discovered since its purchase of BAA.

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