Premium

FirstGroup boss insists legal threat won't derail West Coast franchise

commuters on a First Capital Connect Service
Firstgroup and Trenitalia will run the line as a 70/30 joint venture.  Credit: Ally Carmichael/Newscast/ Press Association Images

The boss of FirstGroup dismissed suggestions that a pending legal challenge by its rivals for the West Coast and HS2 franchise could derail his company’s contract to operate the lines. 

FirstGroup and its Italian partner, Trenitalia, won the right to operate Britain's most profitable rail franchise through First Trenitalia, a 70/30 joint venture, it was revealed on Wednesday, confirming a Telegraph report in June that the pair were set to win the tender.

The deal also covers the operation of the HS2 high speed railway, which is due to operate on part of the route from 2026. However, there remains doubt over whether the project will be completed, with Boris Johnson's government currently reviewing its options. A "go or no go" decision on HS2 would be made by the end of the year, transport secretary Grant Shapps told Sky News.

Judges have given train companies Virgin, Stagecoach and Arriva the green light to haul former transport secretary Chris Grayling before the High Court after they were barred from bidding for rail franchises earlier this year. The companies’ bids were deemed “non-compliant” after they refused to take responsibility for billions of pounds of pension liabilities.

“We have signed a contract today and it’s not really for us to talk about the outcome of that case but as far as we’re concerned we have a contract,” said FirstGroup’s chief executive Matthew Gregory. 

Asked whether there was any clause in the contract that could be triggered should the trio win their case, Mr Gregory responded: “Simple answer: no, there’s nothing in the contract like that.” 

He added that pensions costs were “effectively priced... into our bid”.

Under the deal, the Government will share the economic risk with the private operator of the London to Glasgow line. The state will receive the majority of the upside if either the operator’s revenues or GDP significantly exceed assumptions built into the bid and will foot most of the bill if performance goes in the opposite direction. 

The risk-sharing measures were instituted in a bid to avoid a repeat of the problems that led to the Government stepping in to take control of the East Coast Main Line and mark a departure from the “previous flawed franchising system”, the Department for Transport (DfT) declared on Wednesday. 

The contract offers a "more appropriate balance of risks and rewards for us as operators", Mr Gregory said.

FirstGroup said it believed that its TransPennineExpress and South Western Railway franchises would have remained profitable if similar pricing methods been included in those contracts. 

“This award is positive news for passengers, with more services, more direct connections and ambitious plans for a cleaner, greener railway, and also represents a decisive shift towards a new model for rail," said Mr Shapps. 

Under the franchise deal, which will begin on Dec 8 and run to 2031, First Trenitalia will offer new trains, the refurbishment of 56 Pendolino trains with 25,000 new seats, more reliable free Wi-Fi, power sockets, wireless charging and on-board entertainment. There will also be 263 additional services each week, station upgrades and reduced emissions from new trains. 

The victory is a boost for FirstGroup after the Aberdeen-based rail and bus group faced a shareholder revolt led by activist shareholder Coast Capital Management, which has a 9.6pc stake.

The attempted coup claimed the scalp of chairman Wolfhart Hauser, who resigned despite winning the backing of a majority of shareholders. The search for a new chairman was “proceeding at pace”, Mr Gregory said.

Taking on the West Coast franchise cuts squarely against Coast’s vision for FirstGroup. The Wall Street hedge fund has agitated for the company to split up its business and exit the UK rail sector entirely. 

First Trenitalia was selected ahead of a consortium led by MTR, which runs the Hong Kong metro. It operates the Southwestern franchise with FirstGroup and is also due to run Crossrail in London. 

A spokesman for MTR said it was “very disappointed” to miss out on the contract, adding “we felt that our bid was highly competitive, bringing together the best of MTR’s proven track record for providing excellent passenger service with extensive global experience in the design and operation of High Speed Rail services”. 

“We will seek clarification from the Department for Transport about why we were unsuccessful.”

Shares in FirstGroup fell 1.2pc to 113.6p by early afternoon.