Railways: rolling stock

Standard Note: Last updated: Author: Section SN3146 24 April 2013 Louise Butcher Business and Transport

This note provides information about the various rolling stock companies that supply train carriages to the UK railways and explains the procurement policies and programmes of successive governments. The rolling stock (trains) that run on the railways is owned by three private companies (rolling stock leasing companies, or ROSCOs). These companies lease the rolling stock to the train operating companies (TOCs) who then deploy it on their services. For the most part, the train companies procure the rolling stock directly from the rolling stock companies. In addition, in recent years the Government has stepped in to procure large rolling stock orders directly from the train manufacturers. Procurements for schemes such as the InterCity Express Programme, Thameslink and Crossrail have become mired in controversy due to the award of successive contracts to companies based largely outside of the UK. Information on public sector procurement rules is dealt with in a separate note, SN6029. Information on other rail-related issues can be found on the Railways Topical Page of the Parliament website.

Contents
1 2 How trains are procured and leased in the UK Rolling stock policy 2.1 Conservative-Liberal Democrat Coalition Government, 20102.2 Labour Government, 1997-2010 The early years Eddington, the 2007 White Paper and their fall-out Competition Commission inquiry, 2006-09 2 4 4 5 5 6 7

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Final proposals for reform 2.3 Safety 3 4 5 6 InterCity Express Programme (IEP) Thameslink rolling stock project Crossrail rolling stock project Rolling stock leasing companies (ROSCOs) 6.1 Privatisation 6.2 Porterbrook Leasing 6.3 Angel Trains 6.4 Eversholt Rail

9 9 11 13 15 16 16 18 19 20

How trains are procured and leased in the UK

When the railways were privatised in the early-mid 1990s, the rail system was divided up Network Rail owns and operates the infrastructure, the train operating companies (TOCs) bid for and operate passenger franchises and the rolling stock leasing companies (ROSCOs) own and lease out the trains to the TOCs. 1 In a 2009 report the Competition Commission outlined the division of rolling stock between the main leasing companies as follows:
Passenger rolling stock in Great Britain is predominantly owned by three rolling stock leasing companies (ROSCOs), which were created at privatization to own the fleets of ex-British Rail passenger vehicles (known as MOLA rolling stock). The Government determined how this MOLA rolling stock should be divided between the three ROSCOs. The three ROSCOs are: HSBC Rail (UK) Limited (HSBC); Porterbrook Leasing Company Limited (Porterbrook); and Angel Trains Limited (Angel) [...] In addition to the three ROSCOs, there is one other lessor of rolling stock to franchised passenger TOCsVoyager Leasing Limited (Voyager Leasing)which was set up to lease a new fleet of Voyager trains but has not undertaken any further leasing activities. The ROSCOs market shares are fairly similar and have not changed substantially since privatization, although there are differences in the shares of new rolling stock acquired since privatization. Angel now has a 36 per cent share of total available rolling stock used on franchised passenger services, Porterbrook 32 per cent and HSBC 29 per cent. Voyager Leasing has a 3 per cent market share. 2

It goes on to explain how rolling stock is deployed by the TOCS as part of their franchises:
Passenger railway services in Great Britain are operated by TOCs, in most cases on the basis of franchises, which are let by the Department for Transport (DfT) through a competitive tender process. The TOCs bid competitively on the basis of the subsidy that they require (or in an increasing number of cases the premium they will pay) to
1

separate notes are available on rail privatisation, Network Rail (and its predecessor Railtrack) and the train operating companies on the Railways Topical Page of the Parliament website CC, Rolling Stock Leasing market investigation, April 2009, paras 4-5

operate the franchise. Lease rentals constitute a significant proportion of the total franchise costs. [...] The franchise invitation to tender (ITT) sets out the DfTs expectations (its base case) for the services to be provided on the franchise. Service Level Commitments, ie the specification of services to be provided by the franchisee, are often very detailed and may specify explicitly, or necessitate implicitly, the use of particular types, classes or fleets of rolling stock. TOCs can also put forward variations of the base case. However, the DfT generally awards franchises on the base case specification and only thereafter considers whether the winners proposed variations would be desirable. TOCs preparing franchise bids each approach the ROSCOs or other lessors to reach conditional agreements for leasing the rolling stock they will require; these are finalized once the preferred bidder is selected. Rolling stock leases are typically for the length of the franchise although there are shorter-term leases. 3

The TAS consultancy echoed this shift towards departmental decision making on rolling stock allocations, removing the ability of TOCs to make their own decisions about the train sets to use on their networks. 4 The Competition Commission report stated that, while there had been significant investment in new rolling stock since privatisation, much of this replaced retired rolling stock and the number of passenger vehicles available for use had increased by only three per cent by 2009. 5 The February 2011 report on rail investment by the TAS consultancy stated that between 1997 and 2006 a total of 5,250 vehicles had been ordered for the train fleet, worth approximately 6 billion, excluding maintenance. 6 As to the extent to which this replaced existing stock, TAS states:
It is interesting to note the extent to which these orders were intended to provide additional capacity rather than as straight replacements for existing stock. Aside from Virgins major orders for the Cross Country and West Coast franchises (which represented significant increases in capacity), we estimate that over 500 vehicles in the orders were for expanded services (around 10% of the total). 7

As explained in more detail in sections 3-5, below, over recent years successive Governments have become more involved in the direct procurement of major rolling stock orders such as those for the InterCity Express Programme (IEP), Thameslink and Crossrail. This involves the setting up of new companies to build and then lease out the rolling stock for these specific projects. The process was summarised in the 2008 procurement notice and project summary and overview for the recent Thameslink contract:
The Department is initiating the process of procuring train provision and associated services for, and on behalf of the train operating company operating the Thameslink/GN franchise (the 'TOC') and the advertised contract is likely to be entered into by the TOC. The procurement uses the negotiated procedure to select a party which will supply and maintain the fleet of new rolling stock. The Department intends that the chosen bidder will be required to arrange the finance necessary for the acquisition and ownership of the rolling stock. The ITT would therefore require bidders
3 4 5 6 7

ibid., paras 7&9 TAS, Rail Industry Monitor: Rail Industry Investment, February 2011, p24 op cit., Rolling Stock Leasing market investigation, para 10 op cit., Rail Industry Monitor: Rail Industry Investment, p23 ibid., p24

to submit bids covering the supply and maintenance of the new rolling stock, together with arranging the necessary finance. 8

Basically, what this means is that the winning bidder establishes a Special Purpose Company (SPC), which includes investment from external equity and the manufacturers. It is this SPC that then raises the funds required to build and maintain the stock. In effect, it is a mini-ROSCO: the SPC owns the rolling stock and leases it directly to whoever is the winning bidder for the relevant franchise. The Departments role is to ensure that the rolling stock gets built (i.e. it puts out the procurement) and then it guarantees that the stock will be leased by a TOC over a certain period. 9

2
2.1

Rolling stock policy

The Coalition Government stated very early on that it intended to reappraise and reassess all rolling stock procurement proposals by the previous government for affordability, 10 and that it would consult on planned changes to franchising. Firstly, on the various rolling stock procurement proposals, the government announced that, there would be a pause for financial year 2010-11 to assist the Department in making its contribution to the Government's in-year savings programme. 11 This was described by the then Secretary of State for Transport, Philip Hammond, as part of a 54 million deferment that would have been spent on a small number of lower priority rolling stock and highway improvement schemes. 12 In early 2011 the Government stated its intention to deliver more than 2,100 new rail carriages to the network by May 2019 (an increase of 1,850 net); and that the Department would negotiate with train operators to provide more and/or better rolling stock on a number of franchises. 13 Deals for extra rolling stock were reached with Northern Rail, First Great Western, London Midland, Virgin West Coast, South West Trains and Southern by the end of 2011. 14 Separately, there was a great deal of controversy over the award of the Thameslink rolling stock contract (see section 4, below) and delays to the timetable for procuring the Crossrail rolling stock project (see section 5, below). On franchise reform, the Governments July 2010 consultation on reforming the franchising process aimed in part to implement longer franchises which would in turn incentivise TOCs to buy their own rolling stock, bringing more competition into the market. 15 The Governments response to the consultation, published in January 2011, concluded that it would opt for
8

9 10 11 12 13

14

15

DfT, OJEU procurement notice for Thameslink, April 2008; see also: DfT, Thameslink Rolling Stock Project Summary and Overview, April 2008, section 3 this is permitted under section 54 of the Railways Act 1993, as amended HC Deb 7 June 2010, c39W HC Deb 3 June 2010, c71W HC Deb 7 June 2010, c37W HC Deb 11 January 2011, c238W; improvements on the Northern franchise around Leeds were announced on 13 April, see: DfT press notice, Additional seats for Leeds commuters, 13 April 2011 DfT press notice, 8800 extra spaces for busy trains on key routes, 10 August 2011; DfT press nptice, West Coast passengers in line for 28,000 extra seats as franchise extension signed, 27 October 2011; DfT press notice, Thames Valley & West Country Rail passengers in line for extra seats boost, 22 November 2011; DfT press notice, New platform and 60 extra carriages for Waterloo commuters, 23 December 2011; and DfT press notice, Southern carriages announcement, 28 December 2011 DfT, Reforming Rail Franchising, July 2010, para 2.12

longer franchises in the future to incentivise investment, including in new rolling stock. It would also guarantee an enhanced residual value mechanism that will reward operators for investment with a payback period longer than their franchise term. This will involve guaranteeing a value for those assets (such as rolling stock) at the end of the franchise. 16 In early 2013 there have been reports about the increased potential cost of rolling stock for the planned High Speed 2 (HS2) line from London to the north of England. This is based on analysis in HS2 Ltd.s March 2012 report on cost and risk modelling, published in January 2013. It states that for various reasons the estimated costs of the train sets likely to be used on HS2 have had to be increased. 17 These figures are likely to change again, considering the fact that an order for rolling stock is not likely to be put in for several years yet. 18 2.2 Labour Government, 1997-2010

The early years In its October 2002 report into overcrowding on public transport, the Transport Select Committee recommended in strong terms that the Strategic Rail Authority (SRA) had a duty to draw up a rolling stock strategy as a matter of urgency. 19 The SRA published its rolling stock strategy in December 2003. 20 The report reaffirmed the leading role of the private sector in the rolling stock market and clarified the role of the SRA. 21 Announcing the Strategy, SRA Chairman, Richard Bowker, said:
The private sector has brought clear benefits to the procurement, delivery and maintenance of rolling stock in Britain. Since 1997, the rolling stock market has delivered over 4 billion of new investment and procured 4,500 new vehicles for the network. It is not appropriate for the SRA to meddle where the market does a better job. The Strategy sets out a clear and limited role for the SRA - to ensure that there is an efficient and sustainable market for rolling stock supply that encourages innovation, 22 and to let the market get on and deliver it.

The strategy concluded that the SRA should continue to support and facilitate the benefits of private sector investment, commercial decision making and private risk-taking, by involving itself in rolling stock markets in a limited, clear and consistent way. 23 Further, the Train Operating Companies (TOCs) should continue to determine their choice of rolling stock fleet. The strategy also stated that the SRA would set out high-level rolling stock performance output specifications; ensure that future procurement processes allow sufficient time for construction and delivery of rolling stock; work with TOCs to achieve good value for money when renewing Master Operating Lease Agreements (MOLAs); and appoint a Director with responsibility for co-ordinating delivery of the actions set out in the strategy. 24 In February 2004 the National Audit Office (NAO) produced a report on the state of Britains rolling stock. The report concluded that although new trains were bringing significant benefits
16

17 18 19

20 21 22 23

24

DfT, Reforming Rail Franchising: Government response to consultation and policy statement, January 2011, para 9.11 HS2 Ltd., HS2 Cost and Risk Model Report: A report to Government by HS2 Ltd, March 2012, pp15-16 for more information on the timetable for HS2, see HC Library note SN316 Transport Committee, Overcrowding on public transport (seventh report of session 2002-03), HC 201, 15 October 2002, pp13-17 SRA, Rolling Stock Strategy, December 2003 SRA press notice, Future of rolling stock lies in the private sector, 19 December 2003 ibid. the SRA was disbanded following the Railways Act 2005 and most of its responsibilities taken on by the Department for Transport; for more information see Library Standard Note SN1344 op cit., Future of rolling stock lies in the private sector

to passengers, most were late entering service and the NAO thought it unlikely that the statutory deadline of December 2004 for removing all the oldest slam-door trains from the network would be met. 25 The report also stated that new trains were not bringing all of the passenger benefits that they should. In particular, passenger groups considered that manufacturers and TOCs had failed to consult sufficiently early with passengers, and had complaints about the layout of some new vehicles and that new rolling stock was not always fully accessible to passengers with disabilities. On some routes, passenger numbers had grown faster than the number of carriages ordered and the railway infrastructures ability to accommodate more frequent or longer trains. In addition, all of the TOCs that were running new trains experienced reliability problems: most commonly concerning mechanical failure, on-train computers and air conditioning. 26 The report also found that:
bringing new trains into service is a complex task, involving at least nine organisations and 60 key stages; one of the reasons why new trains entered service late and had poor reliability was manufacturing and managerial difficulties due to a lack of steady demand for new trains in the two to three years leading up to privatisation; other reasons were a lack of organisational coherence within the rail industry and the absence of standardisation of the network and trains; there was a lack of information about the railway infrastructure, making it difficult for manufacturers to build trains compatible with the network; there was a lack of clearly defined pass/fail criteria for assessing safety risks; and because there was no national facility for testing trains off the network and finding time and space on the network to carry out tests is difficult, new trains were put into service without sufficient testing in all conditions, contributing to reliability problems 27 when the trains were in service.

Eddington, the 2007 White Paper and their fall-out Sir Rod Eddington was charged by the Treasury and the Department for Transport in 2005 with looking into the relationship between transport and the economy. He published his report in December 2006. 28 Sir Rod looked at the benefits of increasing capacity through new rolling stock. He concluded that to do so would represent a relatively high return for a reasonable investment and certainly for less investment than wholesale upgrades to the infrastructure:
Upgrading rolling stock and lengthening trains on congested rail links, combined with changes to timetables to increase frequency can significantly increase the effective capacity of existing rail lines. Evidence of illustrative interventions to increase variable capacity on inter-urban links into London by investing in new rolling stock, for example, suggests strong returns are possible from well-targeted interventions, with wider BCRs ranging between 1 and 13 and costs between 50 and 500 million but more typically

25 26

27 28

NAO press notice, Strategic rail authority: improving passenger service through new trains, 4 February 2004 NAO, Strategic rail authority: improving passenger service through new trains (session 2003-04), HC 263, 4 February 2004, paras 4-6 ibid., paras 9-17 DfT, The Eddington Transport Study, December 2006

between 1 and 3.28 The higher returns are largely driven by the ability to add variable capacity with minimal infrastructure requirements. 29

In July 2007 the Labour Government published a rail White Paper which included its high level output specification (HLOS); and was accompanied by the Rail Technical Strategy. 30 On capacity, the White Paper stated that over 1,300 additional carriages, the Thameslink upgrade, major station works at Birmingham and Reading and an ambitious programme of platform lengthening, power-supply upgrades and depot facilities would be needed to cope with the 40 per cent demand growth of the last decade and the 30 per cent projected for the decade ahead. 31 The White Paper set out a range of options to increase capacity and stated that a one size fits all solution would be inappropriate. 32 The Government also set out its aim for overall capacity increases by 2014, which would include adding approximately 1,300 additional carriages, with associated platform lengthening, power upgrades and additional depot facilities. This and the other measures mooted were intended to deliver a modest five per cent increase in rails overall CO2 emissions. 33 This was followed in January 2008 by the rolling stock plan, which provided additional detail about the deployment of new rolling stock. 34 In July 2008 the Transport Committee published a report on the 2007 White Paper. This raised concerns about both the procurement and deployment of rolling stock. In particular, on procurement it said:
It is entirely appropriate that strategic decisions about rolling stock procurement and specification should be taken centrally. Given the level of fragmentation of the industry, there is no other way to ensure sensible use of tax-payers' money for long-term investments such as rolling stock. However, we are concerned that the Department may not have adequate and appropriate expertise to handle such vital strategic decisions in-house, and to do so efficiently. Matters of such importance should not be left to expensive external consultants [] We look forward to the Competition Commission's report on the rolling stock market in the UK, due in 2009. In the meantime, the Department must improve its rolling stock procurement strategy so as to create a stable and consistent pattern of procurement. By doing so, it will achieve the best value for money for tax payers, and it will ensure 35 that Britain can continue to have a rolling stock industry.

Competition Commission inquiry, 2006-09 In June 2006 the Department for Transport made a complaint to the Office of Rail Regulation (ORR) under the Enterprise Act 2002. The complaint alleged that the features of the market for the provision of rolling stock to TOCs prevented, restricted, or distorted competition. The ORR consequently announced that it would conduct a market study to see whether there were grounds to suspect that the rolling stock market was not working well and to determine whether there was sufficient evidence to make a referral to the Competition Commission
29 30 31 32 33 34

35

ibid., Vol. 3, para 4.166 all of the relevant documentation can be found on the Department for Transports archive website DfT, Delivering a Sustainable Railway, Cm 7176, 24 July 2007, p38 ibid., para 4.9 ibid., para 4.22 DfT, Rolling stock plan, 30 January 2008; appendix B sets out the required number of additional units by franchise to 2014; this can be compared with figures for how many had entered service by May 2011 and how many were on order by the same date, here: HC Deb 7 June 2011, c194W Transport Committee, Delivering a sustainable railway: a 30-year strategy for the railways? (tenth report of session 2007-08), HC 219, 21 July 2008, paras 111&113

(CC). 36 The ORRs findings were published in November 2006. It concluded that there were grounds for referral. 37 This was subsequently made on 26 April 2007. 38 On 7 April 2009 the CC published its final report. It concluded that competition in the market for the leasing of rolling stock is restricted by the limited number of alternative fleets available to TOCs when bidding for rail passenger franchises. The CC identified several factors which in combination have restricted the choice of rolling stock available for lease at the point franchises are being let, including: technical and operational factors which limit interoperability; costs and risks in switching rolling stock or introducing new rolling stock; and aspects of the way in which the franchising system currently operates. The CC took the view that TOCs have in many cases little incentive or ability to negotiate with ROSCOs and ROSCOs in turn have little incentive to compete with each other. It recommended three main changes to the rolling stock market: longer franchise terms (in the region of 12 to 15 years or longer), which would allow TOCs to realise the benefits and recover the costs of switching to alternative new or used rolling stock over a longer period, which should increase the incentives and ability for TOCs to exercise choice; assess the benefits of alternative new or used rolling stock proposals beyond the franchise term and across other franchises when evaluating franchise bids. This would encourage a wider choice of rolling stock to be considered in franchise proposals, irrespective of franchise length; and ensure that franchise invitations to tender (ITTs) are specified in such a way that franchise bidders are allowed a choice of rolling stock. The CC also thought that requiring the ROSCOs to remove non-discrimination requirements from the Codes of Practice would provide greater incentives for the TOCs to seek improved terms from the ROSCOs; and that requiring rolling stock lessors to provide TOCs with a set list of information when making a lease rental offer for used rolling stock would give TOCs the ability to negotiate more effectively. 39 The ORR welcomed the report and urged the Department for Transport to seriously consider the CCs recommendations. 40 The Labour Governments response was published in July 2009. It was not wildly enthusiastic about the CCs recommendations and was disappointed that the CC did not think that some form of market intervention (price controls) could benefit the market:
The work that the CC has carried out makes clear that there are problems in the rolling stock leasing market which are having an adverse effect on competition, that ROSCOs in many cases have weakened incentives to compete on lease rentals, and that costs faced by TOCs (and hence taxpayers and passengers) could be higher than they should be.

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37 38 39 40

ORR press notice, Office of Rail Regulation receives complaint regarding the provision of rolling stock, 28 June 2006 ORR, The leasing of rolling stock for franchised passenger services, 29 November 2006, p1 ORR press notice, Leasing of rolling stock for franchised passenger services, 26 April 2007 CC press notice, Rolling stock leasing market investigation: final report, 7 April 2009 ORR press notice, Rolling stock leasing market investigation, 7 April 2009

The CC has suggested that changes to the franchising system would foster competition in the market, and recommends that the franchising authorities make changes to the franchise system, wherever consistent with their functions and objectives. The Government welcomes this acknowledgement that in considering such changes, DfT would have to take account of a range of issues, not just the effect on the rolling stock market. When franchises are being re-let, DfT will consider carefully the potential for stimulating competition in the supply of rolling stock, while recognising that this is only one of a number of factors which determine how franchises are best designed in the interests of passengers and taxpayers. For each franchise re-let, DfT will specifically consider franchise lengths of over ten years. DfT will also introduce changes to the franchise evaluation and award process to take account of beyond-franchise benefits, where this is consistent with its wider rail responsibilities. And DfT will ensure that the potential impact on the rolling stock market is fully considered in specifying ITTs in the future. However, the Government notes that even if the CCs recommendations could be fully implemented and were successful in improving competition, there is no doubt that they would take some time to take effect. In the meantime, DfT has an ongoing duty, as franchises come up for renewal, to ensure that taxpayers and passengers are protected from the consequences of the adverse effect on competition which currently exists in the rolling stock leasing market. DfT had asked the CC to consider whether price control might be an appropriate way to address consumer detriment. While the CC panel did not agree on whether controls to restrict increases of rentals are required in the short to medium term, the CCs main report concludes that it would be open to DfT to seek its own legislative powers to influence or control rentals. DfT will closely monitor the rentals proposed when rolling stock is re-leased. While DfT currently has no plans to legislate, it will keep under 41 review the option of seeking new powers to control prices should it prove necessary.

Final proposals for reform The Labour Government indicated that it would publish a new rolling stock plan in autumn 2009. 42 For various reasons, nothing was published before the 2010 General Election. Labour did, however, publish a paper on reforming rail franchising in January 2010. This indicated that the government had taken note of some of the criticisms of the franchising process highlighted by the Competition Commission (see above) and that it intended to issue longer franchises in future (of at least ten years). This would have a number of benefits, one of which would be that a longer planning period would improve financial incentives for franchisees to procure new rolling stock (which takes about three years to procure and deliver). 43 2.3 Safety

The Railways Act 1993 brought all railway safety legislation within the framework created by the Health and Safety at Work Act 1974 and confirmed the Health and Safety Commission (HSC) as the principal provider of policy advice to Ministers on railway safety issues. 44 The

41

42 43 44

BIS, Government response to the Competition Commission's report, "Rolling Stock Leasing market investigation", July 2009, paras 31-35 DfT, Britains Transport Infrastructure: Rail Electrification, July 2009, para 7 DfT, The Future of Rail Franchising, January 2010, p10 the HSC merged with the Health and Safety Executive (HSE) in 2008

Office of Rail Regulation (ORR) has had responsibility for health and safety issues since 1 April 2006, following the changes to the rail industry structure in the Railways Act 2005. 45 A Memorandum of Understanding was signed by the HSC and the then Departments of Transport and the Environment on 10 October 1996. ROSCOs have several safety obligations under the rolling stock leases signed in 1993. In his Review of the Rolling Stock Market, published in May 1998, the Regulator provided the following summary:
Rolling Stock Leasing Companies' (lessors) Obligations: Delivery of the rolling stock to the lessee in an agreed condition Allowing the lessee quiet enjoyment of the rolling stock; Procurement from contractors of heavy maintenance and heavy repair and ensuring that rolling stock meets prescribed performance criteria immediately following such maintenance or repair; Rectification of major faults and design or endemic faults, and paying those costs not met by the lessee; Procuring and paying for any mandatory modifications required to rolling stock by the safety regulatory authorities; Procurement of property damage insurance of rolling stock

Train Operating Companies' (lessees) Obligations: Payment of rent to the lesser; Performance of running maintenance and repairs; Use of the rolling stock in accordance with the criteria specified in the lease supplement; Paying for major faults and design or endemic faults (in full up to specified thresholds and on a shared basis thereafter); Insurance for the rolling stock against third party liabilities and repayment to the lesser of premiums for property damage insurance; Indemnification of the lessor against losses relating to the leasing, use and operation of rolling stock in certain circumstances; Return of the rolling stock to the lessor at the end of the lease period in the condition specified in the lease supplement. 46

If mandatory modifications to rolling stock are required normally for safety or operational reasons the relevant ROSCO is responsible for affecting and paying for them. During the term of the initial leases, however, the government agreed to share in the cost of mandatory modifications above an agreed threshold. Up to ten per cent of the cost is payable by the affected TOC, subject to a cap fixed by the Department (formerly the Franchising Director) at five per cent of lease charge payable in respect of the relevant year. The ROSCOs are

45 46

further information on the railways safety regime can be found in HC Library standard note SN605 ORR, Review of the Rolling Stock Market, May 1998

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subject to no regulatory requirements beyond those normally applicable to private sector companies but are subject to both competition and monopolies law.

InterCity Express Programme (IEP)

As stated in section 2, above, Labours 2007 White Paper specified that 1,300 new carriages would be purchased, to relieve congestion, predominantly on urban services. The 2008 rolling stock plan stated:
It is expected that the vehicles for the Intercity Express Programme will meet the aspirations in the RTS for the next generation of vehicles for longer distance travel and inter urban routes. The IEP base case introduces approximately 90 full train length equivalent diagrams from 2013 to 2017. There are options for a further approximately 50 full train length equivalent diagrams for introduction between 2014 and 2018. The procurement for the IEP is led by DfT with industry stakeholder involvement, including TOCs and Network Rail to deliver lowest whole life and whole system cost. The winning bidder will be responsible for design, manufacturing, financing, long-term 47 maintenance plus operational reliability and availability.

In August 2007 the Labour Government announced the shortlist of bidders for the InterCity Express Programme (IEP). At the same time it was announced that the Invitation to Tender (ITT) would be issued to the shortlisted bidders in autumn 2007. Proposals would then be received from bidders in summer 2008, with the award of the contract in winter 2008-09. 48 However, following reports of disarray in the tendering process, 49 the bidding consortia comprised the following:
Express Rail Alliance (a consortium comprising Bombardier Transportation, Siemens, Angel Trains and Babcock & Brown) Agility Trains Ltd (a consortium comprising of Hitachi (Japan) Ltd, Barclays Private Equity and John Laing Projects and Developments). 50

On 12 February 2009 the then Secretary of State for Transport, Geoff Hoon, announced that Agility Trains had been selected as the preferred bidder for the 7.5 billion contract to build and maintain a fleet of new Super Express trains for the Great Western and East Coast main lines. The first of the new trains would enter service on the East Coast Main Line in 2013. 51 Although the Government described Agility Trains as a British-led consortium, the main partner is Hitachi and most of the press comment on the announcement described the consortium as Japanese-led. 52 In connection with this, the unions raised questions about whether the trains would be built in the UK or just assembled here. 53 When these concerns were raised in the Commons Mr Hoon, said:
We anticipate that something in the order of 2,500 new jobs will be created, and that would have been the case whichever consortium had been successful. The contract is

47 48

49 50 51

52 53

op cit., Rolling stock plan, para 11 DfT press notice, Department for Transport announces shortlist for Intercity Express Programme, 16 August 2007 Rail contract tender in disarray as Alstom pulls out, Financial Times, 14 April 2008 DfT, Change to IEP short listed bidders, 26 June 2008 DfT press notice, Passengers and economy to benefit from biggest investment in trains for a generation, 12 February 2009 see, e.g.: Britain's 7.5bn train order lost to Japans Hitachi, The Times, 13 February 2009 RMT press notice, RMT seeks answers on rolling-stock contract, 12 February 2009

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for both the construction and the maintenance of carriages. That means that a significant number of jobs will be created in the maintenance sector across the United Kingdom. It also means that jobs in the supply chainthe estimate is up to 10,000 jobswill be protected and safeguarded, as they support the manufacture. Three quarters of the value of the contract will be spent in the United Kingdom. That figure means that the great majority of the benefit will be provided for United Kingdom jobs 54 and the United Kingdom economy.

As indicated above, the announcement on rail electrification in July 2009 had a significant impact on this programme. 55 In response to a written question on 26 October 2009 the then Minister said:
As part of the Intercity Express Programme, the Department is procuring new electric and bi-mode (electric and diesel) Super Express Trains to operate services on the East Coast Main Line and the Great Western Main Line. Bi-mode trains utilise the electric wires where available and continue beyond the wires using the diesel engine. An announcement on the placing of orders for Super Express Trains will be made in due course. 56

In February 2010 the Labour Government announced that it would not proceed with negotiations on the contract for the IEP programme before the 2010 General Election because the negotiations are for a contract of nearly 30 years, a multi-billion pound spend over the course of many Parliaments. The Secretary of State also asked Sir Andrew Foster, former controller of the Audit Commission, to provide an independent assessment of the value for money of the programme and the credibility and the value for money of any alternatives which meet the programme's objectives. 57 It was reported in June 2010 that the new Coalition Government would cancel or delay the IEP order. Such a decision would be influenced by the outcome of the Foster report and by any considerations of legal action that Hitachi might take in such an event. 58 On 6 July the then Secretary of State for Transport, Philip Hammond, announced that a decision on the future of the IEP would be made at the same time as the spending review announcement in October. He also outlined the broad conclusions of the Foster report, also published on 6 July. Sir Andrew concluded that the Intercity Express proposition was positive and attractive in a number of ways and it had exceeded the Departments value for money thresholds. However, he also expressed some doubts over the technical feasibility of the new bi-mode trains and stated that the value for money had declined over time. There was also widespread scepticism of the Programme within the rail industry and Sir Andrew was not convinced that all of the viable alternatives to the Programme had been assessed alongside it on an equal footing. 59 Mr Hammond indicated that the government would use the period until the spending review announcement in October to give further consideration to the alternatives to IEP. 60 On 1 March 2011 Mr Hammond said that the Department had reviewed the proposal against the alternative of an all-electric fleet, with purpose-built diesel locomotives coupled to trains to haul them beyond the electrified railway. He announced the Governments intention to
54 55 56 57 58 59 60

HC Deb 12 February 2009, c1535 op cit., Britains Transport Infrastructure: Rail Electrification, paras 40-42 HC Deb 26 October 2009, c13W HC Deb 26 February 2010, c92WS Axe for InterCity carriages order feared, Financial Times, 4 June 2010 DfT, Review of the Intercity Express Programme by Sir Andrew Foster, 6 July 2010, pp3-8 HC Deb 6 July 2010, WS

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resume the IEP procurement and proceed with Agility Trains proposal, as preferred bidder. He went on to say:
We will now work with Agility Trains with a view to reaching financial close by the end of this year. That is, of course, subject to the Government's continuing to be satisfied that the proposal offers value for money as the commercial negotiations are concluded and that the final arrangements are compliant with the United Kingdom's European Union obligations. This deal will allow us to provide better, faster, more comfortable services and to continue providing through-journeys between London and parts of the rail network that are not electrified. In total, there will be over 11,000 more peak-time seats each day on the Great Western main line and the east coast main line post-IEP compared with today. Hitachi is today confirming its plans to locate its European train manufacturing and assembly centre at Newton Aycliffe in County Durham. That investment is expected to create at least 500 direct permanent jobs, as well as hundreds of temporary construction jobs. Thousands more job opportunities will be created in the UK manufacturing and service supply chains. 61

In December 2011 the Railways Minister, Theresa Villiers said that the Department for Transport was conducting commercial discussions with Agility Trains to bring the contract towards financial close. 62 Those discussions were finally concluded on 25 July 2012 when the Secretary of State, Justine Greening, announced financial close for the Great Western elements of IEP, and commercial close for the East Coast elements. The East Coast elements will be financed during 2013. She indicated that the contract would create 900 jobs and secure thousands more. The contract, worth 4.5 billion, would see 596 railway carriages (92 complete trains) built at a new train factory at Newton Aycliffe, County Durham, in the north east of England. Hitachi would also construct maintenance depots in Bristol, Swansea, west London and Doncaster, and upgrade existing maintenance depots throughout Britain. 63

Thameslink rolling stock project

Details of the Thameslink infrastructure programme can be found in HC Library note SN1537. The Labour Government committed to taking Thameslink forward in the July 2007 rail White Paper, with a projected total cost of 5.5 billion, and a planned completion date of 2015. 64 The January 2008 rolling stock plan stated that the new rolling stock would consist of up to 1,300 next generation Electric Multiple Units (EMUs). Once these new vehicles were introduced, it was anticipated that the existing fleet of EMUs operating the Thameslink routes could be used for cascade on to other routes to deliver additional capacity. 65 In April 2008 the Government placed a notice in the EU Official Journal seeking expressions of interest in the programme; this was accompanied by a summary document giving details of the programme and matters of interest to bidding companies. 66 In July 2008 the
61 62 63 64 65 66

HC Deb 1 March 2011, cc185-186 HC Deb 7 December 2011, c304W DfT press notice, 4.5 billion investment in new trains creates new jobs, 25 July 2012 op cit., Delivering a Sustainable Railway, p50 op cit., Rolling stock plan, paras 12-16 op cit., OJEU procurement notice for Thameslink, and: Thameslink Rolling Stock Project Summary and Overview

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Government released the details of the four shortlisted applicants: ALSTOM Transport; Bombardier Transportation UK Limited; Hitachi Europe Limited; and Siemens Transportation Systems. In November 2008 the Government published its train technical specification and Invitation to Tender (ITT) for the programme. 67 The then Railways Minister, Lord Adonis, said that the tender was for some 1,200 new Thameslink carriages, including around 400 additional carriages on top of those being replaced. 68 The ITT stated that the closing date for submissions would be 30 April 2009, with the contract awarded in March 2010; the Department later extended the closing date for bids to 25 June. 69 In July 2009 the Labour Government published its rail electrification strategy. This confirmed the procurement plans for the Thameslink rolling stock programme and stated that the old Thameslink stock would be moved onto the Great Western Main Line. 70 Nothing further happened before the 2010 General Election. On 25 November 2010 the then Secretary of State for Transport, Philip Hammond, confirmed that the Coalition Government would fund and deliver the Thameslink programme in its entirety, but with completion of the programme delayed to 2018. He said that as part of the Thameslink programme, the government would procure a new fleet of trains-up to 1,200 new carriages. 71 On 16 June 2011 Theresa Villiers announced that a consortium led by Siemens and Cross London Trains (comprising Siemens Project Ventures GmbH, Innisfree Ltd and 3i Infrastructure Plc) had won the contract to build the Thameslink fleet:
The Siemens-led venture will deliver the first new train on to the network by the start of 2015, with the order complete by the middle of 2017. The new trains will offer a step change in passenger experience, with greater passenger carrying capacity, improved passenger communication and easier access for passengers with specific mobility needs. They will also deliver high-levels of reliability with the owner and manufacturer of the trains liable for financial penalties if the trains do not perform. The choice of Siemens Plc with Cross London Trains (XLT) as preferred bidder represents the best value for money for taxpayers. Siemens is today confirming that this announcement will create up to 2,000 new jobs in their UK operations and across the UK supply chain in train component manufacturing, with a particular focus in the North-East of England, and in the construction of the depots and subsequent maintenance of the new fleet of trains. These jobs are additional to those created by the Thameslink infrastructure works which are currently underway. At the peak of construction activityduring the reconstruction of London Bridge station from 2013 to 2018we expect around 3,000 people to be directly employed on the Thameslink infrastructure works as a whole, with as many again employed in related jobs in the wider community. 72

Even more than the decision by the previous Government to award the IEP contract to Hitachi, this decision has proven deeply controversial. Of particular concern has been the future of the Derby plant of Canadian-based Bombardier, one of the failed bidders. 73
67 68 69 70 71

72

73

all of these documents are available on the DfT archive website DfT press notice, Extra 14,500 seats due for Thameslink passengers, 27 November 2008 Deadline for train orders put back, Financial Times, 24 March 2009 op cit., Britains Transport Infrastructure: Rail Electrification, para 45 HC Deb 25 November 2010, c466; and: DfT press notice, More than 2,100 new carriages for rail travellers as Government unveils rail investment package, 29 November 2010 HC Deb 16 June 2011, c86WS; and DfT press notice, Rail passengers to benefit from 1,200 new carriages, 16 June 2011 see, e.g. Death knell for train industry as Germany wins key contract, The Times, 17 June 2011

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However, much like with the IEP, the Government has indicated that the decision will create jobs in other parts of the country. In December 2011 the Transport Select Committee published a report into the Thameslink procurement calling for a review of the decision by the National Audit Office and more transparency from the government as to the governments reasons for selecting Siemens and the relative cost differences between the various bids. 74 The Government stated in its response to the Committee that the NAO will conduct a value for money review of the overall Thameslink Programme once the contract has been awarded, but that the amount of information that could be released about the bidding process would be limited by commercial considerations. 75 There have been ongoing delays with the signing of the Thameslink contract with Siemens. In December 2012 the Railways Minister, Simon Burns, announced that the Department had reached commercial agreement on the key elements of the deal with the Cross London Trains consortium and that the consortium had published its information memorandum to potential funders. 76 Most recently, on 23 April 2013, Mr Burns said:
Bank credit committee approvals have now been confirmed in principle for the full funding required for the procurement. The Department is working with Siemens, Cross London Trains and relevant banks to complete the large amount of necessary legal documentation. We expect to reach financial close shortly. 77

Crossrail rolling stock project

Crossrail is the plan to integrate the mainline railways to the east and west of London through the construction of two tunnels beneath central London from Paddington to Liverpool Street. The scheme will cost around 14.5 billion and will begin operation in 2018. Around 60 new trains will be required for the scheme. 78 In March 2011 Crossrail Ltd. 79 announced its intention to put out an Invitation to Tender (ITT) by the end of 2011, to award the contract to build the Crossrail fleet in late 2013. The shortlist of organisations invited to tender was: Alstom Transport; Bombardier Transportation (UK) Ltd.; Construcciones y Auxiliar de Ferrocarriles SA; Hitachi Rail Europe Limited; and Siemens plc. 80 However, following the political fallout of the decision to award the Thameslink contract to Siemens in June 2011 (see above), the Government announced a review of its public procurement practices and in August Crossrail announced that a delay to the procurement programme. 81 The Railways Minister, Theresa Villiers stated that this delay would enable

74

75

76 77 78 79 80 81

Transport Committee, Thameslink rolling stock procurement (eleventh report of session 2010-12), HC 1453, 16 December 2011, paras 38-39 Government Response to the Committee's Eleventh Report of Session 201012 (fourteenth special report of session 2010-12), HC 1935, 26 April 2012, p4 HC Deb 20 December 2012, c1048 HC Deb 23 April 2013, c841W for further details on the Crossrail scheme see HC Library note SN876 a wholly-owned subsidiary of Transport for London (TfL) Crossrail press notice, Crossrail confirms shortlist for rolling stock and depot facilities, 30 March 2011 Crossrail press notice, Update on Crossrail rolling stock and depot procurement, 30 August 2011

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Crossrail to take account of the results of the Governments procurement review. 82 The Evening Standard reported:
The Government was already providing 30 per cent of the funding for the order and is now prepared to guarantee more than half of the remainder. The rest will be financed as a private finance initiative. 83

In September 2012 the Chief Secretary to the Treasury, Danny Alexander, announced that the Crossrail rolling stock could be could be the first beneficiary of the UK Guarantees scheme. UK Guarantees, launched in July 2012, takes advantage of the Governments fiscal credibility to provide guarantees for major infrastructure projects that may struggle due to adverse credit conditions. 84 In November 2012 the Transport Minister, Norman Baker, in indicated that the contract, estimated to be worth 1 billion, was still on track. Four biddersBombardier, CAF of Spain, Hitachi and Siemenssubmitted first-round bids by the deadline of 29 October. Those firstround bids are being assessed by Crossrail Ltd. It expects to be in a position to shortlist bidders in spring 2013. It is hoped that a preferred bidder will be announced later in 2013, with the project moving to financial close in 2014. 85 On 1 March 2013 the Transport Minister, Stephen Hammond, announced a change in the financing approach for the Crossrail rolling stock and associated depot facilities contract. In effect, the Government has agreed to the Mayor of Londons proposal to move from a financing model involving a substantial element of private sector funding, to one that is entirely funded by the public sector. Mr Hammond said:
The decision reflects the unique circumstances that apply to Crossrail. As a new route that is currently under construction it has no inherited train fleet and without new trains the service cannot open. Transport for London and the Government believe this decision is an appropriate course of action to deliver a very complex and unique infrastructure project within the delivery timetable. Trains need to be ordered by the middle of 2014, so that testing and delivery of the fleet can start in spring 2017, well ahead of the opening of Crossrails central tunnel section in late 2018. [...] Within the current spending review period this will involve the use of existing TfL budgets. The remaining costs that fall beyond 2014-15 will be factored into future capital spending plans. 86

6
6.1

Rolling stock leasing companies (ROSCOs)

The previous Conservative Government's proposals for privatising the provision of passenger rolling stock were set out in January 1993 in Railway Privatisation: Passenger Rolling Stock. Most of the privatisation changes were introduced on 1 April 1994, including the establishment of three rolling stock companies Angel Trains, Eversholt and Porterbrook
82

83 84 85 86

HC Deb 21 October 2011, c1198W; for more information on public procurement and the outcome of the review, see HC Library note SN6029 op cit., 240m bailout to prevent further Crossrail delays HM Treasury press notice, Crossrail trains first to qualify for UK Guarantees, 27 September 2012 HC Deb 20 November 2012, c132WH HC Deb 1 March 2013, cc49-50WS

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to lease rolling stock to the new railway operators. At the time the British Rail (BR) passenger fleet consisted of 11,000 vehicles ranging from brand new locomotives and coaches to those that were nearing the end of their economic life. Each company was given a portfolio of a similar mix of stock with a similar age profile. The new ROSCOs, as they came to be called, would be responsible for acquiring new trains when needed. They were not to have in-house maintenance capabilities but were responsible for specifying all maintenance and for contracting with maintenance suppliers for all heavy maintenance and refurbishment. The idea was that they should offer operating, rather than finance, leases which meant they carried most of the risk of holding and maintaining the rolling stock. In 1993 the BR passenger fleet was said to have a book value of some 2 billion. 87 The proposed sale of the three companies was announced in March 1995 and bids for the purchase of these companies were invited in May 1995. 88 Details of the contracts for the sales were announced on 9 November 1995 and were completed in early 1996. 89 Eversholt and Porterbrook were acquired by their managements with development capital backing while Angel was bought by an external management team with the financial backing of Nomura International. All three purchasers took on the existing train fleet and the Networker fleet on order at the time. They were also reported to be in a position to arrange additional funding for the continuing modernisation of the passenger railways through investment in new trains and refurbishment of existing rolling stock. All the purchasers committed themselves to introduce incentive schemes for employees, whether by way of participation in ownership or otherwise. The actual sale price payable by the purchasers was approximately 1.8 billion but some 800 million was also paid to the government in cash as dividends from the ROSCOs before the sale. The government therefore maintained that total proceeds from the sale exceeded 2.5 billion, while opposition parties accused the Government of selling the companies "on the cheap". 90 However, some commentators such as Roger Ford, then editor of Rail Privatisation News and not known as a fan of privatisation was quoted as saying "This has to be a good deal for the taxpayer. We have got rid of a fleet of trains, two thirds of which are geriatric, to the private sector for not a bad price". 91 In March 1998 the National Audit Office (NAO) published a report into the privatisation of the ROSCOs. Sir John Bourn, then head of the NAO stated his belief that the then Government saw major advantages in an early sale Their over-riding objective was to secure the sale of the companies as soon as practicable in 1995. Sir John further reported that the chosen timing of the sale probably had an adverse impact on proceeds. 92 The NAO reported that it would have been possible to undertake a comprehensive valuation of the rolling stock companies on the basis of an analysis of cash flows, despite the absence of external comparators. They calculated that at the time of privatisation the value of the companies future cash flows, under continuing public ownership, would have been 2.9 billion. The value obtained by the government (sale proceeds, risks transferred and possible tax receipts) was considered to be only up to 2.2 billion. 93
87 88 89 90 91 92 93

DoT press notice, "New companies to manage passenger rolling stock after railways privatisation", 29 April 1993 DoT press notice, "Mawhinney announces details of rolling stock sale", 20 March 1995 DoT press notice, "Britain creates new train leasing market with 1.8 million sale", 9 November 1995 "BR rolling stock sold "on cheap" for 2.5bn", The Guardian, 10 November 1995 "BR's train fleet sold for 1.8bn", The Times, 10 November 1995 NAO, Privatisation of the rolling stock leasing companies (session 1997-98), HC 576, 5 March 1998, p2 ibid., p4

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The Public Accounts Committee also published a report on the privatisation of the ROSCOs. The report concluded:
We note that the timing of the sale of the ROSCOs and its sequence in the overall rail privatisation programme was a key factor in the loss of value to the taxpayer as demonstrated by the much greater price achieved for them by the new owners shortly after privatisation. We are concerned that the Department did not update their preliminary analyses of the cost of selling the ROSCOs ahead of the Train Operating Companies. More than a year ahead of the sale, they calculated the likely cost as being between 100 million and 300 million. The actual cost may have been much greater. We find their argument that there were too many uncertainties to arrive at a meaningful figure unconvincing. We are also surprised that the Department did not attempt an analysis of the wider benefits of early sale of the ROSCOs which they told us should be offset against the financial loss. We consider that the Department should have given more 94 detailed consideration to the implications for value of the terms achieved.

6.2

Porterbrook Leasing

Porterbrook was initially bought by a Porterbrook management/employee buy-out (MEBO) consortium for 528 million in January 1996. The MEBO sold the business to Stagecoach Holdings for 826 million in August 1996 a gain of 298 million. 95 When Stagecoach announced that it was to buy Porterbrook, Brain Souter, the Chairman of Stagecoach, was reported as saying he could reduce Porterbrook's spending on maintenance by up to 30 per cent and he foresaw further savings through bulk purchases of components, some of which were shared by Stagecoach's buses and trains. 96 There was media outcry when it was calculated that the Porterbrook directors and city advisers would make vast sums from their shares. The Managing Director was forecast to make 30 million in the seven months between the management buy-out and the subsequent sale to Stagecoach. 97 The Rail Regulator 98 immediately announced a review of the competition issues and warned the bid might be referred to the Monopolies and Mergers Commission (MMC). 99 He stated that the takeover raised important public interest issues relating to investment in rolling stock, future competition in rolling stock services and in passenger services. On 18 October 1996 the then Minister for Corporate and Consumer Affairs announced that he intended to refer the merger to the MMC unless suitable, legally binding undertakings were received from Stagecoach to cover the six principles of non-discrimination, confidentiality, provision of information, cross-subsidy, co-operation with train operating companies, and separate reports and accounting. The Director General of Fair Trading (DGFT) 100 set out the following possible adverse effects of the merger:
Although the merger has not involved any loss of competition at the horizontal level, the vertical link which arises from ownership both of a rolling stock company and train
94

95 96 97 98

99

100

PAC, Privatisation of the rolling stock leasing companies (sixty-fifth report of session 1997-98), HC 783, 10 August 1998, paras 26 and 35 op cit., Privatisation of the rolling stock leasing companies, para 4 "Stagecoach bids for rail stock leasing group", Financial Times, 1 August 1996 "The Great Train Robbery", The Sunday Times, 4 August 1996 the rail regulator was reconstituted as the Office of Rail Regulation in 2004 following the Railways and Transport Safety Act 2003; for more information see HC Library standard note SN2071 ORR press notice, "Rail Regulator to consult on proposed merger", 31 July 1996; the MMC is now the Competition Commission now the Office of Fair Trading

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operating companies does give rise to concern. Accordingly, I consider that adverse effects arise both now, at the initial stage of passenger train franchising, and at the later stages of franchise renewal and open access operation. While I recognise the argument that it may not be in the commercial interests of the new group as a whole to offer Porterbrook's customers terms which are materially dissimilar to those given to Stagecoach train operating companies (TOCs), the vertical link creates both the opportunity and incentive for the new group to operate to the detriment of the interests of potential or actual competitors and, ultimately, to rail users. Accordingly, I consider that the merger may be expected to lead to higher levels of subsidy and rail fares and to a reduction in the quality, availability and frequency of rail services through the following effects: (i) the possibility of discrimination by Porterbrook against actual or potential competitors to Stagecoach TOCs; and by Stagecoach TOCs against competitors of Porterbrook; (ii) the possibility that information obtained either by Porterbrook or by Stagecoach TOCs, as the case may be, may be obtained and misused to the detriment of potential or actual competitors; (iii) the possibility that cross-subsidisation may occur between different members of the Stagecoach Group; (iv) the possibility that Porterbrook will not co-operate with potential or actual competitors of Stagecoach TOCs, thus giving Stagecoach TOCs an improper advantage both at the stage of bidding for franchises and in protecting themselves 101 from open-access entry once that becomes possible.

On 23 December 1996, the Minister announced that he had accepted satisfactory undertakings from Stagecoach and that the acquisition would not be referred to the MMC. 102 His decision was in accordance with the advice he had received from the DGFT and would be reviewed after five years. The company was later sold to Abbey National Treasury Services plc in April 2000 for 1.3 billion. 103 In October 2008 Abbey National sold it to a consortium led by Deutsche Bank (and including Lloyds TSB and BNP Paribas) for an estimated 1.4 billion.104 In February 2009 OP Trust Private Markets Group (a Canadian company which also owns rail equipment) was cleared by the European Commission to take joint control of Porterbrook. 105 6.3 Angel Trains

Angel Trains (formerly known as Angel Train Contracts) was bought for 696 million by GRS Holding Company Limited in January 1996. GRS was a consortium comprising Prideaux & Associates (a railway consultancy company), Babcock & Brown and Nomura International plc. The funding was arranged and underwritten by Nomura International plc, the UK-based, wholly-owned subsidiary of Nomura Securities Co. Ltd.

101

102 103 104 105

from DGFT advice, attached to: DTI press notice, "Stagecoach/Porterbrook merger: John Taylor accepts undertakings from Stagecoach", 23 December 1996 ibid. Stagecoach poised to sell Porterbrook, The Independent, 20 March 2000 Deutsche Bank team buys UK rail stock group, Financial Times, 27 October 2008 Commission approves proposed acquisition of Porterbrook Leasing Company by OP Trust, Deutsche Bank, Lloyds Bank and BNP Paribas, Eumonitor, 5 February 2009

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Shortly after the original sale GRS sold their right to part of Angel Trains income for some 690 million. In December 1997 GRS sold the remainder of the business to the Royal Bank of Scotland Group for 395 million, thereby valuing Angel Trains business at some 1.1 billion, a gain of 389 million. 106 In June 2008 RBS sold Angel to a consortium led by Babcock & Brown (and including Deutsche Bank and Australian investment funds) for 3.6 billion. 107 6.4 Eversholt Rail

Eversholt Rail was established on 21 March 1994 as Eversholt Leasing. Eversholt was acquired by the Eversholt MEBO consortium for 518 million in February 1996. A further 80 million was deferred and became payable when specified technical and financial performance thresholds were achieved by the fleet of 164 new Networker Express vehicles on order from ABB. The consortium invested 70 million in equity. The management and employees shared in up to 15 per cent of the equity share capital through subscription for shares and option schemes. The debt was arranged by Deutsche Morgan Grenfell and underwritten by Deutsche Morgan Grenfell, Fuji Bank, Societe Generale and The Royal Bank of Scotland. Eversholt had on order from ABB 41 four-car Networker Express trains. Twenty-five of these new units were for West Anglia & Great Northern (WAGN) to operate on Kings CrossPeterborough services: the vehicles then being used by WAGN 108 were to be transferred to LTS Rail to replace stock 109 on the line serving Fenchurch Street, Southend and Shoeburyness. Sixteen other Networker Express units were ordered for South Eastern for use on Kent Coast express commuter services 30 year old stock. In February 1997 the company was sold to the Forward Trust Group, the leasing subsidiary of HSBC, for 726 million, a gain of 208 million on the original price. 110 At the time, Forward Trust already had an investment of 200m financing in new Northern Line trains for London Underground. In late 2008 it was rumoured that HSBC was looking to sell Eversholt for approximately 2 billion. 111 Although nothing further happened on this during the depths of the recession, in April 2010 HSBC asked for bids for its rolling stock business; the media reported that the company expected a number of bids for approximately 2 billion. 112 HSBC sold the company to Eversholt Investment Group, a consortium consisting of investment funds managed by 3i Infrastructure plc, Morgan Stanley Infrastructure Partners and STAR Capital Partners for approximately 2.1 billion. 113

106 107 108 109 110 111 112 113

Ex-InterCity chief makes pounds 15m from Angel Trains sale, The Independent, 18 December 1997 RBS gets 3.6bn by shunting off Angel Trains, The Guardian, 14 June 2008 approximately 10 years old almost 40 years old op cit., Privatisation of the rolling stock leasing companies, para 4 Abbey and HSBC Rail set to offload rail groups, The Sunday Times, 26 October 2008 Bidders line up for HSBC train leasing arm, Financial Times, 15 April 2010 HSBC press notice, HSBC Agrees Sale of Eversholt Rail Group, 4 November 2010

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