FirstGroup's secret £50m bailout from taxpayer

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http://www.thisislondon.co.uk/standa...yer/article.do
First Great Western, the much-criticised Paddington-based train company, has received a secret £50 million bailout from the taxpayer.

Figures from FirstGroup today revealed profits from its rail operations plunged more than 20% last year.

But they would have been far worse were it not for a handout from the Department for Transport because recession-hit passenger revenue numbers are not coming in on budget.

The news indicates the extent of the crisis on the railways.

Interesting reading

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I am not surprised. FGW has such a vast empire - at least they are keeping trains on the secondary routes and the Cotswold Line re-doubling scheme go-ahead for August this year, has been recent good news among the generally gloomy prospects for FGW.

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Dan Milmo The Observer, Sunday 24 May 2009

The government's financial exposure to the rail industry could worsen amid predictions that a shortfall in fare sales could cost the taxpayer up to £400m over the next two years.

The Department for Transport is obliged to cover a proportion of train operators' losses if their revenues are below target, with some of Britain's biggest commuter franchises among those entitled to taxpayer support.

According to analysis by stockbroker Blue Oar Securities, franchises could receive £100m from the government this year under the terms of so-called "cap and collar" clauses. First Great Western (FGW), First Capital Connect (FCC) and National Express East Anglia are among the franchises that qualify for extra support from the government under the cap and collar provisions.

This could be followed by a further contribution of up to £300m in 2010 if South West Trains wins a legal battle with the DfT and adds to the total required by FGW, FCC and National Express.

Douglas McNeill, a Blue Oar analyst, said the DfT faced a "substantial" financial commitment if passenger numbers continued their downward trajectory. "The number of journeys made by rail is going to fall below previous expectations and since the DfT is in effect underwriting some of these expectations it will be left footing a substantial bill."

Under the terms of cap and collar arrangements, the DfT covers 50% of any revenue shortfall created when a franchise finds its turnover between 2% and 6% below target. In the most pessimistic scenario for ministers, the government covers 80% of any shortfall that is greater than 6%. FirstGroup has admitted that its FGW and FCC franchises are receiving maximum revenue support.

Passenger growth is slowing at franchises that are tied into expensive contracts. National Express pledged £1.4bn to the DfT for its seven-and-a-half-year east coast contract; Stagecoach has promised £1.2bn for South West Trains; and FGW has committed to paying £1.1bn. Four franchises struck at the height of the economic boom - National Express East Coast, Arriva Cross Country, London Midland and East Midland Trains - could receive financial support from 2011.

The government's rail budget for the next five years relies on growth in passengers and revenue. Analysts warn that if the downturn continues, it faces either cutting back investment or pouring more taxpayer money into the system.

A DfT spokesman declined to discuss the potential scale of any payments, saying: "The cap and collar provisions are commercially sensitive."