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Author Topic: SWR - Threat of Franchise Removal  (Read 403 times)
RailCornwall
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« on: January 07, 2020, 09:51:50 pm »

Seems the FT have got wind of this tonight

https://twitter.com/FT/status/1214664501985005573
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ellendune
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« Reply #1 on: January 07, 2020, 09:55:50 pm »

Its also in the Guardian without a paywall

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The strike-hit South Western Railway (SWR) franchise faces the prospect of nationalisation after its accounts revealed “significant doubt” that it could see out the year without going bust.

The train company’s directors said it was uncertain that it could fulfil the terms of its franchise, while a £146m cash injection from its parent groups was likely to be used up before the end of 2020.

Filings to Companies House from December, published on Tuesday, showed that the train operator, a joint venture between FirstGroup and the Hong Kong-based MTR, lost £137m in the year to March 2019.

SWR directors said in the accounts there was “material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern”. The company’s auditors, Deloitte, signed off the accounts but highlighted the directors’ statement.

The article continues
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SandTEngineer
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« Reply #2 on: January 07, 2020, 10:21:56 pm »

This was posted on the WNXX Forum: https://pbs.twimg.com/media/ENsOOJ8WwAAqu3m?format=jpg&name=medium
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Out of this nettle, Danger, we pluck this flower, Safety.
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stuving
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« Reply #3 on: January 07, 2020, 11:52:36 pm »

I find the ways this is being labelled rather odd. It's not really renationalisation to transfer the service (and staff) to a new management team (I understand they are consultants and contractors, not DfT staff), and SWR have been in talks about wanting to change the contract for over a year. So I read the latest stage as SWR/First saying enough is enough - if they don't get the changes they want, the contract gets it. It's a threat ... of sorts.

I couldn't find a report on the forum of the contract issue, so here's an old one from Railnews:
Quote
Posted 14th November 2018 ...
In its latest statement to the Stock Exchange for the six months to 30 September this year, First warns that the forecast profits from SWR are now ‘uncertain’, while SWR is also continuing its efforts to improve performance and settle the continuing dispute over on-train staffing with the RMT. This dispute makes its own contribution to reducing performance levels when services are disrupted by strikes.

However, it is the Central London Employment mechanism which appears to be causing much of the current concern. The CLE clause is intended to share the risks equably between the DfT and franchisees, but SWR is the second franchise to question its effectiveness within a few weeks, because Greater Anglia is also unhappy for the same reason.

First says: ‘There is uncertainty regarding the outcomes of this mechanism over the remaining franchise term, which has the potential to significantly impact the profitability of the franchise. We are reviewing the effectiveness of this mechanism and whether it is functioning as originally intended by both parties.’...

Moreover, when Grayling told MPs what he'd finally done about VTEC, in May 2018, he said this:
Quote
However, as I explained in February, Stagecoach and Virgin Trains got their bid wrong and they are now paying a price. They will have lost nearly £200 million meeting their contracted commitments.

This means taxpayers have not lost out because revenues are lower than predicted: only Virgin Trains East Coast and its parent companies have made losses at this time.

As the Brown review said in 2013, in an effective railway industry, franchises can occasionally fail. But we do not expect companies to hold unlimited liabilities when they take on franchises, they would not bid for them if they had to. This will mean sometimes franchises will fail. That is why it was a Conservative government that created the structures for the Operator of Last Resort – to ensure we can always guarantee passengers’ services if franchises cannot continue.

I was surprised at the time no-one picked up on that, as it is the clearest statement I'd seen that neither DfT nor any TOC understood the franchise to require the whole premium to be paid no matter how big a loss the operator was making. In effect the premium is just another kind of profit share; but having tried other splits they have ended up with this rather extreme variety with a fixed sum.

Contracts have been made with operating subsidiaries (or JVs) backed by TOCs, and with a guarantee (or bond) which sets a minimum level of loss before a TOC can get out. In practice they will lose a lot more than that, as it takes time even to go bust. But I can see that is this how it has be, or as the man said no TOC would sign one.

Which leads us back to the question ... why did First/MTR sign a contract with that CLE in it if it was  going to work so badly for them? Or GA come to that, recently reported to also be getting more worked up about it (though they were reported as being Dutch civil servants).
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bignosemac
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« Reply #4 on: January 08, 2020, 12:05:24 am »

... and Northern ...and Transpennine Express.

The franchising model, and the great Tory privatisation adventure is completely broken.

Concession models, as used in London, or full renationalisation are the only answers.
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Timmer
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« Reply #5 on: January 08, 2020, 08:02:16 am »

Analysis by BBC South Today's Paul Clifton
https://www.bbc.co.uk/news/uk-england-51026397

Quote
SWR has not been balancing the books for some time. After two years of strikes by guards in the RMT union, that isn't a surprise.

New trains are late, the infrastructure has been unreliable and performance has been falling for years. This railway is not doing well and most of its promises to passengers have not been met.

But here, in black and white for the first time, is an acknowledgment by the new managing director, Mark Hopwood, that the company could fail. Operations could be transferred to a government controlled body.

I don't think it's the most likely outcome. A new deal with revised terms is more likely. But what's clear is that the option of last resort is being actively considered.

A DfT spokesperson said: "We monitor the financial health of all our franchises closely and we expect them to meet their contractual obligations.

"The government will shortly bring forward a White Paper containing reforms recommended by the Williams Review that will put passengers first, end the complicated franchising model and simplify fares."

SWR operates routes between London Waterloo, Reading, Bristol, Exeter, Weymouth, and Portsmouth, as well as Island Line on the Isle of Wight.

FirstGroup and MTR were awarded the franchise in August 2017, after outbidding previous operator Stagecoach.
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ChrisB
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« Reply #6 on: January 08, 2020, 10:35:39 am »

Paul tweeted a copy of a staff email along with the report above

https://twitter.com/PaulCliftonBBC/status/1214585549387907072/photo/1

So it sounds as though SWR are after a management contract or are likely to hand the keys back.
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4064ReadingAbbey
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« Reply #7 on: January 08, 2020, 12:37:17 pm »

... and Northern ...and Transpennine Express.

The franchising model, and the great Tory privatisation adventure is completely broken.

Concession models, as used in London, or full renationalisation are the only answers.
The current franchising model with the DfT specifying many things - service intervals, seats, and so on and so forth - while still demanding the payments of premiums well into the future is broken.

Nobody tried renewing the first model of franchises - the 'shadow' SRA and then the SRA started fiddling as soo as they could and since then the franchises have become every more prescriptive. Over a seven to ten year time span the initial assumptions may no longer reflect the actualité - but the DfT seems incapable of adapting.

Why this should be so I leave to the reader!
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CyclingSid
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« Reply #8 on: January 09, 2020, 07:13:05 am »

We'll have to see what happens under new management; DfT or TOC.
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