January 26, 2017 / 12:41 PM / a year ago

Government - no plan to strip rail contract from strike-hit operator

LONDON (Reuters) - The British government dismissed media reports that it was planning to take a rail contract away from GTR, as strikes on the Southern network disrupt hundreds of thousands of London commuters.

“There are no plans to strip GTR of the franchise. This is pure speculation,” a Department for Transport (DfT) spokesman said on Thursday.

Passengers, politicians and the media have heavily criticised Govia Thameslink Railway (GTR), a joint venture owned by London-listed Go-Ahead and France’s Keolis, over repeated strikes, cancellations and delays.

Reports in several newspapers said the government was working on a plan to either take control of the network itself, or take over Southern by separating it from the bigger GTR franchise.

The dispute at Southern, whose line connects London to Brighton and Gatwick Airport, began last April, and has turned into the sector’s longest-running since Britain’s train services were privatised in the mid-1990s.

Britain’s privately-operated rail network attracts frequent criticism and in 2009 the government stripped National Express of the London to Edinburgh East Coast service, keeping it in state hands for five years.

The DfT also said it was keeping GTR’s performance under constant review.

Some media reports said that GTR’s performance meant the government would find GTR had breached its contract, and as a result the government would seek another operator to run the contract after first taking control itself.

But one analyst said the government would struggle to find another transport company to run the service.

“We see it as unlikely there will be a replacement private sector operator willing to take on the substantial operational challenges faced by the franchise,” said Liberum analyst Gerald Khoo. “If such an operator exists, it would probably result in a significantly more expensive contract.”

Some of the disruption on the GTR network has been due to the redevelopment of London Bridge station, a major London train hub, which has proved more complex than expected and caused more delays than forecast.

As a result, Go-Ahead has downgraded its profit expectations for the seven-year rail contract.

Shares in Go-Ahead traded down 0.3 percent to 2,204 pence at 1117 GMT, only slightly underperforming Britain’s midcap index which was up 0.1 percent.

Liberum’s Khoo warned that GTR would continue to weigh on Go-Ahead.

“Until the operational performance of the GTR franchise is restored to acceptable levels, the risk of Go-Ahead being defaulted on the contract remains,” he said.

Reporting by Sarah Young; Editing by Ruth Pitchford

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