January 11, 2017 / 12:48 PM / a year ago

National Express exits UK rail with contract to Trenitalia

LONDON (Reuters) - National Express (NEX.L) agreed to sell a London rail contract to Italy’s Trenitalia on Wednesday, marking the departure of what used to be one of the biggest names in British rail and the arrival of another foreign state-owned operator to the network.

Britain privatised its rail services in the 1990s, and the network is now run by several UK-listed transport companies, as well as state-owned European rail groups including Germany’s Deutsche Bahn, Abellio from the Netherlands and Keolis, majority-owned by France’s SNCF.

Marking the entry of Italy’s state-run company into Britain, National Express said that Trenitalia would pay it 70 million pounds to run the C2C services between London and commuter towns in Essex until the contract ends in 2029.

The sale of the contract, which is subject to approval from the British government and expected in the next month, will mean National Express, once one of the country’s biggest rail operators, will no longer run trains in the UK.

The company continues to run buses and coaches in Britain, as well as in Spain, Morocco and the United States, plus rail services in Germany. It said it saw future opportunities abroad.

“For National Express, while not ruling out participating in future UK rail bids, this (deal) allows us to pursue further growth opportunities in the markets where we have seen strong returns in the recent years,” CEO Dean Finch said.

In 2009, the British government stripped National Express of its key East Coast service, putting the loss-making London-Edinburgh route in state hands for the next five years.

National Express lost the East Anglia train operating franchise at the start of 2012 and lost out in a new bid to run train services in the region in August last year.

Britain’s railways have been heavily criticised in recent years, with passengers saying Britons pay more than Europeans, while the network has been hit by a series of strikes, particularly on the Southern line which connects Brighton, Gatwick and London.

    While the C2C line has avoided such problems, analysts said the company had become less interested in UK rail due to the terms associated with winning rail franchise competitions.

    Expensive bid processes combined with a less attractive risk-reward profile was making UK rail contracts less attractive to firms like National Express, Shore Capital analyst Martin Brown said.

    “If you are a listed company that is beholden to your shareholders perhaps it is harder to justify the potential lower returns that UK rail is offering whereas, when you are a private entity, whether you are ultimately foreign government-owned or not, you don’t face the same pressure,” Brown said.

    Listed companies will still be interested in UK rail but are more likely to seek to partner with non-listed entities to spread the risk, Brown added.

    Some of the foreign state-owned rail companies also have experience of maintaining tracks and rail infrastructure, making them more suited as future operators of UK rail contracts under an overhaul planned by Transport Minister Chris Grayling, announced in December.

    Reporting by Sarah Young; Editing by Adrian Croft

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