And another 200 post-privatisation multiple-units are looking for new homes
Informed Sources
In the musical Chicago, there is a song in which a series of murderesses seek to mitigate the homicides which put them in jail. The chorus goes: ‘He had it coming He had it coming He only had himself to blame’.
To judge by social media, this mood of comeuppance has overtaken old-fashioned schadenfreude as the dominant emotion when a business gets into trouble in the privatised railway. For some reason, Sir Richard Branson’s Virgin is the people’s choice of target, but on a more considered level the rolling stock companies (ROSCOs) are regularly castigated for ‘taking profits out of the industry’, and most recently anathematised as ‘chancers’ by a union leader calling for rolling stock to be nationalised.
This plaint has, of course, been official Government policy since the Department for Transport demanded the ROSCOs reimbursed a collective £100 million a year in excessive lease rentals back in 2004. When the ROSCOs demurred, DfT referred them to the Office of Rail Regulation (ORR), which ducked the issue and passed the buck on to the Competition Commission, which mounted an inquiry.
My old chum Nigel Harris and I were invited to give evidence to the CC’s inquiry. It was such a successful double act that we wondered whether we should go on the road with ‘An evening with Harris ‘n’ Ford’ (Groan – Ed).
Thanks to our efforts (Such modesty – Ed), in November 2008, following a 20-month enquiry, the Commission cleared the ROSCOs of anti-competitive behaviour. It found that in the case of releasing at franchise replacement ‘ROSCOs have tended not to increase capital rentals as far as they profitably could – even in the absence of credible alternatives’.
This restraint was attributed to the ROSCOs taking account of their codes of practice plus ‘the fear of the potential for economic regulation’. There was a dissenting view, but the CC decided it would be business as usual, subject to a stiffened-up code of practice just in case the ROSCOs ever thought of being genuinely commercial.
RISKY
Historically, what gave the ROSCOs their bad name is that at privatisation they were seen as a very risky buy in the City. Thus, when Labour’s threats to reverse privatisation proved to be the usual electioneering guff, those who had taken the risk were able to sell on their ROSCO for a healthy profit.
As confidence in the rolling stock leasing business continued to grow, the three original ROSCOs were resold multiple times, successive buyers seeing diminishing risk. What was being sold were the cash flows from the lease rentals. And a large, though diminishing, proportion of these rentals came from the ex-BR fleets.
So it paid to keep polishing these assets and extending their service lives. Nor did the 1 January 2020 deadline, by which date all trains had to be compliant with the Passengers with Reduced Mobility Technical Specification for Interoperability (PRM-TSI), have much of an impact. Various ROSCOs have been investing in PRM-TSI compliance, in some cases – most recently Porterbrook with the Class 455 and Class 458 EMUs and Eversholt with its Renatus Class 321 – adding technical upgrades.
Since even a re-engineered and PRM-TSI compliant EMU was cheaper than a new train, and franchises were won on the basis of lowest subsidy/highest premium, cheap trains were the future. What could possibly go wrong with this strategy?
QUALITY
Well, the arrival of Peter Wilkinson as director of DfT’s franchising arm Passenger Services in the wake of the 2012 West Coast franchise procurement disaster would lead to the ROSCOs’ comeuppance. Peter had some strange ideas.
He thought passengers deserved better, particularly when it came to the trains they travelled in. I remember talking to him about his new philosophy shortly after he took over and he was genuinely angry when it came to people in the north of England having to travel in overcrowded, uncomfortable Pacers.
And since he had been called in to stabilise franchising at a time of crisis and was doing a good job, and then had agreed to take on a pretty unattractive task on a full-time basis, DfT was happy for Peter to get on with it.
When he revealed his new approach to franchise procurement, the ROSCOs missed the cloud as small as a man’s hand in the first invitations to tender. The crucial section revealed that bids would now be assessed on both value and quality.
Previously, the net present value of the premium or subsidy was calculated and, all things being equal, the highest or lowest won the bid. Now, bidders were invited to include quality improvements in their offers. These were weighted and multiplied by a quality factor and the resulting number in pounds added to the premium and subtracted from the subsidy.
And by varying the weighting and the quality factor, new trains became a potential franchise winner. But other forces were also at work.
CHEAP
Alone among the railway engineering suppliers in the UK market, the rolling stock manufacturers have defied the Ford Factor. In 1990, a Class 323 electric multiple-unit with three-phase drive cost £1.26 million per vehicle at today’s prices. Recent EMU orders have been costing £1.2 million a vehicle for a much more highly-specified train. At the same time, the cost of borrowing that £1.2 million has dived.
And the combined result has been a perfect storm for the ROSCOs, starting with what I termed the Greater Anglia ‘mass extinction’. This has been followed by South Western Railway, where new, new trains were even cheaper than the old new trains just being delivered. Now the same scenario is playing out with the West Midlands replacement franchise.
This series of blows has tended to overshadow the imminent delivery of long-running rolling stock mega-contracts for the Inter-city Express Programme (IEP), Thameslink and Crossrail. These too will replace ex-BR fleets.
ARMAGEDDON
All these events have been covered separately in this column. But often you need to pause and consolidate facts to understand its real significance. Tables 1 and 2 list the rolling stock fleets due to be replaced between now and 2020 – although some of the most recent orders for new stock may not be fully delivered until 2022.
SNAPSHOT
I should emphasise that these tables are a snapshot of a very fluid and febrile market. To give one example, when Stagecoach/ Virgin won the Inter-city East Coast franchise, the intention was to retain around half a dozen shortened IC225 sets alongside the IEP fleet to cover the hourly 4hr flagship London-Edinburgh services. This is allowed for in Table 1.
However, we won’t know until October the status or timescale of PSU2 – the upgrade of East Coast main line traction power supplies north of Doncaster. This uncertainty means Virgin Trains East Coast is developing ‘Plan B’, which would see the IC225s off lease with seven IC125 sets retained.
Similarly, the delays to the Great Western Electrification Programme (GWEP) have played havoc with Great Western Railway’s diesel multiple-unit cascade programme. Continued operation of West Country DMUs beyond their expected off-lease date means they now have heavy maintenance falling due and reliability suffering.
SOUTH EASTERN
And so on. Nor, with 440 EMUs coming off-lease, does the truncation of electrification help with finding new homes.
Which brings us to another consequence of the Wilkinson revolution – no-one in the regions wants refurbished, even re-engineered, ‘London cast-offs’. No matter that modern refurbishment creates an ‘as-new’ ambience, everybody expects new trains.
Table 3 shows why not only ageing ex-BR stock is vulnerable. South Eastern had been mooted as the new home for the Class 707 fleet displaced by the South Western Railway mass extinction. But South Eastern is also the last franchise with the potential for a mass extinction event.
Operators want large homogenous fleets which bring various technical and operational benefits. While Southeastern’s Bombardier Electrostars have the necessary homogeneity (although don’t bank on that saving them), the ex-BR Networkers from two manufacturers, with poor reliability, are an obvious target for new train quality bonus points when the franchise is re-let, to be replaced by an homogenous fleet.
This means finding new homes for 30 or so ‘non-standard’ four-car modern EMU fleets may not be easy.
South Eastern potentially influences Table 4, where Porterbrook has the most vehicles at risk. But assume the Networkers go and Porterbrook and Eversholt are level-pegging, with Angel only 100 vehicles behind.
IC125
By far the hardest piece of analysis is for the IC125 fleet, where we have three owners (Angel, Porterbrook and FirstGroup) with power cars and trailers spread across four fleets, plus spares. There is also the uncertainty over what will happen to the East Midlands Trains and CrossCountry fleets. Table 1 covers only GWR, VTEC and Grand Central and is net of the shortened sets for GWR and ScotRail.
Even so, I calculate we are looking at 70 power cars and over 400 Mk 3 coaches off lease by 2020. This assumes IEP deliveries have been delayed by not more than six months.
CLASS 43 OPTIONS
Which brings us to another issue, highlighted by the replacement East Midlands franchise. Transport ministers are promising new trains capable of knocking 20 minutes out of the London to Sheffield timing by 2022. This implies IC125 operation for at least a couple of years past the 1 January 2020 PRM-TSI deadline.
Is it really going to be economic to spend £100,000 per vehicle fitting power doors and controlled emission toilets for another two years in service? I think not: expect a derogation to be sought, with much embarrassed ministerial harrumphing.
But while a Mk 3 coach is expensive to modify, the Class 43 IC125 power cars have all been updated with new engines, control systems and other life-enhancing goodies. New diesel locomotives are very expensive compared with a Class 43, which is not only cheap but is designed for hauling passenger coaches at 125mph with minimum track wear.
On the other hand, trailer coaches are relatively cheap. So, with a couple of Class 43s top-and-tailing some CAF day coaches you have just the train for London-Nottingham/ Sheffield services.
Yes, I know it means diesels running under whatever wires have been put up, but this radical innovative technology of ‘loco-haulage’ offers levels of ride and ambience a multiple-unit can’t match.
ON-TRACK
After that little provocation, time for another consideration affecting Table 1 – direct discharge toilets. DfT is concerned by the mainstream media’s enthusiasm for the subject and has been urging the ROSCOs to do something about it. But, emulating Sam Oglethwaite in Marriott Edgar’s monologue, the ROSCOs insist on getting paid to do it.
Appeals to their corporate social responsibilities have fallen on deaf ears. Table 1 explains why. Major surgery can only be done during a C6 exam with other PRM-TSI work and with such uncertainty over future use, spending money on upgrades does not a business case make.
OFFICIAL VIEW
This imminent mass extinction of the ex-BR fleets does not seem to have registered fully with DfT. A written Parliamentary answer in August this year claimed 75% of the current passenger fleet, which totals over 12,300 vehicles, has been built, or fully refurbished, to modern access standards. That leaves roundly 3,000 vehicles still non-compliant.
For trains built before 1999 which are still in service, DfT says it is ‘working closely with the owners and operators of these trains to ensure that the necessary work is scheduled in time to meet this deadline’. DfT added that in ‘some cases’ older trains, such as Pacers in the north of England, will be replaced by modern trains by 2019.
Table 5 shows the ex-BR fleets in the PRM-TSI programme.
It makes for an interesting comparison with Tables 1 and 3. Note, for example, that it does not include the Class 323s and the Networkers.
From which we can make an informed guess at which fleets will be going for scrap (recycling, surely – Ed) by midnight on 31 December 2019. For future reference, a recycled passenger vehicle is worth about £1,000.
BULLET BITING TIME
So what happens next? It seems to me the ROSCOs are going have to bite the bullet and overcome their dependence on the cash flows from the ex-BR fleets they inherited back in 1996.
Their latest owners won’t like it, but a ruthless scrapping policy would focus minds on what fleets can justifiably be retained for a minimum 10-year life. It really is ridiculous that Class 150s, say, are requiring the sort of replacement steelwork repairs people apply to tinworm-riddled classic cars.
Not having to divert cash and engineering resources into declining assets should allow the ‘Privatisation three’ to focus on leasing. As Table 6 shows, Rock Rail has been building a portfolio while Angel and Eversholt have been replenishing theirs. The table is in diminishing number of vehicles on order.
According to informed sources, Rock Rail has proved difficult to match on price. Significantly, the emerging company does not have the engineering overheads of the old ROSCOs.
This may prove a handicap when the Stadler Flirt service introduction starts on Greater Anglia, but the Desiro Cities and Aventras will be coming off a hot production line. Thameslink and Crossrail are putting in the hard yards on acceptance and reliability growth.
Finally, although the West Midlands franchise award was still to be closed as this column went to press, it represents a further 400 or so vehicles to be funded. And then there could be up to 700 Networker replacements. The pressure is on the ROSCOs, and Porterbrook in particular, to defend their role.
Let’s end with some thoughtful advice for the ROSCOs from country singer Kenny Rogers: ‘You’ve got to know when to hold ‘em, Know when to fold ‘em Know when to walk away And know when to run.’
