FirstGroup consortium to replace Virgin on west coast mainline

London-Glasgow intercity rail services will be joint venture with Trenitalia from December

FirstGroup has won the franchise to run west coast intercity trains, despite opposition from its own shareholders, fears over the financial viability of its other rail operations and legal action by rival bidders.

The government announced that First, the majority partner in a joint venture with the Italian state operator Trenitalia, will take over intercity services on the London-Glasgow line from December. The line, which links the capital with cities including Birmingham, Manchester and Liverpool, has been run since privatisation by Virgin Rail.

The First-Trenitalia bid was chosen over a Chinese consortium led by the Hong Kong operator MTR, First’s partner on South Western.

Trenitalia has been named “shadow operator” for HS2, with responsibility for introducing new services but with a caveat that it may not go ahead, depending on the outcome of reviews into the construction of the high-speed network and the shape of the entire rail industry.

First-Trenitalia will pay £1.6bn in premiums to run the West Coast services – Britain’s most lucrative line – from this December until 2026, with a second phase of payments to depend on HS2. The contract could run until 2034 with an extension.

Keith Williams, who is leading the government’s rail review and has already said that franchising must change, endorsed the West Coast Partnership contract as “a step forward that is firmly in line with the review … capable of incorporating the reforms needed for the future”.

The transport secretary, Grant Shapps, said the contract was “a decisive shift towards a new model for rail … built with the flexibility to respond to [Williams’] recommendations and deliver fundamental reform to a flawed system”.

Shapps also confirmed he would proceed with a white paper for reforming rail, based on Williams’ findings, which are due in the autumn – continuing the review commissioned by his predecessor, Chris Grayling.

The Department for Transport pressed ahead with the west coast award despite a high court case being brought by Stagecoach, Sir Richard Branson’s partner in Virgin Rail. Branson said he was “devastated” by the decision.

Stagecoach was disqualified for a non-compliant bid, refusing to accept pension liabilities, but is seeking to have the decision overturned – a legal action that recalls the fiasco in 2012 when the west coast contract was awarded to FirstGroup but then withdrawn after Virgin’s complaints.

Stagecoach said the award of the franchise would not have an impact on its continuing litigation against the DfT.

A Virgin train on the west coast mainline
The DfT has pressed ahead with the west coast award despite a high court case being brought by Stagecoach, the partner with Virgin Rail. Photograph: Jeff J Mitchell/Getty Images

First’s biggest shareholder, Coast Capital, has threatened to sue the board of the company if it took on any more rail contracts. James Rasteh, partner at Coast, told the Guardian earlier this year it would “hold each member of the management team and [each] board member personally and fully accountable if the company enters any new rail franchise”.

The previous two UK rail franchise competitions won by First – TransPennine and South Western – have proved costly to the company.First wrote down the value of its TransPennine franchise by £106m last year and last month followed up with an “onerous contract provision” of £102m for South Western.

Earlier this year, First suggested it could turn its back on UK rail after the expiry of its current contracts, which also include Great Western Railway and the small, open access Hull Trains.

On Wednesday First said its board “remains very aware of concerns expressed by shareholders regarding rail … however, it has unanimously concluded that signing the partnership agreement is in the best interests of all shareholders”.

Labour queried the award, given the scale of First’s debts and recent losses, and following the cancellation of the Southeastern franchise competition. The shadow transport secretary, Andy McDonald, said that awarding First such a complex contract was “a gross error of judgment”.

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The contract will involve handling the first HS2 services from 2026 until 2031, should the project survive despite budget challenges. High-speed trains are planned to run north on the existing mainline after the first phase of the high-speed network opens between London and Birmingham. All bidders had to demonstrate experience of running high-speed rail services, which led to First bringing onboard Trenitalia, which runs TGVs in Italy.

Direct, conventional trains from London to new destinations including Gobowen, Walsall and Liverpool South Parkway are also promised in the new partnership contract.

The RMT union said the award, coming on the day higher rail fares are confirmed, was “anothe‎r political fix by a government whose privatised franchise model is collapsing around their ears”.

Its general secretary, Mick Cash, said the government was “taking yet another gamble on the crucial west coast lines with one of the dwindling number of private operator consortia left in the game”.

Contributor

Gwyn Topham Transport correspondent

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