Franchising farce: First MTR ditch new Stagecoach  trains 

Within days of being awarded the new South Western franchise, it emerges that joint venture First MTR is to abandon the new Class 707 rolling stock currently under construction but ordered by Stagecoach, the previous franchisee.

The Class 707s were ordered in 2014 and are being built in Germany by Siemens. Angel Trains financed the £210m deal.  30 five car EMUs will be introduced in April and all should be in service by the year end (mainly on the Waterloo- Windsor and Eton Riverside lines).

However the 707s are destined for a very short working life; First MTR is committed to introducing a new homogenous train fleet of its own consisting of 90 units (750 new carriages) by December 2020. Four classes will be reduced to one.

“The trains being replaced include 364 Class 455 carriages, 48 Class 456 carriages, 180 Class 458 carriages and the 150 Class 707 carriages,” the DfT has confirmed.

The Class 455s, 456s and 458s are leased from Porterbrook; the 455s are currently undergoing traction upgrades. Angel’s leasing period for the 707s ends in 2019.

Class 458s are also on the way out.

A spokesman for First Group defended the decision. 21CR was informed: “This is a good deal for the taxpayer since it allows us to pay a substantial premium back to the government.”

First MTR wants to benefit from the lower leasing charges now available; a situation created by greater competition in the rolling stock market than was the case a few years ago.

The issue has brought the intractable issue of rolling stock procurement back into the spotlight . Procurement is supposed to be part of the franchising process, but DfT has taken a laissez faire stance: “It is for First MTR South Western to decide how to use their trains,” was its laid back response.

There is a fundamental mismatch between the length of a franchise and the age of rolling stock, which is a problem for both franchised and open access operators. The First MTR franchise is for seven years, but the trains could last for 30 years or more. If new trains are to be scrapped by each new franchise holder imagine the chaos that would create for the industry.

Perhaps some kind of strategic rail authority is needed for long term  industry planning to address issues of this kind. It can’t be done by the DfT as its main preoccupation is maximising premiums/minimising subsidises through the franchising process. Such an authority could also take over long term strategic planning from Network Rail (leaving it to concentrate on day to day running).

As to the fate of the 707 stock, the risk  – and the cost – will be borne by the leasing company.

Angel would have had to borrow to finance the £210m deal. The payback period would have been in leasing charges spread over x number of years but that’s not going to happen now. As things currently stand, the third rail 707s can only be used in southern England so they have limited residual value.

Angel could be lumbered with the new 707s if it can’t find an alternative use for them. It could turn out to be a double whammy – Angel would not only be deprived of income from leasing charges, but it would still have to bear the cost of maintaining and stabling the unused stock as well. Maybe the 707s could be adapted for overhead AC usage or modified to take diesel engines (or fitted with some other form of self propulsion).

One assumes that Angel Trains will have made contingency plans; the 707 order would have been placed in full knowledge that the SW franchise was up for grabs and that a change of stewardship was possible.

First MTR might derive some short term advantage in acting this way through paying lower leasing charges, but  what is good for First MTR is not necessarily good for GB Rail PLC (i.e could be to the long term detriment of the industry). Sudden movements like this cause uncertainty; leasing companies and rolling stock manufacturers might be reluctant to supply the UK market in the future and that would result in leasing charges going up, not down.

No one likes having the rug pulled from underneath them.

Whatever the merits of the case, it has all the makings of a PR disaster for rail. It will be portrayed by the media as another example of the dysfunctional privatised railway, where the pieces of the jigsaw can never be made to fit.


Class 707s face an uncertain future.


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