LONDON (Alliance News) - The UK government Friday said it had awarded the giant new rail franchise covering a swathe of southeast England to the Govia joint venture majority owned by Go-Ahead Group PLC, meaning FirstGroup PLC lost a key franchise and Stagecoach Group PLC failed in its bid to win the deal.
The new franchise combines the current Southern franchise, which runs routes between London and the south coast, with the Great Northern Franchise to the north of London, connecting them with the Thameslink franchise that runs north to south across London. The Thameslink route is currently going through a GBP6.5 billion upgrade.
The Department for Transport said the new seven-year deal for the combined franchise, the largest awarded in terms of passenger numbers since the UK railway was privatised in the 1990s, will start in September. Govia has been given tough new targets to improve punctuality, reducing delays by about a fifth, and improving the cleanliness of the trains, it said.
Govia will also introduce 1,140 new carriages on the Thameslink network, 108 carriages to replace the 25-year-old trains on the Gatwick Express services, and 150 new carriages to replace the 40-year-old trains running between Moorgate station in London and Hertfordshire.
"Demanding contractual obligations on the operator will deliver cleaner and more spacious trains and improve passenger satisfaction. Tough new benchmarks for performance, train and station cleanliness and customer service information have also been agreed," the department said in a statement.
Govia is 65% owned by Go-Ahead, and 35% by Keolis, which itself is a joint venture majority owned by French state rail operator SNCF.
In a statement, Govia said it expects to make revenue of about GBP350 million from the franchise between September of this year and June 2015. In the first full year to June 2016, which will include the Southern franchise from July 2015, it expects revenue from franchise payments to be about GBP1.1 billion. It is targeting an operating profit margin average of about 3% over the life of the franchise.
"Govia will work with the DfT to generate passenger revenue of an estimated GBP12.4 billion over the life of the franchise for the benefit of the taxpayer. Franchise payments from the DfT to Govia amount to an estimated GBP8.9 billion to reflect operating costs and a small margin allowance. Based on DfT methodology, the net present value of the franchise payments is estimated to be around GBP6.8 billion," it said in a statement.
The joint venture added that it will procure around GBP430 million of investment over the life of the franchise, including significant investment in rolling stock and franchise improvements. Approximately GBP40 million of capital expenditure will be made by Govia directly, with most of this investment in the first two years, it said.
The deal means FirstGroup has lost the First Capital Connect franchise - which comprises the Thameslink and Great Northern sections of the new franchise - it has operated since 2006.
"Today's news does not alter our stated medium term targets. Going forward the group is currently shortlisted for a number of other rail franchises and will participate in a range of competitions with the objective of achieving earnings on a par with the last round of franchising, with an acceptable level of risk," FirstGroup Chief Executive Tim O'Toole said in a statement.
Stagecoach had also bid for the new franchise.
"We submitted a strong, deliverable and customer-focused bid for the TSGN franchise and we are disappointed not to have won," a spokesman said in a statement. "As a matter of course, we will seek feedback from the DfT on our bid as part of our evaluation of the outcome."
By Steve McGrath; stevemcgrath@alliancenews.com; @SteveMcGrath1
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