FirstGroup may spend pounds 1bn to replace GWR high-speed trains

FIRSTGROUP, one of the two rail companies involved in the Paddington crash, may replace its entire fleet of high-speed trains on the Great Western line in a move which analysts believe could cost pounds 500m to pounds 1bn.

The offer is likely to form part of FirstGroup's case for being granted an extension of its 10-year franchise to operate the Great Western service which expires in 2006.

Moir Lockhead, chief executive of FirstGroup, refused to be drawn on the level of investment that would be entailed or how long an extension it would be pressing for. But he said: "It must be the most attractive proposition because the existing high-speed trains are getting old."

He was speaking as FirstGroup defended a 21 per cent increase in first- half profits to pounds 55m, coming so soon after the Paddington disaster. The increase includes a 28 per cent rise in operating profits from its rail division to pounds 17.8m.

Mr Moirhead said the results had been overshadowed by Paddington. But he added: "We see no conflict between our company making profits and generating revenues and the objective of creating a newer and safer railway."

He said that as part of FirstGroup's existing investment programme it planned to spend pounds 210m on new trains and station improvements for its Great Western and North Western franchises in the next three years - double the profits from its rail division and 12-times the interim dividend paid to shareholders.

FirstGroup is replacing 70 train carriages on Great Western and another 70 on North Western at a cost of pounds 140m. But Mr Moirhead said that as part of the franchise renegotiations with Sir Alastair Morton's Strategic Rail Authority, it would offer proposals to replace all 86 high-speed trains on the route.

The company is also considering buying additional rolling stock for its North Western and Great Eastern franchises, both of which expire in 2004.

Mr Moirhead rejected criticisms of its decision to bring carriages damaged in the earlier Southall crash back into use on Great Western. He said any of the rear carriages involved in the Paddington crash would only be brought back into service once they had undergone a "compete reconstruction process" at the manufacturer's.

Great Western is operating at 85 per cent of its capacity before the Paddington crash and calculates that passenger numbers are down 7 per cent on those services it is running. FirstGroup said any financial losses would be covered by insurance, since the driver of its train, who was killed in the crash, was proceeding under a green light.

But Mr Moirhead conceded that the privatised rail industry had a major task on its hands to regain public confidence. "It has been hit and we will have to work hard to reassure the public that there is no inconsistency between companies like us making profits and a safe railway system."

The results covering the six- month period up to 30 September include a two-month contribution from its new North American division, created following the acquisition of the American school bus company Ryder.

Tony Osbaldiston, finance director, said that the United States was already running ahead of expectations, having contributed pounds 2.7m of profit in the short period since completion.

The US accounts for about 20 per cent of FirstGroup's pounds 2bn turnover but Mr Osbaldiston said that if another big deal came up at the right price, FirstGroup could fund it.