A swath of job cuts at Great North Eastern Railways looks increasingly likely as the train operator's troubled parent company Sea Containers seeks to cut costs and avoid a liquidation of its business.
Sea Containers is looking to cut costs at GNER after a UK court last week upheld the rail regulator's decision to allow other train companies to operate services on GNER's East Coast mainline routes. The ruling cost the GNER chief executive Christopher Garnett his job. Bob MacKenzie, the president and chief executive of Sea Containers, has taken control of the UK rail operator.
US-listed Sea Containers has breached its banking covenants and is trying to negotiate a settlement with its banks before a £62m payment is due in October. Its options include a debt-for-equity swap or a rescue rights issue as the company tries to avert the prospect of a liquidation of its assets. Mr MacKenzie plans to dispose of non-core assets in order to focus on the company's container operations and GNER.
Yet Mr MacKenzie's attempt to negotiate a settlement with its bond holders, equity holders and banks was dealt a blow over the weekend after Jeff Bronchick of Reed Connor & Birdwell called for the company "to be liquidated and sold". The Californian asset manager Reed Connor is Sea Containers' largest investor with a 13 per cent stake in the business.
A spokeswoman for Sea Containers said Mr MacKenzie is conducting a "very thorough review" of the GNER business. "You can expect changes there and he will look at the cost base. He will not be afraid to make tough decisions," she said.
A GNER spokesman, however, said talk of job cuts was "premature". GNER currently employs around 3,200 people.
The train operator argues that its competitors on the London to Hull and London to Sunderland lines do not have the same financial obligations as franchise owners like GNER. This has severe commercial implications for the company and will significantly impact its revenue and profitability.
The company has warned that the ruling could jeopardise its ability to pay the £1.3bn owed to the Treasury over the life of its 10-year franchise. The train operator plans to update the market in August with more details about the financial impact of the ruling. GNER is also considering an appeal against the decision.Reuse content