Stagecoach warns it will fight changes to leasing contracts

Rail and bus group Stagecoach was on a collision course with the Government last night after warning that it would resort to law if regulations were imposed to curb the profits from its rolling stock company, Porterbrook. Michael Harrison reports.

Brian Souter, the chairman of Stagecoach, served notice that any attempt to alter the leasing contracts Porterbrook has with the train operating companies would be resisted through the courts.

The warning follows confirmation that ministers may extend the regulatory regime governing the privatised rail industry to include the three rolling stock companies.

The businesses were sold off two years ago with guaranteed leasing contracts worth more than pounds 2bn and have since proved a goldmine. Stagecoach, which paid pounds 825m to acquire Porterbrook, disclosed yesterday that the rolling stock business generated pounds 63m in operating profits in the first half of the year - more than 60 per cent of the group total - on sales of just pounds 136m.

Mr Souter said: "If anyone tried to change our existing Porterbrook contracts it would be a major legal issue. Our view is that these are contracts under law and any change would be challenged by us under law."

Stagecoach's finance director, Keith Cochrane, added that it expected to hold discussions with ministers or officials in the near future to argue its case.

Mr Cochrane said that amending the contracts would be unprecedented and would deter other private sector businesses from providing finance for the rail industry. Porterbrook has placed rolling orders worth pounds 250m since privatisation and is about to place a further pounds 25m contract for diesel trains which it will let on short-term rentals.

As an alternative the Government could leave existing contracts in place but impose new regulatory controls when they run out. Most of the contracts do not expire until 2004 although some will start to come up for renewal from next March.

But Mr Cochrane said Porterbrook had already given undertakings to offer reasonable renewal terms at the end of the existing contracts.

Porterbrook was initially sold to its management and a group of venture capital funds for pounds 527m but they made a pounds 300m profit by selling the business on to Stagecoach a year later. Similar windfall profits were made when the management and venture capitalists involved in the purchase of Eversholt Leasing sold out earlier this year to a subsidiary of HSBC.

Stagecoach subsequently securitised pounds 545m of the debt used to fund the Porterbrook takeover by issuing bonds backed against its revenue stream. Mr Cochrane said these bonds would be affected if the lease contracts were altered.

The sparkling performance from Porterbrook helped Stagecoach to a 50 per cent increase in pre-tax profits to pounds 70.5m for the six months to the end of October. Its other rail business, South West Trains, made an operating profit of pounds 7.8m on revenues up by 8 per cent.

Mr Cochrane confirmed that SWT was considering introducing one-man operation on its trains and extending its experiment with automatic ticket barriers to more of its stations. SWT ran into a storm of protest and was fined by the rail regulator earlier this year after axeing 10 per cent of its drivers and then being forced to cancel hundreds of services because of staff shortages.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Books should be for everyone, says Els, 8. Publisher Scholastic now agrees
booksAn eight-year-old saw a pirate book was ‘for boys’ and took on the publishers
Life and Style
Mary Beard received abuse after speaking positively on 'Question Time' about immigrant workers: 'When people say ridiculous, untrue and hurtful things, then I think you should call them out'
tech
Life and Style
Most mail-order brides are thought to come from Thailand, the Philippines and Romania
life
News
i100
Life and Style
tech
Voices
Margaret Thatcher, with her director of publicity Sir Gordon Reece, who helped her and the Tory Party to victory in 1979
voicesThe subject is being celebrated by the V&A museum, triggering some happy memories for former PR man DJ Taylor
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Recruitment Genius: Administrator - IFA Based

£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions