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
News
ebooksAn unforgettable anthology of contemporary reportage
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

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Syria civil war: Meet the military commander who says his soldiers will not rest until every inch of their war torn country is free of Islamist 'terrorists'

‘We won’t stop until Syria is back to normal’

Near the front lines with Islamist-controlled towns where Assad’s troops were besieged just last month, Robert Fisk meets a commander confidently preparing his soldiers for battle
The inside story of how Bill Clinton built a $2bn global foundation may undermine Hillary's chances

The inside story of how Bill Clinton built a $2bn global foundation...

... and how it may undermine Hillary's chances in 2016
12 best olive oils

Extra-virgin, cold-press, early-harvest, ultra-premium: 12 best olive oils

Choosing an olive oil is a surprising minefield. Save yourself the hassle with our handy guide
Rafa Benitez Real Madrid unveiling: New manager full of emotion at Bernabeu homecoming

Benitez full of emotion at Bernabeu homecoming

There were tears in the former Liverpool manager’s eyes as he was unveiled as Real Madrid coach. But the Spaniard knows he must make tough decisions if he is to succeed
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?