Up to 2,000 railway jobs at risk after Jarvis collapses

Contractor tips into administration as banks refuse it more capital

The railway contractor Jarvis collapsed into administration yesterday after its lenders refused to stump up more capital to keep it trading.

The group – which was once Britain's biggest construction company and counts the former Conservative minister Steven Norris as its chairman – blamed cutbacks at Network Rail for the move, which puts 2,000 jobs across the country at risk.

Network Rail, which runs the UK railway infrastructure, is Jarvis's main client. But plans to cut 22 per cent from its costs over the five years to 2014 saw Network Rail defer 28 per cent of its track-renewals programme last year – causing massive problems for Jarvis.

In response, the contractor tried to reduce its dependence, and in January Jarvis signed a £55m contract with Chiltern Railways. But it was too little, too late. The company needed an injection of new capital to survive. But its banks could not be persuaded.

Jarvis's future "depended upon the continued support of key customers and creditors – including the lenders under the company's secured working capital facility and Network Rail," it said yesterday. "However, following negotiations with the company's secured lenders, it has today become clear that sufficient support will not be extended to enable the company to continue trading as a going concern."

The end came just weeks after the company forecast an operating loss of £5m for the financial year, including £3m for restructuring.

The collapse comes against the background of looming industrial action on the railways as both maintenance and signalling worker members of the RMT dispute what the trade union describes as Network Rail's "dangerous" cuts.

After weeks of talks, rail workers last night announced plans for four days of strikes from 6 April. The RMT was also quick to point the finger at Network Rail for the demise of Jarvis. "This is another hammer blow for the rail industry in the UK and is directly linked to the Network Rail cuts programme and the scrapping of essential renewals work," Bob Crow, the RMT general secretary, said. "We are calling for assurances that jobs will be protected and for urgent government intervention to call a halt to the decimation of the UK railway industry."

But Network Rail yesterday played down its role in Jarvis's problems. "It's never easy to see one of our suppliers cease trading, especially when there is plenty of work available and investment in the railway is at historically high levels," Simon Kirby, the company's director of investment projects, said.

"We will work closely with the administrators to keep our investment programme moving forward and have put contingency plans in place in relation to any work that can't be taken forward by Jarvis in the weeks ahead."

Jarvis has had financial problems before. The group was brought to the brink of collapse in 2004, damaged financially by its overambitious bids for private finance initiative deals and reputationally by its admission of liability for the 2002 Potters Bar rail crash, which killed seven people.

Experts warned that Jarvis may be just the beginning as public-spending contractions start to bite. David Hudson, the head of corporate insolvency at accountants Baker Tilly, said: "For businesses reliant on public spending, the recession was tough, but the recovery will be even tougher."

Grounded: Highland Airways goes bust

*Inverness-based Highland Airways became the latest victim of recession in the aviation sector yesterday.

The company's planes were grounded after recent desperate efforts to find a new investor were finally abandoned and the company opted for voluntary administration.

The nine-aircraft carrier faced growing losses, exacerbated by a series of cancellations because of severe weather this winter.

The Scottish government expressed "great disappointment" at the collapse of an airline which runs newspaper delivery, corporate staff shuttles and charter services to Scottish islands, as well its commercial routes.

Rival airlines are being asked to take on "lifeline" services such as subsidised flights for schools pupils from remote islands.

The company's 100 staff are all expected to lose their jobs.

Bruce Cartwright, a joint administrator for Highland Airways, from PricewaterhouseCoopers, said: "We are conscious that Highland provided a valuable service within Scotland and Wales and we will be working with contracted customers to ensure an orderly handover of services to new operators wherever feasible."