FirstGroup has agreed to pay another £6 million to escape its TransPennine Express (TPE) rail contract obligations.
Shares in the Aberdeen-based transport operator nudged up 0.75% to 74p today (May 11) after it announced a termination fee deal with the Department for Transport (DfT).
A condition of emergency recovery measures agreements (ERMAs) put in place by the DfT to provide continuity for rail passengers and the industry during the coronavirus pandemic was that train operators and the DfT would work together to decide whether payments are required to terminate pre-existing franchise agreements – and if so, how much.
FirstGroup’s extra £6m takes the total it has paid to cancel its current TPE contract to £48.5m.
We are working closely with the government and our other partners to ensure that TPE continues to provide the safe and vital services that are essential to communities across the north of England and Scotland.”
Matthew Gregory, FirstGroup chief executive
The DfT has extended the ERMA term until September 19 2021, although it is “working collaboratively” with FirstGroup, with a view to longer-term national rail contracts (NRCs) being launched by the UK Government before then.
The TPE deal is the final termination agreement for FirstGroup’s train operating companies and follows similar arrangements for South Western Railway (SWR), involving a £33.2m termination fee, and the West Coast Partnership (WCP), where there is no fee due.
The ERMA for SWR is in place until the end of May 2021 and the WCP contract, covering west coast services between Scotland and London, is in place until the end of March 2022.
Both ERMAs can be extended by a further half-year at the discretion of the DfT.
FirstGroup said it was working towards agreeing directly awarded NRCs for all three rail networks with the DfT.
‘Focus on passengers and operational performance’
On the TPE settlement, chief executive Matthew Gregory said: “We welcome this agreement with the DfT, and are continuing to discuss a long-term national rail contract… which will focus on passengers and operational performance, with a more appropriate balance of risk and reward.
“We are working closely with the government and our other partners to ensure that TPE continues to provide the safe and vital services that are essential to communities across the north of England and Scotland.”
TPE trains serve towns and cities across the north of England and into the central belt of Scotland.
Latest indications from the DfT suggest the new NRCs will have a core period to the end of May 2023 for TPE and SWR, each with extension periods of up to two further years at the DfT’s discretion, and up to March 31 2032 for the WCP.
An ERMA for FirstGroup’s Great Western Railway (GWR) operation has already been extended to June 2021, and the underlying GWR direct award runs to April 1 2023, with an extension option of up to one year.
There is no termination sum on GWR, given this contract was entered into after the “emergency” agreements were introduced.
FirstGroup is jettisoning its North American businesses to focus on its UK bus and rail operations.
Last month it announced the proposed sale of First Student and First Transit across the Atlantic, with £345m of the proceeds to be retained for the discharge of liabilities including the rail termination sums in respect of SWR and TPE.
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