The company denied threatening to give up the franchise, claimed it had never said it was looking to renegotiate and maintained its priority was ensuring the business had a sensible cost base and could deliver returns to shareholders.

But a spokeswoman confirmed that newly installed executive chairman Bob MacKenzie was carrying out a "top-to-bottom" review of the entire operation - including staffing levels and ticket prices - and admitted nothing could be ruled out.

"GNER and Sea Containers [GNER's parent company] are very committed to the rail franchise," she said. "We're not seeking to get rid of it. We're seeking to make it a success and it's in everybody's interests that the franchise is profitable, sustainable and well run."

The spokeswoman conceded the original assumptions made at the time the franchise was agreed now looked "a bit optimistic" and said the aim of the review being carried out by MacKenzie was both to cut costs and drive up revenues.

"We're looking to address the challenges head on and take the steps to resolve them," she said. "This means looking at the original business model and putting steps in place which involve reorganisation."

MacKenzie's ongoing examination - which has already resulted in the departures of Shaun Mills, finance director, Mike Gooddie, head of human resources and marketing director Clare Field - is likely to see a few more departures over the next few weeks.

Ticket prices will also be reviewed. "Obviously there are regulated fares, but the unregulated ones will be looked at - although I can't tell you what will happen," added the spokeswoman. "They've got to be at a level that is sustainable."

Although GNER claims no meetings between MacKenzie and the Department for Transport to analyse the situation have been pencilled in, it is understood that discussions are likely to take place over the coming weeks.

GNER's comments came after weekend reports had claimed the company would ditch the franchise, which it won last year after agreeing to pay Whitehall £1.3bn over ten years, if there was no progress on talks this month over a new contract.

Last year the firm made a profit of around £20 million when it managed to pay its franchise bill. However, a combination of soaring energy costs, lower passenger numbers and a decision to allow competition on GNER's routes has hit the company.

Yesterday afternoon, a spokeswoman for the Department for Transport rejected any suggestion that the government would be amenable to revisiting the terms of the agreement. "We don't negotiate franchise agreements," she said.

This means that if GNER did ditch the franchise, then the services could be forced back into public ownership - a move which the RMT union is demanding to secure jobs and safeguard against further fare hikes.

See also

No renegotiation of east coast rail deal

The Herald: September 04 2006 PAUL ROGERSON

The government said yesterday that it will not countenance renegotiating a deal with GNER following a report that the train operator is ready to dump its east coast rail franchise.

Last year, the company secured the right to run services between London and Edinburgh after agreeing to pay Whitehall £1.3bn over 10 years. With GNER's parent company – Bermuda-based Sea Containers – facing mounting debt, it was reported that the firm may walk away from the route unless a new deal can be brokered.

However, a spokesman for the Department of Transport stressed it would not re-negotiate the franchise deal.

If GNER does ditch the franchise, then the services could be forced back into public ownership – a move which the RMT union is demanding to secure jobs and safeguard against further fare increases.

Last year, GNER made a profit of around £20m when it managed to pay its franchise bill. However, a combination of soaring energy costs, lower passenger numbers and a decision to allow competition on GNER's routes has hit company coffers.

Sea Containers argues the Department of Transport would be better off negotiating a cut-price deal than letting the franchise go to auction, but this does not seem likely.

The RMT is keen for the government to take over the running of GNER the same way that the now-defunct Strategic Rail Authority ran the south eastern franchise after Connex was axed.

RMT general secretary Bob Crow said: "The number one priority is to ensure our members' jobs and the services they provide do not fall victim to Sea Containers' deepening financial crisis."

There is provision under the railways act for the transport secretary to take over a franchise should circumstances warrant.

A spokesman for Sea Containers sought to play down the notion that GNER might dump the east coast franchise. "We have yet to meet the Department of Transport to discuss with them... (the) matters that we raised in August and it is far too early to say what may arise from them."

The spokesman confirmed the company would be raising concerns about the premiums it was being asked to pay to the government for the franchise, as well as worries over competition on the east coast tracks.

Last week, GNER promoted its chief operating officer, Jonathan Metcalfe, to chief executive and said three directors would be leaving the company.

It also slashed fares from Scotland to London after admitting its passenger revenue was growing at one third the rate it had anticipated.

Virgin Trains, meanwhile, is thought to be ready to pay £700m to take over the east coast franchise.