Arriva proposal seeks to end train leasing dominance
Sunday Telegraph: 28/04/2007
By Jonathan Russell
Arriva could break the domination of UK train-leasing companies with a proposal to become the first train operating company to buy its own rolling stock.
In the week that the UK's three train operating companies were referred to the Competition Commission, The Sunday Telegraph has learned that Arriva has submitted proposals to the Welsh Assembly which include buying 50 carriages estimated to be worth more than £50m.
Arriva chief executive David Martin said: "We are prepared to consider the possibility of investing in our own rolling stock in the UK. This is something we have done on the Continent, and is something we understand."
Since privatisation of the rail network, almost all new and existing trains have been financed through three train leasing companies: Angel Trains, owned by Royal Bank of Scotland; Porterbrook, owned by Abbey; and HSBC leasing. However, the market for train leasing has been perceived as high return and low risk with an effective Government guarantee, through subsidies to the industry, on the leases.
The Office of Rail Regulation, the body responsible for referring the train leasing companies to the Competition Commission, said that it " remains of the view that certain market features are limiting competition and have the potential to lead to higher prices and a poorer quality of service than would otherwise be the case in a more competitive environment".
The Competition Commission is thought to be particularly concerned about the leasing costs paid by train operators for existing stock.
While the market for financing of new trains remains competitive, there is often little or no competition for the financing and ownership of legacy fleets.
However, the train leasing companies have hit back, with a barely veiled warning that an investigation could put future investment in new trains at risk.
Angel Trains managing director Haydn Abbott said: "This reference has implications for the willingness of firms to supply new rolling stock. As such, we are concerned that essential investment in additional capacity to solve the evident overcrowding problems in Britain's railways might be at risk."
Under Arriva's proposals to the Welsh Assembly, the company will look at a range of options on funding for new rolling stock, including using its own balance sheet to buy the carriages.
The company thinks it can overcome the main hurdle to investing in rolling stock, the short length of rail franchises, by either selling on the trains if they are no longer required or using them elsewhere in its Europe-wide rail business.
One of the reasons Arriva is considering buying its own rolling stock is to tackle low levels of central Government investment in the Wales and Borders network.
When the company was awarded the business by the now-defunct Strategic Rail Authority in 2003 it was told there would be no money available for significant investment.
Arriva said: "As part of the bidding process, all bidders were requested to bid against a basic specification which was effectively an unchanged franchise. It did not include scope for growth and asked bidders to look for opportunities to reduce subsidy levels."
However, according to Arriva, since the Welsh Assembly Government took responsibility for the franchise last year, investment has started to flow.