Rail companies race to thrash out interim Covid-19 rescue deals

Train operators and the government are locked in talks to extend the £3.5bn rescue deal that kept the railways running through the pandemic, which is due to expire on Sunday night.

The Department for Transport’s operator of last resort is on standby to take over rail franchises should fresh agreement not be reached.

Industry sources widely expect interim deals to be reached that would again involve operators being paid a management fee to run services, rather than having more train lines follow LNER and Northern into full state control.

However, rail firms are clear that the default position – the franchise deals that existed up to March, with operators taking the revenue risk – remain unviable. Passenger numbers since Covid-19 are only back to about 40% of 2019 levels, and fare income is correspondingly low.

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Steve Montgomery, head of UK rail at First Group, said: “There’s a lot of speculation. Clearly we are in negotiations, and they are quite intense, and everyone is working exceptionally hard to get to resolutions. Everyone is trying to get to some agreement.”

Speaking at a Transport Times rail summit, he added: “The government has stepped up to the plate and backed this industry, and we all have to recognise that and learn to work in a different way – it’s really important we get this resolved in the next 48 hours.”

The DfT announced emergency measures agreements across the entire UK railway at the start of lockdown, with passengers already deserting trains even before the government told all but key workers to avoid taking public transport.

The new contracts under negotiation – called ERMAs, or emergency remedial measures agreements – are likely to be a further transitional stage in a radically altered railway, with the franchising system abandoned.

Several franchises were in financial difficulty long before the pandemic struck, with First Group’s South Western Railway and TransPennine Express both having registered large losses.

The emergency contract for Great Western, also operated by First, was extended earlier this month until next June, in an indication of the settlement that operators and the government aim to reach.

The Treasury is keen to reduce the state spend on railways, which put the average taxpayer subsidy per passenger journey at £100 during lockdown. However, the government will not wish to countenance a wholesale exit from rail of the private transport groups – who are also conscious their current survival is due to state support, which has not been extended to sectors such as aviation.

The UK state’s operator of last resort, an Arup-led consortium, already runs LNER, after Virgin and Stagecoach’s joint venture ran out of money on the East Coast, as well as Northern, which was nationalised in January.

The Office for National Statistics has categorised all train-operating companies as effectively temporarily nationalised under the current emergency agreements.

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