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1999-12-07 SEC-001
Sea Containers

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Sea Containers' GNER subsidiary selected by UK's Strategic Rail Authority for 20-year franchise replacement negotiations


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Sea Containers

Sea Containers' GNER subsidiary selected by UK's Strategic Rail Authority for 20-year franchise replacement negotiations
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date
7 December 1999
source Sea Containers
type Press release



HAMILTON, Bermuda, Dec. 7 -- Sea Containers Ltd.'s wholly owned rail subsidiary, GNER Holdings Ltd., franchisees of the Great North Eastern Railway linking London with Leeds, York, Newcastle and Scotland, has been selected by the Strategic Rail Authority of the UK as one of three rail franchises with which it will enter into negotiations for the replacement of its existing franchise which expires in April, 2003. The franchise replacement process cannot result in the early termination of GNER's existing franchise. The new franchise is expected to be for 20 years.

GNER Holdings was awarded its existing franchise in April, 1996 at the time the British railways were privatized by the last government. That government had failed to provide enough new road capacity to meet demand and the result has been serious road congestion, encouraging drivers to leave their cars at home or at railway stations and travel instead to and from London by rail. Local government in London has reduced car parking spaces in London except for residents. GNER has further encouraged the switch from road to rail by expanding its station car parks, making tickets easier to buy through telesales and ticket machines and making the travel experience more enjoyable through construction of better station lounges and improvement of on board services, in particular food. All trains are outside washed daily which was not a practice of the state-owned railways. GNER has sought to spread train loadings by offering bargain fares in off-peak periods while raising fares in peak periods. As a result of both the strategic and operational considerations demand for the company's trains now greatly exceeds supply and overcrowding has become a serious problem. GNER carried 13 million passengers in 1997 and will carry 14.7 million passengers in 1999, a growth of 13%. Its 9 diesel train sets and 30 electric train sets now operate 112 trips per day when in 1997 they operated only 100 trips. Annual mileage per train set has risen from 254,000 in 1997 to 277,000 in 1999. This extra mileage puts an increasing strain on train maintenance.

In 1997 Sea Containers realized that it needed additional train sets for its GNER subsidiary in order to meet demand and it entered into negotiations with the Office of Passenger Rail Franchising (now reconstituted as the "Shadow" Strategic Rail Authority) to extend the current franchise by 10 years to allow the immediate ordering of new trains and their finance at reasonable cost. This process was delayed by the intervening General Election and the appointment of the Deputy Prime Minister in the new government to take charge of the country's creaking transport infrastructure. He assessed the situation and quickly replaced the head of OPRAF and the Rail Regulator and established the Strategic Rail Authority under the chairmanship of an experienced transport and financial executive, Sir Alistair Morton. Morton reviewed Sea Containers' 1997 proposals and concluded that many rail franchises needed to be extended for much longer than 10 years to attract the necessary capital investment. He asked GNER Holdings to revise its 1997 franchise extension proposal in the summer of this year, making it into a 20 year franchise replacement proposal instead. GNER Holdings submitted its franchise replacement plan in October, 1999 and was selected on November 24 to start negotiations, along with the Chiltern and Connex South Central commuter lines which also have serious capacity and rolling stock problems.

GNER Holdings' 20 year franchise replacement proposal will involve an investment of 1.2 billion pounds sterling ($2 billion) in new trains, track and signalling, station improvements, three new parkway stations, more car parking, improved security, automatic train stopping systems and internet applications for ticketing. The majority of this investment will be made in track, signalling and stations which are owned by Railtrack PLC, and recovery of its investment will be made through access and usage charges made by it to GNER. Sea Containers will acquire alone or in conjunction with other financial groups 25 new tilt train sets and 10 new diesel locomotives costing about 400 million pounds ($640 million). It will also own the reservations and new ticketing systems and other internet applications as it does today, as well as car parks which are not owned by Railtrack. The three new parkway stations will be fully or majority owned by Sea Containers. The existing 9 diesel train sets will be life expired by 2007 at which time they will be replaced with 9 other sets powered by the new diesel locomotives which will also be owned by Sea Containers alone or together with other financial interests.

The new tilt train sets will be constructed in Italy and then assembled and tested in the UK by Fiat Alstom. The first wave of new train sets will be introduced in the spring of 2004 and the second wave in 2007. The tilt trains will operate on the London/Scotland routes, enabling reductions in travel times, and increases in frequency while the existing trains will be operated with greater frequency on the London/Leeds route which is shorter.

Two of the three parkway stations should become operational by time of introduction of the first wave of tilt trains, however, the third, at the junction of the railway line and the M25 London ring road, will be resisted by environmental groups and will require at the end of the day Department of Environment approval after lengthy hearings.

GNER hopes to provide some extra capacity between now and 2004 by leasing in some Eurostar train sets which would be returned to the owners when the new tilt trains come into service.

Britain's railways have come under considerable criticism since privatization, focused very much on punctuality and accident prevention. Railtrack PLC controls both track access and signalling. About 70% of all train delays are the responsibility of Railtrack. About 3% of GNER's trains are delayed by 15 minutes or more through its fault while 7% of its trains are delayed by Railtrack or other operators. The Strategic Rail Authority is putting more pressure on Railtrack to reduce delays and improvements are being seen, however, there are some fundamental flaws in a system which allows slow moving freight trains to operate on high speed lines during daytime instead of requiring them only to move on such lines at night. GNER's trains are all fitted with automatic train braking systems, however, the driver can override a warning signal. There have been three accidents in three years (not involving GNER) causing a loss of life which could have been avoided if the driver could not override the braking system when approaching a red signal. Resolution of this basic safety deficiency has been delayed due to a lack of agreement within the industry as to which system to install. GNER intends to install into its new trains and to retrofit into its existing trains whatever system is finally decided upon by the responsible authorities.

Government contracts must generally be open to competitive tender. Should a competitor make a better franchise replacement offer than that of GNER, which GNER is unprepared to match, then the franchise replacement process would end and GNER's present franchise would continue in effect until April 2003. The franchise replacement process cannot result in the early termination of GNER's existing franchise without its consent.

Sea Containers also owns the Southern Railway and Machu Picchu Railway in Peru together with Peruvian partners and operates the British Pullman and Northern Belle luxury tourist trains in the UK, as well as owning the Venice Simplon-Orient-Express in Europe and operating the Eastern & Oriental Express between Singapore and Bangkok and the Great South Pacific Express between Brisbane and Cairns in Australia's Queensland. These railway operations are part of Sea Containers' passenger transport division which includes fast and conventional ferry services between Britain and Ireland, France, Belgium and the Isle of Man; a 50% interest in Silja Line which operates a fleet of 9 cruise ferries in the Baltic and owns 3 cruise vessels based in the Caribbean and Far East; fast ferry services connecting Manhattan, Brooklyn and New Jersey; ownership of three ports in the UK and fast ferry services between Sweden and Denmark.


Railhub Archive ::: 1999-12-07 SEC-001





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