Page last updated at 15:51 GMT, Wednesday, 1 July 2009 16:51 UK

Q&A: National Express and East Coast line

A National Express train

The government is intending to take the East Coast rail service, run by National Express, into public ownership.

But how has this come about and what does it mean for passengers and staff?

What has been the problem on the East Coast line?

The company, like many other train operators, has reported a fall in passenger numbers as the economic downturn begins to bite.

It said that those who were travelling were deciding against the more expensive first class travel.

This combination saw ticket sales income down by 1% in the first half of 2009.

Profits have also been eaten into by rising fuel prices.

Perhaps the biggest cause of its woes though is the amount that it must pay the government under the terms of its franchise - £1.4bn over the seven years to 2015.

The Conservatives say the franchising system has pushed the train operators to make wildly optimistic promises when making their bids in an effort to win the tender.

I have a ticket for an East Coast main line service. What should I do?

For now, the London-Edinburgh service is still being operated by National Express.

But, if and when the firm gives up the franchise and it moves into state control, the government insists passengers will be unaffected.

It says that all services will continue to run and tickets will remain valid. Most of the staff will transfer to the state company.

What about the other rail services which are run by National Express?

National Express also owns the franchises for East Anglia and c2c.

However these are separate - and profit-making - operations and will continue running as normal.

The government has indicated that it believes it may have grounds to strip these franchises from National Express - essentially as punishment for it walking away from the East Coast main line.

"It is simply unacceptable to reap the benefits of contracts when times are good only to walk away from them when times become more challenging, " Transport Secretary Lord Adonis told the House of Lords.

However, the firm appears confident that the government has "no grounds" to do this - and a legal battle is inevitable if the Department for Transport does try to force National Express out of the trains market.

Is this going to cost National Express a lot of money?

Not necessarily. The franchise is run not by National Express directly but rather a subsidiary, called NXEC.

As such National Express, the parent company, is not exposed to huge losses under the terms of the franchise. In fact all it can lose is guarantees worth £72m that it would sacrifice by walking away.

However, chances are it would not be looked at favourably should it choose to bid for other rail franchises - with some saying it could even be barred from future bids altogether.

"It would clearly be reasonable not to invite a company to bid for future franchises in circumstances where it has recently failed to deliver on a previous franchise," Lord Adonis said.

A National Express-operated East Coast line train
The East Coast rail service has suffered falling passenger numbers

And if the government decided it did have the power to strip National Express of East Anglia and c2c, that would clearly dent its bottom line.

BBC business editor Robert Peston said National Express had tried to buy itself out of the franchise with an offer of "well over £100m" - so that they parted company, if not amicably, then consensually.

However transport secretary Lord Adonis decided to reject the approach "on principle", he said.

Only being able to lose £72m does not sound like a lot in the scheme of such a huge franchise. What is going on?

This is not something peculiar to National Express.

All rail franchises are operated by companies specifically set up to run them - known as special purpose vehicles, which are standalone legal entities.

NXEC is one of these.

Critics say it allows firms to potentially make huge profits with minimal risk - reaping rewards when the going is good but walking away in times of trouble.

What will happen to the franchise?

There are plenty of people who support the renationalisation of the UK railways and who feel the franchise ought to stay in state control permanently.

The government has made it clear that the right to run the East Coast line will be put up for sale - probably late next year.

However, there are question marks over how much they will get for it.

They are unlikely to get the amount National Express agreed to pay the government for a seven-and-a-half year franchise.

Given the problems that NXEC have had, and GNER before them, would-be buyers are likely to pay much less, especially given the state of the economy.

National Express had been trying to renegotiate its contract with the government - reducing the amount it had to pay.

BBC business editor Robert Peston suggested that government coffers might have been better off in the long run if the Department for Transport had agreed a reduced payment, rather than taking its chances in the re-sale of the franchise.

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