THE cash-strapped operator of Britain’s most prestigious train company, GNER, will walk away from the business in May unless the government agrees to more favourable franchise terms, writes Dominic O’Connell.

Bob MacKenzie, chief executive of Sea Containers, GNER’s parent company, told The Sunday Times the train company was profitable, but could not cope with the £1.3 billion premium that it had to pay to the Treasury under the franchise agreement.

Unless the franchise was renegotiated, the transport group would withdraw in May, because of a minor but significant clause in the franchise deal.

GNER’s performance bond — a sum it must set aside for the government to call on in case it fails — nearly doubles on May 1 from £15.3m to £28.7m. Sea Containers did not want to be potentially liable for the greater amount. “That is the important date, but I would hope we can come to an agreement [with the government] earlier than that,” MacKenzie said.

In March last year, GNER signed a new 10-year franchise under which it must make £1.3 billion in premium payments to the Treasury over 10 years.

MacKenzie said the revenue projections made when the deal was signed were “optimistic”. The Department for Transport has rejected suggestions it will renegotiate the franchise.

Last week Sea Containers went into Chapter 11 in America after failing to come to an agreement with creditors holding $378m (£201m) in bonds.

MacKenzie said the company had had little choice but to seek protection. After the bondholders, the second-largest group of creditors are the company’s UK pension schemes, which have a total deficit of £143m. The two funds have 1,300 members, but do not include GNER staff, who are members of a separate fund.

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