TALKS between National Express and the Department for Transport (DfT) over the future of the east coast main line have reached an impasse just three days before a crucial trading update is due from the quoted bus and rail group.

A resolution of the dispute is vital to National Express, which faces heavy losses from its current deal with the government to run trains on the line. It is also considering a £400m rights issue, which it will not be able to launch without a settlement.

Senior City sources said the two sides were close to agreement last week, with negotiations well advanced on a management contract to replace the existing franchise. National Express would continue to run the trains for an agreed fee, with officials retaining the right to relet the contract.

However, the talks broke down, with the department refusing to replace the current deal. Lord Adonis, the transport secretary, has repeatedly said he will not renegotiate the contracts, even with train companies expecting large losses.

National Express will release a preclose trading update on Wednesday, with investors eager for news on the talks. It is also expected to confirm it has renegotiated covenants with its banks, removing any danger that it would breach the terms of its outstanding loans. The company wouldn’t comment yesterday.

The east coast line, which links London to Edinburgh via York and Leeds, carries 17m passengers a year and employs 3,100 staff. National Express beat fierce competition to take it over, promising to pay back nearly £2 billion in premiums to the government over eight years, but recession has left the company struggling.

National Express is not the only rail company with loss-making train operations.

Last week, Brian Souter, chief executive and founder of Stagecoach, accused the Department for Transport of being “either dysfunctional or deceitful” when dealing with South West Trains, the Stagecoach subsidiary that runs commuter services from London’s Waterloo station.

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