National Express, the embattled transport group, has been rocked by the surprise resignation of Richard Bowker, its highly regarded chief executive.

Mr Bowker’s departure, which is expected to be confirmed in a trading update today, comes at a torrid time for the company. It has reached an impasse in crucial negotiations with the Government over the future of its East Coast rail operations and this week received an unwanted bid approach from First Group, its larger rival.

John Devaney, chairman of National Express, is expected to tell the market this morning that Mr Bowker has resigned for a high-profile job overseas, although the position he has taken is not known. He will say that the company has begun to search for Mr Bowker’s replacement.

Mr Bowker, who cut his teeth in the rail industry at London Underground before becoming one of Sir Richard Branson’s senior commercial lieutenants, took over as chief executive of National Express in September 2006, replacing Phil White.

He arrived from the Strategic Rail Authority, the now-defunct government agency that was given the responsibility of running the railways after privatisation in the 1990s. He was credited with having done a good job at the SRA but was marginalised when the Labour Government decided to take control of the industry back into the Department for Transport.

Two years ago Mr Bowker oversaw the bid that won the blue-riband East Coast route that links London to Edinburgh via York and Leeds, carrying 17 million passengers a year and employing 3,100 staff.

National Express took over from Great North Eastern Railway, a Sea Containers subsidiary, and promised to pay nearly £2 billion in premiums back to the Government over eight years. Recession has left the company facing hefty losses.

The Government, led by Lord Adonis, the Transport Secretary, has rejected requests for a renegotiation of the franchise.

Rail industry sources said that last week the two sides were close to agreement on the replacement of the present deal with a management contract, in which National Express would continue to run trains for an agreed fee.

The talks broke down. National Express needs to resolve the future of its rail operations before it can press ahead with a much-needed £400 million rights issue.

On Monday shares in National Express soared by 10 per cent after the group confirmed that it had rejected a bid approach from FirstGroup, the Aberdeen-based bus and rail group.

Yesterday its shares were up a further 2.23 per cent, or 6¾p, at £309.50. Combining two of Britain’s biggest transport operators would transform the industry, creating a bus, coach and rail group running almost half of London’s commuter lines and hundreds of local bus services and that would have a sizeable presence in North America.

FirstGroup said that it “continued to believe that there is significant industrial and commercial logic in a combination of the two companies”, despite the rejection by its rival. Critics question whether a deal will materialise, given the controversy surrounding the East Coast franchise and the levels of debt carried by both groups.

FirstGroup has £2.5 billion of borrowings and National Express is weighed down by £1.2 billion of debt.

Competition regulators would be expected to look at any combination of the two companies because it would control a large number of significant commuter routes into London.

• Dominic O’Connell is the Deputy Business Editor of The Sunday Times

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