Memorandum by Angel Trains (RI 26)
This memorandum is submitted in response to
the request, dated 2 October 2000, for supplementary memoranda
of evidence relating to the Transport Sub-committee's continuing
inquiry into rail investment.
The terms of reference of the Committee's inquiry
as originally announced on 18 May centred on the Comptroller and
Auditor General's Report Ensuring that Railtrack maintain and
renew the rail network.
In October, the Committee asked for further
evidence on the development of the rail network by investment
from other sources than Railtrack, and on the criteria used by
the Shadow Strategic Rail Authority to decide on replacement franchises.
The Committee asked respondents to address these
matters in the light of the Government's 10 year plan for transport.
In view of the Committee's wish to take a broader view of investment
in the development of the rail network, Angel Trains believes
that it would be useful for the Committee to have an overview
of investment in new rolling stock, as this is an essential part
of the renewal of Britain's railways.
Angel Trains, a subsidiary of The Royal Bank
of Scotland, is the UK's leading investor in rolling stock. It
supplies and maintains over 3,600 vehicles to 19 of the 25 train
operating companies (TOCs). It finances the construction of new
railway rolling stock and the heavy maintenance, rebuilding and
modernisation of existing stock.
It is investing over £1.3 billion in new
trains for Britain, including:
£593 million for 53 140 mph
tilting trains for the West Coast Main Line, currently being built
by Fiat Ferroviaria and Alstom and to be operated by Virgin Trains.
£365 million for 280 new freight
locomotives for English Welsh and Scottish Railway, in service.
£58 million for 16 new electric
trains for Northern Spirit, now in testing prior to going into
£78 million for 27 new diesel
trains for First North Western, nine of which are in service.
£90 million order for 25 Siemens
Desiro electric trains, the first order for electric trains placed
by a rolling stock company without a leasing commitment from a
£77 million for 21 Desiro trains,
for operation by First Great Eastern.
£92 million for 28 new Electrostar
commuter trains for C2C (formally LTS Rail Ltd).
Rail leasing (operating leasing) has now operated
in Britain for six years.
From a relatively slow start, the market in
rolling stock leasing has matured and stabilised and funds are
now available for serious investment. Rolling stock leasing is
a highly competitive market, attracting new companies into it.
The costs of leasing rolling stock have fallen considerably since
the immediate post-privatisation period. As well as UK investment,
Angel Train attracts international inward investment into the
railways of Britain. Angel Trains packages and manages the risks
involved in the industry in a way investors can understand.
Angel Trains has provided more investment in
new trains than any other leasing company or finance source and
has a strong commitment to further large-scale investment. Angel
Trains works closely with operators and manufacturers on the design
of new trains. As the owner of the train for its expected life,
up to 30 years, Angel Trains has a long-term view of the asset
and an interest in maintaining the quality and reliability of
the vehicles. This includes both maintaining the trains and the
necessary refurbishment undertaken during the lifetime of the
train. While train operating companies are taking complex decisions
on new trains, their view is often perforce limited to the length
of their franchise. For an operator purchasing and specifying
new trains it is often a one-off event in the franchise while
Angel Trains brings considerable procurement and technical experience
to the process.
Angel Trains has completed an overview of all
the train fleets in the UK including a detailed forecast of future
requirements. This study has confirmed the Government's figures
set out in the 10 year plan.
At present, the average life of trains coming
out of service in Britain is 38 years, a product of the decades
of under-investment by a cash-starved British Rail, and an indication
of the massive task we face in improving the safety, quality and
reliability of the UK's rolling stock.
Angel Trains bears the residual value risk that
the trains will continue in use after the end of the franchise,
and therefore franchise length as such is not a problem in generating
investment in new stock. For example, Angel Trains has funded
new trains for an operator whose franchise has only three years
to run. All investment decisions are based on the long term business
case of new trains in a particular franchise or service and future
potential for train leases in other franchises.
The Shadow Strategic Rail Authority (sSRA),
in its Franchise Replacement Guide published in January 2000 called
for holders of the new longer-term franchises to look at co-investment
and risk sharing. Angel Trains has offered to enter into risk-sharing
deals with train operators.
While we believe that the current franchise
replacement round is slowing new rolling stock orders, once the
process is complete the increased stability will provide a background
in which investment can be made with greater confidence, not only
in rolling stock but also in the infrastructure requirements.
The Government's 10 year transport plan provides
a funding framework that will support the franchise replacement
process. Taken together, they lay the basis for a growing rail
industry that will be able to attract new passengers and freight
customers. It is our view that constraints to growth will not
come from a shortage of investment available for rolling stock,
but from the inability of the infrastructure to keep pace with
the capacity requirements coming from passenger and freight growth.
MARK 1 REPLACEMENT
Angel Trains has welcomed and actively supported
the sSRA's action to replace the Mark 1 (slam door) rolling stock
in the UK. We have taken the initiative to order, in advance of
any operator commitment, 100 new vehicles in order to speed up
the process of replacement. We have made various proposals to
the operators involved to bring forward the commitment to new
fleets but the franchise replacement process has intervened since
the incumbent operators are not in a position to undertake new
commitments. The sSRA has understood this issue and taken action.
We remain ready to actively invest as soon as possible in new
trains to replace Mark 1 stock.
Speeding the entry of new trains into service
requires co-operative work by manufacturers operators, leasing
companies and Railtrack. The public cannot understand why a large
number of new trains are sitting round not doing anything. This
waste of resources hurts the image of the railway in the eyes
of its customers and the media and it hits revenues. The costs
of running older, less reliable trains increases with age.
Safety approval should not be an adversarial
process. While there is clearly a problem in that Railtrack is
not always able to furnish information about its own infrastructure,
some new trains have been presented for safety approval which
are deficient in design and build quality. This may well be a
function of skills shortage in an industry which has not had a
steady flow of orders in the past. The industry should be working
towards a climate in which there is support for innovation in
safety. The understandable and justifiable pressures for enhanced
safety at present work against the introduction of new rolling
stock which would be safer and more attractive for passengers.
At present, from the West Coast tilting trains
through to the new vehicles for commuter routes, most rolling
stock orders are for replacement of existing stock, albeit with
vastly superior new trains. The present state of the infrastructurestations,
signalling, track layoutconstrains the number of additional
trains which could be built and operated to meet the needs of
a rising number of rail users. This must be tackled if the railway
is to grow.
A STABLE REGULATORY
There is an appetite for investment in rail
rolling stock. A stable regulatory environment is essential to
maintain the confidence of investors and ensure a flow of new
investment for new trains.
Angel Trains welcomes the assurance given by
Lord MacIntosh of Haringey in the course of the House of Lords
Committee Stage of the Transport Bill. Speaking on a Government
new clause in the Bill which clarified the position of the Rail
Regulator on the rail rolling stock leasing industry (Clause 241
in the version of the Bill then being considered). Lord MacIntosh
said that the Clause contained "no hidden agenda."
Lord MacIntosh said: "Since 1 April, the
Rail Regulator has had powers under the Competition Act 1998 in
relation to anti-competitive agreements and so forth, which relate
to the supply of railway services. It is widely assumed that agreements
for the maintenance and provision of rolling stock leasing companies
relate to the supply of railway services and in our view that
is the correct interpretation.
"We want to put the position beyond doubt,
with clarification that services provided by the rolling stock
leasing companies, and also railway engineering and information
services, fall within the orbit of the regulator's jurisdiction
under the Competition Act 1998."
Angel Trains had always understood that to be
the position and we welcome this clarification. It will assist
in maintaining the flow of investment into new trains.