The firm behind South Western Railway (SWR) has warned that it could be stripped of its franchise after forecasting losses of up to £146m during the remainder of its contract.
According to First MTR South Western Trains accounts to 31 March last year, the firm’s directors ‘have concluded that there is a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern’.
The company revealed that despite ‘constructive’ discussions with the Department for Transport (DfT) over uncertainties affecting the performance of the franchise, it could either be asked to submit proposals for a short-term management contract or have the existing contract terminated within 12 months and services handed over to a publicly-owned operator.
The accounts reveal that despite a turnover of £1.1bn and 6% passenger growth, SWR made a loss of £137.8m. This included a charge of £145.9m in respect of an ‘onerous contract’ provision relating to forecasting losses to be made up to the end of the franchise in 2024.
The firm states that it has received assurances that its ultimate parent company, MTR Corporation, will provide financial support of over £100m but that it expects this to be used up by the end of 2020.
It adds that the directors have ‘a reasonable expectation’ that ongoing discussions with the DfT regarding ‘potential commercial and contractual remedies’ – ie a taxpayer bailout – will have a positive conclusion.
Taking this and the expectation of parent company support into account, the firm states that it will continue to operate for the foreseeable future and has prepared its financial statements ‘on an ongoing concern basis’.
The company blames issues with the franchise on infrastructure unreliability, delays in introducing the new December 2018 timetable, and industrial action – a reference to an ongoing dispute with the RMT union over the role of guards.
This week SWR’s new managing director, Mark Hopwood pledged to resolve the dispute and improve the punctuality and reliability of the firm’s services.
A spokesperson for SWR said: 'As set out previously, FirstGroup and MTR have already provided for the maximum unavoidable loss.'
A DfT spokesperson said: 'We monitor the financial health of all our franchises closely and we expect them to meet their contractual obligations, but we have clear and robust processes in place to protect services for passengers and taxpayers.'
It has also been reported that the DfT failed to ensure sure that enough power was available for the number of trains it demanded from bidders for the franchise, which began in August 2017.
Press reports from 2018 suggest that this issue remained unresolved at that time.
Transport Network has approached SWR for comment on this issue.
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