The strike-ridden South Western Railway franchise is at risk of being nationalised within the next 12 months after its accounts warned of significant doubt over whether Britain’s second-biggest commuter network could continue operating.
The train operator has been in discussions with the Department for Transport for months over the terms of its contract, blaming its losses partly on delayed infrastructure upgrades, timetabling delays and industrial action.
But in its latest accounts, published on Tuesday, South Western directors warned the franchise continued to be lossmaking, and said its forecasts suggested these losses would exceed a £146m cash provision its parent groups — FirstGroup and Hong-Kong based MTR — had set aside for future losses before the end of this year.
While talks with the DfT continue, the train operator said two potential outcomes could either see it forced to submit proposals for a new short-term management contract, or the termination of its contract within the next 12 months with the services taken over by a state-owned operator.
South Western is the latest British rail franchise to run into major difficulties. Last month, the Scottish government announced plans to end Abellio’s contract to run ScotRail three years early in 2022 amid criticism over performance at the rail franchise.
In October the UK government took the first step towards nationalising the Northern Rail franchise while the East Coast mainline was taken back into government hands in 2018.
Meanwhile, on Tuesday the government said it had called TransPennine Express, also operated by FirstGroup, for urgent talks over recent service cancellations.
A Number 10 spokesman said: “The transport secretary has demanded immediate explanations from the operator, Network Rail and the rolling stock manufacturers and will be convening an urgent meeting to work out how they will be improving services for passengers. We will not tolerate significant reductions in services for passengers and will be prepared to take action if they fail to meet their contractual obligations.”
It comes as the Conservative government is waiting on a review of the railways by Keith Williams, the former British Airways chief executive, which is expected to recommend a complete overhaul, including scrapping the existing franchise system. The review is expected to be published in the coming weeks.
The financial warning comes at the end of 28 days of strike action on South Western — the longest strike action taken by the RMT union on the railways. The franchise covers around 600,000 passenger journeys daily into and out of London.
Its accounts show that it made an operating loss of £137.8m in the year to the end of March 2019. Directors of the train operator wrote: “Since year end the company has continued to be lossmaking and current forecasts indicate that losses will exceed the amount of the onerous contract provision within 12 months”.
South Western’s auditor, Deloitte, wrote in the accounts that “a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern”.
South Western’s directors said there was “a reasonable expectation that the discussions with the DfT will have a positive conclusion”.
A spokesman for South Western said it continues to be in “ongoing and constructive discussions with the DfT regarding potential commercial and contractual remedies for the franchise and what happens next, in order to ensure we reach the right outcome for the Government, our shareholders and our customers”.
A DfT spokesman 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.”
Additional reporting by Jim Pickard
