Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

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 service.

    —  £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 train operator.

    —  £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.


  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 infrastructure—stations, signalling, track layout—constrains 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.


  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.

October 2000

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 27 April 2001