Memorandum by Angel Trains (OPT 28)
OVERCROWDING ON PUBLIC TRANSPORT
INVESTING IN
RAIL ROLLING
STOCK
Angel Trains, a subsidiary of The Royal Bank
of Scotland Group, is one of the leading rail rolling stock finance
companies (ROSCOs). Angel welcomes the opportunity to appear before
the Committee and to set out the contribution that the company
and the rolling stock industry make to the development of Britain's
railways.
Angel Trains packages and manages the risks
involved in the supply of new and existing rolling stock over
the total life of the vehicles, normally estimated at 30 years.
Rolling stock companies own all the passenger vehicles on Britain's
railway, with a small handful of exceptions. The Strategic Rail
Authority's 2003 Strategic Plan Platform for Progress notes that
the ROSCOs together have been the source of around £4 billion
of new private investment in the railways since privatisation.
With a total investment of some £2.4 billion in new and refurbished
trains, Angel Trains is the second largest private investor in
UK railways after Railtrack/Network Rail. Rolling stock leasing
has been a clear success story to come from privatisation.
Angel finances the construction of new railway
rolling stock and the heavy maintenance, rebuilding and modernisation
of existing stock. The company employs 65 engineers, who work
with customers on issues of safety, reliability and performance.
Angel owns and maintains 4,000 rail vehicles, about one-third
of the nation's rail rolling stock; its UK customers are 20 of
the 25 passenger TOCs and English Welsh and Scottish Railway.
Once all of the new trains on order have been delivered Angel
will own over 40% of the UK passenger fleet.
NEW TRAINS
Recent orders for new passenger trains that
Angel Trains has financed include:
— £640 million for 785 Siemens
Desiro vehicles for South West Trains;
— £593 million for 53 Pendolino
tilting trains for Virgin West Coast;
— £78 million for 70 new diesel
vehicles for First North Western;
— £75 million for 84 Desiro electric
vehicles for First Great Eastern;
— £61 million for 56 new electric
vehicles for Arriva Trains Northern.
Angel also financed the £365 million order
for 280 new freight locomotives for English Welsh and Scottish
Railway.
The vast majority of new trains ordered since
privatisation is for replacement of existing rolling stock (eg
slam door stock). Typically new vehicles have fewer seats than
those they replace and apparent increases in vehicle numbers are
often to ensure that the same number of seats is provided. The
effect of the new trains already ordered on the problem of overcrowding
will be marginal. Indeed in certain cases the number of seats
provided will decrease if vehicles are replaced on a one-for-one
basis. While there has been investment in infrastructure to allow
longer or more frequent trains to run, it has to be recognised
that within current spending limits it is difficult to fund projects
such as platform extensions.
In addition to the investment in new trains,
Angel works closely with its customers on the refurbishment and
improvements to existing stock. Recent/current refurbishment projects
for Angel Trains include:
— £17 million refurbishment to
Chiltern's fleet of diesel commuter trains.
— £32 million investment to refurbish
59 train sets for Mersey Rail Electrics.
— £18 million investment in First
Great Western's 39 high speed trains.
— £15 million for the HST fleet
for GNER.
These investments are in addition to approximately
£150 million spent on other refurbishment and enhancement
projects since privatization. The refurbishment of existing rolling
stock provides a cost effective way of improving passenger comfort
and service without the need for the level of major capital investment
required for new trains. Typically refurbishment might include
the provision of new seats, air-conditioning, CCTV and PA systems
and DDA compliant toilets.
Refurbishment and relocation of rolling stock
also provide opportunities to increase capacity. In the case of
GNER, Angel Trains has purchased 10 HST trailer ears from Porterbrook
Leasing in order to extend Angel's own fleet of eight HSTs by
one car per train, and has also added a complete additional Angel
HST rake, released from service by Virgin. £15 million is
being spent on the fleet in refurbishment. The whole exercise
has been actively supported by the SRA. The displacement of older
fleets by new also offers the opportunity to relocate fleets to
enhance capacity so long as there is compatibility of rolling
stock and infrastructure and adequate maintenance facilities exist.
The addition of more trains and more services (or longer trains)
implies an increase in costs such as leasing charges, maintenance,
driver costs.
MANDATORY MODIFICATIONS
The rolling stock companies have paid for, and
implemented, the fitting of Train Protection and Warning System
equipment (TPWS) to passenger rail vehicles, working with the
TOCs, manufacturers and fitting depots both on the design of the
equipment and on the fitting programme to ensure that the withdrawal
of vehicles for TPWS work was done in a way which did not affect
the timetable. The cost of fitting mandatory safety modifications
is borne 90% by the ROSCOS with no recovery from the TOCs or the
SRA of that investment. The total TPWS investment for train equipment
was some £40 million. As the Secretary of State told the
Commons on January 28 this year, TPWS has been installed on 97%
of trains and 76% of the necessary tracks. The programme is well
on the way to completion. By the end of this year, the rest of
the work agreed with the HSE will be complete, and a warning system
will operate on all trains. The ROSCOs are now paying for the
fitment of on train monitoring and recording systems (OTMR) to
their fleets.
FUTURE NEW
ROLLING STOCK
Franchise length has not been a problem in generating
investment in new stock. For example, Angel Trains has funded
new trains for one operator whose franchise had less than three
years to run as have the other ROSCOs. Angel Trains takes the
re-leasing risk for the whole of the train's useful service life,
usually 30 years, a period that will include several separate
leases and possibly several different lessees. However where a
franchisee has only a short period left to run on its franchise
and even where the SRA has been minded to novate new stock to
an incoming franchisee (using Section 54), the problem arises
for the incumbent franchisee, of the difficulty of expending time
and effort in involvement with the manufacturer and the funder,
in a procurement process and the considerable costs involved in
bringing new rolling stock into use.
At the time of the Government's 10 Year Plan
Angel's forecast for new rolling stock purchases for the UK was
some 4,000 additional vehicles in the period 2003 to 2010. Over
the past 18 months Angel has revised downward the level of new
investment that it anticipates will be required, in response to
the very clear problems of the rail network. Our current estimates
for new rolling stock are that only 700-800 additional new vehicles
will be purchased up to 2010.
The amount of rolling stock to be purchased
is more dependent on the availability of the infrastructure capacity
than on the availability of finance for new trains so long as
the business case for the new trains is sound. With the current
understandable financial constraints on infrastructure investment
it is unlikely in the short to medium term that substantial funds
will become available to fund projects such as platform extensions
enabling longer trains to operate.
Further investment in new trains does depend
on a stable environment for investment and we welcome the new
stability of Network Rail and the realism of the SRA Strategic
Plan. However, proposed cuts in services and the pressure on TOCs
to reduce costs are leading to understandable uncertainty in the
rolling stock leasing market.
Leasing enables capital investment in new trains
to take place that is funded by future revenues. Our TOC customers
have two sources of revenue: passenger fares and public subsidy
paid by the SRA. Uncertainty over these revenue streams will affect
intentions to acquire new trains. The SRA is increasingly involved
in decision making on the running of existing franchises, particularly
those which are loss making. Its new policy on franchising will
specify much more closely the outputs required from franchisees.
The SRA will thus be much more closely involved in rolling stock
issues; procurement, transfer, refurbishment, and will issue a
rolling stock strategy later this year. This will provide the
rolling stock manufacturing and leasing sectors a framework for
future planning and investment.
January 2003
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