Select Committee on Transport Written Evidence

Memorandum by Angel Trains (OPT 28)



  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.


  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.


  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.


  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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