Select Committee on Transport Written Evidence

Supplementary memorandum by the Chairman of the Strategic Rail Authority (OPT 17B)



  Rolling stock is, in the main, owned by rolling stock leasing companies, ROSCOs, and leased to train operators. As leased assets there are three main factors that affect the cost of the lease rentals paid by the train operators:

    —  the purchase price of the vehicles;

    —  the cost of finance; and

    —  the treatment of residual value.

The Purchase Price of Vehicles

  In simple terms the purchase price of new vehicles has fallen when compared to those purchased by BR immediately prior to privatisation. In nominal terms, ie taking account of intervening inflation, the last electric multiple units delivered under BR cost circa £3.65 million per four car unit while recent prices are around £3.1 million for a four car unit. This fall in purchase price can be attributed to a more commercial approach to the design of vehicles and greater competition within the market.

  This simple comparison of purchase prices does not reflect differences in train specification and the impact of technological and regulatory advances. For example, new trains are equipped to higher standards than their predecessors with air conditioning and passenger information, are more accessible and have greater levels of crash worthiness. Therefore, the improvement in value is greater than the improvement in leasing cost first suggests.

The Cost of Finance

  Finance costs have fallen in line with the general fall in interest rates and through continuing strong competition between the ROSCOs. In 1997 the cost per £ million per month for finance was around £8,500 while at present it stands at around £6,000 per £ million per month. This means that for a £3.1 million 4 car train as above, the lease rental has fallen from £8,500x3.1=£26,350 to £6,000x3.1=£l8,600.

The Treatment of Residual Value

  Actual empirical data on the treatment of residual values by ROSCOs is almost impossible to obtain, which is understandable as it is vital commercial variable in a competitive market. There is however a general perception that ROSCO's are taking a more optimistic view of residual values which in turn leads to lower lease rental costs for train operators. This is certainly a factor driving the reduction in cost per £ million per month referred to above.


  Taking all these factors together the cost of new trains to TOCs has fallen significantly since privatisation. The monthly lease cost of new multiple units, depending on type, now stands at between 70% and 84% of the cost at privatisation. This fall in costs has been achieved through a number of factors of which the common themes are a more commercial approach and healthy competition within the market.

  It should be borne in mind that the figures contained in this letter are highly generalised but can be used to gauge the overall sense of that changes that have taken place.

Richard Bowker

Chairman and Chief Executive

3 July 2003

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