Supplementary memorandum by the Chairman
of the Strategic Rail Authority (OPT 17B)
CHANGES IN THE COST OF ROLLING STOCK SINCE
PRIVATISATION
INTRODUCTION
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.
SUMMARY
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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