Richard Branson under fire over West Coast outburst

The chief executive of First Group has hit out at Virgin boss Richard Branson. Old Beardie's claims do not 'square with the facts', apparently.

by Michael Northcott
Last Updated: 19 Aug 2013

Not since his days of fending off British Airways have we heard Richard Branson sounding so bitter. When the government chose First Group to take over the West Coast rail franchise last month, he described it as ‘madness’ and just yesterday told MPs that the decision would be ‘bad for the UK’. But Old Beardie has been cut down to size by First’s CEO, Tim O’Toole, who yesterday told the Transport Select Committee that Branson’s ‘voice of sobriety’ does not ‘square with the facts’. Bitchy!

So what exactly does O’Toole mean? Well, Branson has been running around saying that First’s bid of £13.3bn to be allowed to run the line is too high. He reckons that such a high payout may put the company in severe financial difficulty. Beardie’s company, the incumbent Virgin Trains, bid a lot less for the contract and lost out last month. Since then he has attacked the basis of the franchising system, the size of First Group’s bid, and has even opened his first domestic flight (London to Manchester) on his Virgin airline, although he says the move is unrelated. MT reckons that former Transport Minister Justine Greening had a point: she said Branson wouldn’t see anything wrong with the franchising system had his company won the bid…

O’Toole conceded to MPs that there is risk in taking on such an expensive contract, but objected to any comparison with the East Coast main line problems back in 2009. That was when National Express had cash problems and had to hand its franchise back to the taxpayer, and Branson has been drawing parallels because he lost out on that bid too. National Express was hit hard by a recession and there was no deal for taxpayer support to take effect within the first five years. He says Virgin, had it won that 2009 bid, would have been ‘crushed’ in the same way as National Express anyway.

We can’t help thinking Beardie’s argument has some legs, however. The rules on how much risk capital train companies need to hold have changed even since First Group made this latest bid. It only had to put up around £256m as a sort of insurance, whereas bidders for the latest Great Western franchise have to put up more. This all suggests that the framework did contain flaws when Virgin and First were bidding: otherwise why change the rules now?

Branson believes that companies like First Group and National Express are ‘getting away with murder’ by bidding at ‘preposterous’ levels, later opting to bail on the contract when the going gets tough. He has applied for a judicial review of the West Coast decision on the strength of this argument. Whilst it seems a fair point in isolation though, we’re yet to see how well First Coast can hold up its end of the deal. Understandably, that lucrative main line is a bitter loss for the smiling entrepreneur.

Still, the franchising system is definitely playing up in some regions: the East Coast line is set to return to private hands, and Go-Ahead, which operates the Southern network, has just admitted that it may need a taxpayer bailout next year. Still, Old Beardie is looking a bit silly making his anger so public: FirstGroup have won the bid, pal. Go and chill on Necker for a bit…

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