Porterbrook moans about new franchises ordering new trains

[etc9]

I didn't say 'mandated'. What I did say was 'virtually mandated'. What DfT did was directed bidders along a route which made it easiest to win by committing to new-build rather than existing stock. Another way of complying with the spec. was possible but bidders opted to 'delight' with new-build.

https://assets.publishing.service.g...e/461470/east-anglia-invitation-to-tender.pdf

5.3.2.3 For non-new build rolling stock the Department requires that passengers will perceive the overall design, internal ambience, condition and facilities, and the external condition, as being modern, comfortable and comparable to that of new or nearly new rolling stock unless the Franchisee will replace this rolling stock by new build rolling stock during the first five years of the Core Franchise Term.

This was the ITT wording on the East Anglia competition, which was designed to encourage high quality refurbs. This was in the context of the 321 Renatus programme having already been launched.

You say it was easiest to win by committing to new-build, but I think cheapest would be a more accurate description. The vast quantities of new rolling stock being committed to in new franchises in the last couple of years should give you a clue - this is market-driven, and the ROSCOs have been slow to recognise reality and cut the lease price of older stock (including "older" stock like the 707s - and I would find it hard to believe there were quality points awarded to FirstGroup for ditching those).

The extent to which franchises have been won because of high quality scores for new rolling stock has been vastly overblown by DfT and the railway press, including Roger Ford. The number of franchises in serious financial trouble at the moment tells the real story - the bids were won on price, and irresponsibly so. Their rolling stock quality scores would have been only marginally lower with high quality refurbed trains, if the ROSCOs had been prepared to offer them at a price cheaper than brand new stock.

At least we have one good outcome from the last few years of franchising - the ROSCOs are seriously weakened.

 

[bramling]

Certainly a 30 year old train should be available for less than a brand new one. But if that older stock isn't compliant or scores far fewer points in the bidding process no one will lease it whatever the price.

The TOCs don't care what gets scrapped, but we should - if we move from replacing trains every 40 years to every 20 or less costs will inevitably rise, and that will ultimately fall on passengers and taxpayers. The cost of building a train isn't likely to fall to account for a shorter expected life either. Clearly passengers want modern trains, hence the DfT encouraging more to be built, and the rail industry has been left behind by technology, lacking features now common in cars and even buses. But it would require a radical departure from the level of funding the railways have lived on in the past, and with passenger numbers falling affordability will be a growing problem.

Excellent post.

 

[507021]

think they shot themselves in the foot with the 323s, which i personally think they should all go to northern with the 350/2s to replace the 319s

Northern don't need that many EMUs, especially with the 331s on order.

However, I do like the 350/2s and would be pleased if they did end up with Northern.

 

[43096]

That's a rather partial reading of the report, the competition report made it clear the market wasn't healthy and there was a fundamental lack of choice and competition in the market. They did comment that at franchise renewal the Roscoe didn't hike the prices, due to fear of DfT action, but the overarching conclusion is that their was a lack of choice for TOCs.

And the report considered that one of the primary reasons for that was the dysfunctional DfT and the way it awarded franchises!

 

[Taunton]

Porterbrook had revenue of £477.2m in 2017, down from £487m the year before, although pre-tax profit was up 23 per cent to £91.6m,

Profit margin of £92m on £477m revenue is well out of kilter with just about any other industry, let alone working in a state-managed utility with long term guaranteed revenues, which is what railway leasing is.

 

[The Ham]

No better example of this than Macquarie, who may soon have a fleet of young 379s on their hands without a use.

A 30% reduction in maintenance costs (but no doubt costing more to purchase in the first place) will only offset so much cost. If the maintenance cost of a traditional vehicle is £10000*pa, and an annual lease of £33000 (1 million purchase spread across 30 years, ignoring inflation etc) it's £43k pa. New generation vehicle with 30% saving in maintenance, same purchase cost, but spread across 20 years to ensure that the Rosco has more chance of making their money back and it's now £57k pa

*Value plucked out of thin air

Let's also not forget the effect this will have on the manufacturing plants unless this cycle of replacing super young trains continues. 4/5 factories vying for piecemeal orders is going to end in tears

I would agree that you have used values picked from thin air as they are widely wide of the mark.

TPE have a maintenance agreement costing £40 million for 5 years for 25 trains with 5 coaches. This works out at £64,000 per year per coach.

https://www.alstom.com/press-releas...ntract-for-25-new-transpennine-express-trains

Based on the general rule that a EMU lease is £100,000 and a DMU is £110,000 per coach.

If we were to assume that those are our starting costs a 1/3 saving on £64,000 would be a saving of about £20,000 (although chances are that saving has already been made, but we'll use the above figure as otherwise the saving would be bigger).

Given maintenance is likely to cost more the older the units are the savings are likely to be bigger the older the units are.

If you have £20,000 a year in maintenance savings then you can have higher lease costs.

If you assume that you want a zero cost increase then you can scrap a train after:
- 34 years rather than 40 years
- 20 years rather than 24 years

That means of you assume that you wanted to lease a train to a TOC for 30 years and it was scrapped after 20 years. Although there would be a cost increase to the TOC wouldn't be 50% as 4 of those 10 years would be able to be covered by the maintenance cost savings. Putting the extra cost at about 20-25%.

However at about mid life trains go through a major maintenance overhaul as well as a refurbish, both of which will cost money, which will reduce the extra costs further if they are not needed.

Add in the fact that passengers are happier with new trains and the ability to increase capacity which are likely to increase income.

Overall the premium for having new trains probably isn't that great and in most cases probably only up to 15%. However given that train costs are only about 1/3 of TOC costs that's up to 5% of their costs. Which is still higher than the increase in the amount that ticket prices would have to rise to cover the extra costs.

 

[northwichcat]

https://assets.publishing.service.g...e/461470/east-anglia-invitation-to-tender.pdf


This was the ITT wording on the East Anglia competition, which was designed to encourage high quality refurbs. This was in the context of the 321 Renatus programme having already been launched.

Yes a lot of work had already gone in to looking at options for upgrading the 321s and it was expected the new Anglia franchise would complete that program but instead Abellio opted for the convenience of new trains, I say convenience because it means they don't have to put up with trains going away for refurbishment which causes a short term shortage of stock. Also didn't DfT also stall over the award of Anglia because Abellio had submitted a bid which was clearly the best for quality but they weren't sure if it the numbers added up after the Brexit vote lowered the value of the pound?

 

[northwichcat]

I thought it was the case that the class 323s were non compliant for the future leaf fall season in that they suffer with adhesion issues resulting in a mandatory reduced timetable on leafy cross city routes, which the DFT want dropped?

You may recall DfT, under the last Labour government, came up with a plan that Northern would get new EMUs and the Northern 323s would be sent to LM to bolster their fleet. They dropped that plan but Porterbrook wrongly presumed it was still the working plan and blocked the new Northern franchise from securing new long term leases for the 323s because they wanted to reserve them for the West Midlands franchise.

 

[Grumpy]

Profit margin of £92m on £477m revenue is well out of kilter with just about any other industry, let alone working in a state-managed utility with long term guaranteed revenues, which is what railway leasing is.

Indeed.
However I suspect that they will be comparing the £92m with whatever they paid to acquire their shares in the company, a price which would probably have assumed the ongoing profitable leasing out of the 350, 323 etc fleets. Given that Porterbrook seems to be owned by Foreign Institutions should we really care?

 

[Dave1987]

Many well respected industry commentators with no connections to ROSCO’s are already saying that the new trains bonanza is totally unsustainable long term and leasing costs will rise to pay for the fact trains will be scrapped years before they should be.

 

[Bletchleyite]

They probably also wanted to sell them 796's and are now throwing a Bombardier style temper tantrum but without the legal action. Maybe you should have let Northern keep their 323's you goons.

The problem with 769s is that they appear at present not yet to exist.

But anyway, the answer is pretty simple - if someone else gives a better product for less money, then that means you need to change your business model, no? Why would I spend my ten grand (or whatever) on a used Vauxhall Astra if I could have a new one for the same money?

 

[Bletchleyite]

Indeed.
However I suspect that they will be comparing the £92m with whatever they paid to acquire their shares in the company, a price which would probably have assumed the ongoing profitable leasing out of the 350, 323 etc fleets. Given that Porterbrook seems to be owned by Foreign Institutions should we really care?

10-12% is a fairly typical general profit margin for businesses I think - it is rather in excess of that which does suggest some overcharging. Interestingly TOC profit margins (after subsidy) tend to be much lower, well below 10% usually.

 

[Bletchleyite]

Until Mr Corbyn arrives in No.10 and starts playing trains at a national level.

Actually too many all-new trains will push up the price for everybody as the Roscos can't guarantee being able to lease them long term.
What happens to the 350/2 and 707 fleets is important for the long-term financing of rolling stock.

It would have made absolute sense for WMT to acquire all the 20m Desiros going spare (classes 350 and 360) and run the south WCML and all associated services as a 5, 8, 10 and 12-car Desiro shop. But can you blame them for not doing so if the price was too high and the owners of the 350/2s called the TOC's bluff, who then promptly ordered new instead?

 

[Bletchleyite]

However, I do like the 350/2s and would be pleased if they did end up with Northern.

Now we are where we are with them (the most sensible place for them would have been for them to remain with WMT where even though most of us prefer a 2+2 seated set they are reasonably popular and very reliable) that is where I see them ending up to be honest.

 

[The_Engineer]

Oh dear, how sad, never mind...….

 

[hwl]

10-12% is a fairly typical general profit margin for businesses I think - it is rather in excess of that which does suggest some overcharging. Interestingly TOC profit margins (after subsidy) tend to be much lower, well below 10% usually.

The full article text notes that the increased profit margin is largely due to refinancing their existing debt at much lower rates.

 

[hwl]

Now we are where we are with them (the most sensible place for them would have been for them to remain with WMT where even though most of us prefer a 2+2 seated set they are reasonably popular and very reliable) that is where I see them ending up to be honest.

Porterbrook were charging much more for the /2s than Angel were for the rest but that was some what a function of what interest rates and financial circumstances were at the time of purchase.
All 3 incumbent ROSCOs got a bit of a wake up call with expensive existing stock not being used:
Porterbrook - 350/2,
Eversholt - Renatus 321
Angel - 707

And similarly Macquarie 379s

Angel have seemingly won the battle of the HST ROSCOs for future business.

 

[northwichcat]

Porterbrook were charging much more for the /2s than Angel were for the rest but that was some what a function of what interest rates and financial circumstances were at the time of purchase.
All 3 incumbent ROSCOs got a bit of a wake up call with expensive existing stock not being used:
Porterbrook - 350/2,
Eversholt - Renatus 321
Angel - 707

And similarly Macquarie 379s

Angel have seemingly won the battle of the HST ROSCOs for future business.

Eversholt should be the ones most miffed given they had a real workable plan to upgrade the 321s and the huge number they'll have off-lease. While Porterbrook also ended up with a large number of 319s off-lease, they knew that was coming for a long time and shot themselves in the foot with the speculative 387 order, as well as blocking Northern bidders from securing 323s long term and only offering 319s which aren't suitable for all North West routes. Northern bidders were left with a choice of fitting square pegs in to round holes or acquiring a small fleet of new EMUs.

 

[js1000]

Certainly a 30 year old train should be available for less than a brand new one. But if that older stock isn't compliant or scores far fewer points in the bidding process no one will lease it whatever the price.

The TOCs don't care what gets scrapped, but we should - if we move from replacing trains every 40 years to every 20 or less costs will inevitably rise, and that will ultimately fall on passengers and taxpayers. The cost of building a train isn't likely to fall to account for a shorter expected life either. Clearly passengers want modern trains, hence the DfT encouraging more to be built, and the rail industry has been left behind by technology, lacking features now common in cars and even buses. But it would require a radical departure from the level of funding the railways have lived on in the past, and with passenger numbers falling affordability will be a growing problem.

Sorry but that's just nonsense when you examine the balance sheets.

Angel Trains, Eversholt and Porterbrook make fantastic money from what they do and they know it. Porterbrook, despite have only 60 or so employees, made £500 million in revenue with a £100 million profit. 20% profit margin for doing absolutely nothing! Whereas TOCs scrap along on a 2-4% profit margin.

You could get a monkey to run the ROSCOs and you would still be laughing to the bank as they have done for the past 25 years since privatisation. I don't think they could have imagined in their wildest dreams when the railways were privatisation that passenger growth and demand for train carriages would be so strong. If more of the public actually knew about the ROSCOs more (most just think the government or TOCs own the trains) then there would be outrage. If any industry can absorb increased competition and reduced profit margins it's the ROSCOs.

Why do you think the DfT and other new leasing companies like MacQuarie/Lloyds and QW Rail are keen to get in the on the act? DfT want to cut out the third man (ROSCO) and create more vertical integration. New leasing companies would be happy to take a 10% profit margin instead of the 20% most ROSCO make. They've had a good 25 years but the days of ROSCOs making overly handsome profits is long overdue.

The ROSCOs make a handsome enough profit margin to absorb any writedowns of rolling stock so stop worrying about them.

 

[tbtc]

Just because there's been a shift in the way things happen which had resulted in more newer trains at the moment it doesn't mean that it would result in increased costs.

Take for instance the quoted 30% reduction in maintenance costs on the Desiro Cities over the original Desiro fleet. This was achieved by looking at how maintenance was done and looking at ways of designing out wasteful practices.

By doing so the total cost of the original fleet may actually be more that the new fleet, even if the lease costs are lower for the older fleet. If this is the case then the amount of savings could be enough to justify switching when there's still up to 10 years of lease left.

Add in extra costs for things like wi-fi, updated passenger information, internal refits, small increase in fleet size, etc. and you could tip the maths to the point where a new fleet is better value, even when the old fleet may only be 20-25 years old.

I think this is the best post on the thread.

We are approaching a watershed that brings a lot of opportunities and problems - the 1 January 2020 deadline for accessible stock means that we either spend millions to upgrade existing stock or order new trains.

Other than the danger of slam-doored trains, this was never a network-wide problem before - you could (hypothetically) keep running fifty year old trains without problem.

We also had the issue that a 1990s passenger wouldn't expect much more than a 1950s passenger. Modern passengers expect air conditioning/ plugs/ wifi etc (on top of requirements like accessible toilets etc).

With some trains, it's not worth trying to bring them up to modern standards - bye bye Pacers!

With some trains, they were built to modern enough standards, so there's very little (or even no) cost to upgrading.

Somewhere between these extremes are thousands of carriages that could be upgraded but at some financial cost and at some time cost (i.e. the units being off-fleet for months whilst they are modified).

As the TOCs have shown that the upgrades are too expensive and too time-consuming (Rents 321s, proposed 769s), I can't blame TOCs/ government for ordering more new trains to ensure a future-proofed fleet.

Once we are past 1 January 2020, I expect that the obsession with new trains will calm down and we'll stop ordering so many (which is why I'm surprised at the rush to build new factories at Goole, Newport etc, given the long term prognosis).

tl;dr version - "if Porterbrook had shown that they could convert a sow's ear (319) into a modern silk purse (769) then they'd have a healthy future - instead they are stuck with the an outdated fleet that can't easily be cascaded elsewhere - e.g. the long/fat 323s)"

 

[Bletchleyite]

323s are quite wide for a 23m vehicle, but I thought as far as 23m EMUs go they could go near enough anywhere, the tapered-in ends dealing with the overthrow issue?

 

[43096]

The problem with 769s is that they appear at present not yet to exist.

I must have imagined the two out the back of Brush that I saw earlier, then....

 

[43096]

Angel Trains, Eversholt and Porterbrook make fantastic money from what they do and they know it. Porterbrook, despite have only 60 or so employees, made £500 million in revenue with a £100 million profit. 20% profit margin for doing absolutely nothing! Whereas TOCs scrap along on barely make 2-4% profit margin.

Being a TOC is a mugs game: high risk, bad PR, low margins. And that’s if you get it right. I really do not get why you’d do it.

 

[hwl]

Eversholt should be the ones most miffed given they had a real workable plan to upgrade the 321s and the huge number they'll have off-lease. While Porterbrook also ended up with a large number of 319s off-lease, they knew that was coming for a long time and shot themselves in the foot with the speculative 387 order, as well as blocking Northern bidders from securing 323s long term and only offering 319s which aren't suitable for all North West routes. Northern bidders were left with a choice of fitting square pegs in to round holes or acquiring a small fleet of new EMUs.

The 387 order wasn't that speculative, they realised 110mph would be required on the GWML.
It was only speculative publicly...

 

[Dave1987]

I think this is the best post on the thread.

We are approaching a watershed that brings a lot of opportunities and problems - the 1 January 2020 deadline for accessible stock means that we either spend millions to upgrade existing stock or order new trains.

Other than the danger of slam-doored trains, this was never a network-wide problem before - you could (hypothetically) keep running fifty year old trains without problem.

We also had the issue that a 1990s passenger wouldn't expect much more than a 1950s passenger. Modern passengers expect air conditioning/ plugs/ wifi etc (on top of requirements like accessible toilets etc).

With some trains, it's not worth trying to bring them up to modern standards - bye bye Pacers!

With some trains, they were built to modern enough standards, so there's very little (or even no) cost to upgrading.

Somewhere between these extremes are thousands of carriages that could be upgraded but at some financial cost and at some time cost (i.e. the units being off-fleet for months whilst they are modified).

As the TOCs have shown that the upgrades are too expensive and too time-consuming (Rents 321s, proposed 769s), I can't blame TOCs/ government for ordering more new trains to ensure a future-proofed fleet.

Once we are past 1 January 2020, I expect that the obsession with new trains will calm down and we'll stop ordering so many (which is why I'm surprised at the rush to build new factories at Goole, Newport etc, given the long term prognosis).

tl;dr version - "if Porterbrook had shown that they could convert a sow's ear (319) into a modern silk purse (769) then they'd have a healthy future - instead they are stuck with the an outdated fleet that can't easily be cascaded elsewhere - e.g. the long/fat 323s)"

I choose to take the opinions of industry experts. Just like your beloved bi-modes are proving to have fundamental flaws that will be exposed for years to come the new train bonanza stands to keep going for years to come. The DFT have stigmatised refurbished trains as “cast offs” so only new trains are accepted as when one bidder is proposing shiny new trains with all the positive PR that brings and another is proposing refurbished “cast offs”, wonder which bid is going to win? There are going to be some relatively ‘young’ fleets on their way to the cutters torch in the coming years which is just balmy and totally unsustainable. Many job losses on their way as well.

 

[Dave1987]

I would agree that you have used values picked from thin air as they are widely wide of the mark.

TPE have a maintenance agreement costing £40 million for 5 years for 25 trains with 5 coaches. This works out at £64,000 per year per coach.

https://www.alstom.com/press-releas...ntract-for-25-new-transpennine-express-trains

Based on the general rule that a EMU lease is £100,000 and a DMU is £110,000 per coach.

If we were to assume that those are our starting costs a 1/3 saving on £64,000 would be a saving of about £20,000 (although chances are that saving has already been made, but we'll use the above figure as otherwise the saving would be bigger).

Given maintenance is likely to cost more the older the units are the savings are likely to be bigger the older the units are.

If you have £20,000 a year in maintenance savings then you can have higher lease costs.

If you assume that you want a zero cost increase then you can scrap a train after:
- 34 years rather than 40 years
- 20 years rather than 24 years

That means of you assume that you wanted to lease a train to a TOC for 30 years and it was scrapped after 20 years. Although there would be a cost increase to the TOC wouldn't be 50% as 4 of those 10 years would be able to be covered by the maintenance cost savings. Putting the extra cost at about 20-25%.

However at about mid life trains go through a major maintenance overhaul as well as a refurbish, both of which will cost money, which will reduce the extra costs further if they are not needed.

Add in the fact that passengers are happier with new trains and the ability to increase capacity which are likely to increase income.

Overall the premium for having new trains probably isn't that great and in most cases probably only up to 15%. However given that train costs are only about 1/3 of TOC costs that's up to 5% of their costs. Which is still higher than the increase in the amount that ticket prices would have to rise to cover the extra costs.

Seems many industry commentators disagree with you. If the average life of trains is going to be reduced to 15-20 years leasing companies will need to increase the costs of leasing those trains to compensate for the shorter amount of time they will be a revenue making asset. Bad precedents are being set with this new train bonanza.

 

[a_c_skinner]

IF the trains going for scrap only have scrap value why cannot they be leased very cheaply so we can have more services and more practically longer trains?

 

[Domh245]

IF the trains going for scrap only have scrap value why cannot they be leased very cheaply so we can have more services and more practically longer trains?

Presumably a mix of a) the way in which franchises are awarded favouring new trains over refurbished old ones (unless the rates are incredibly cheap or the refurbishment is more of a rebuild) and b) there not being the capacity to run these extra services/longer trains. You may not have noticed that all of the modern off lease stock are EMUs, which (generally speaking) don't talk to each other, and tend to be run at the maximum lengths already when needed.

 

[a_c_skinner]

You may not have noticed

I had. Mind you easy to slot in a big battery and a Diesel engine.

 

[Rail Blues]

would have made absolute sense for WMT to acquire all the 20m Desiros going spare (classes 350 and 360) and run the south WCML and all associated services as a 5, 8, 10 and 12-car Desiro shop. But can you blame them for not doing so if the price was too high and the owners of the 350/2s called the TOC's bluff, who then promptly ordered new instead?

Can't blame them at all, the Rosco need to reduce the cost of leasing these units to a level that the market will bear. It is funny how these titans of capitalism were happy to take in the excess profits during the good times are now reduced to special pleading when the market doesn't work precisely in their favour any more.