Why is it absurd? We’d never have had the number of new trains that have been built over the last 25 years if it wasn’t for leasing. The train companies have 7-15 year length contracts; they would find it difficult to fund a 35-year life asset and the government wouldn’t have wanted the additional borrowing on its books.
I’ll also point out that since Britain started leasing its trains, it has also become commonplace in continental Europe, including many of the nationalised operators.
Yep. And in the airline industry it's the norm - why? Because it's the option that best reduces financial overheads, reduces risk to operators, and provides flexibility to operators.
It's hard to see how the economics of trying to finance assets with 35-40 years asset life over contracts less than half its length would work - the manufacturer will want to be piad in full for the trains built, the operator is unlikely to want to pay in full for them, whilst they're only going to use them for less that half the asset life, with no guarantee they can sell them on. Options include:
. The operator has to raise capital to buy trains, paying banks to lend them the money (more revenue to bankers), and probably affecting their credit rating (reulting in more cost) - and as GBR will be fully owned by HMG, such loans will be included in national debt (something governments of all stripes and hues try to minimise);
. The operator hires their trains from a leasing co, and the leasing co pays the manufacturer, and takes the risk of not being able to lease trains for whole of expected asset life, and this is reflected in leasing charges;
. The operator decides its too expensive / too difficult to procure new trains and decides to refurbish / life extend what's currently operating.
In my book, the least unattractive of these is for operators to lease their trains.