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Leasing companies gain foothold in Europe

01 Jun 2002

INTRO: One undoubted success stemming from Britain's turbulent rail privatisation programme was the creation of a trio of Rolling Stock Companies. As all three expand into Europe, Roger Ford analyses their progress

COMPETITION was a key driver in the privatisation of British Rail. In the case of the passenger railway, this meant that train operators were largely awarded short franchises which were expected to be re-tendered after seven years.

Given the lengthy gestation period and long life of traction and rolling stock, franchisees could not be expected to own and renew their trains. But transfer of ownership to the private sector and renewal of assets were basic tenets of privatisation. The answer to this conundrum was to set up Rolling Stock Companies, known as ROSCOs.

British Rail's passenger fleet was divided between three ROSCOs, and leasing contracts were established with the Train Operating Companies. Leases running to 2003-04 provided an assured income stream which gave the ROSCOs value against which bids could be invited.

All three ROSCOs were sold in 1996. After the original buyers had sold on, taking a substantial profit, the market stabilised under the ownership of major financial organisations. The companies and their parents are Angel Trains (Royal Bank of Scotland), HSBC Rail UK (HSBC) and Porterbrook Leasing (Abbey National).

All three have made substantial investment in new trains for the UK market. Recent examples are Angel's £1bn train service provision deal with South West Trains for 785 Siemens Desiro UK EMUs (p299), Porterbrook's financing of 700 Bombardier Electrostar cars for South Central and HSBC's entry into the high speed market with 127 Bombardier DEMU vehicles for Midland Main Line worth £111m.

These major orders are all linked to franchise renewals, but future demand in the UK traction and rolling stock market is uncertain. This is not a new phenomenon, and once the ownership of the ROSCOs had passed to international finance organisations, transferring Britain's unique experience of creating and funding a rolling stock leasing market to the rest of Europe was a logical step.

Angel has been the most active ROSCO in the domestic market. In addition to the Desiro deal, Angel is funding Virgin's Pendolino fleet and jointly financing the same company's Voyager trains with Halifax. To date the company has invested £2·5bn in new trains and claims a 60% share of the UK market.

This aggressive approach is reflected in the range of deals already concluded in Europe, through Angel Trains International and its subsidiary Locomotion Capital.

Toes in the water

Established in September 2000, Angel Trains International has invested €150m in trains and locomotives. The first international deal was concluded in March 2001 and covered a five-year operating lease with Danish State Railways for three Siemens Desiro VT642 DMUs worth €6·7m. These Class MQ units entered service between Ødense and Svendborg on Funen shortly after the contract was signed.

This deal was followed in June 2001 by six further VT642s, this time for Connex Regiobahn on a six-year lease. They will be operated by NordWestBahn in Niedersachsen. While the VT642 is a standard product, the Connex vehicles have some equipment specified by the operator such as on-board information and ticket machines. According to Hans Leister, Managing Director of Connex Regiobahn, availability of rolling stock had previously been the biggest obstacle to greater competition on the German network.

Angel sees these DMUs as the nucleus of a fleet of regional trainsets which it hopes to lease into central Europe on the back of the growing devolution of local train services to regional government and local operators. Buying modular off-the-shelf vehicles, which can be fitted out to a final specification when the end-user is identified, means that a fast response if possible. This was demonstrated in Britain, where the Desiro deals with SWT and Great Eastern were preceded by a speculative order for 25 four-car EMUs which allowed Siemens to develop the design of a unit meeting UK standards.

Speculative orders clearly depend on a ROSCO's ability to read the market, but where risk is taken it can pay off. In the case of the SWT fleet, I was able to drive the first production Desiro UK on Siemens' Wegberg-Wildenrath test track a year to the day after the contract was signed (p299).

Another example of rapid response was Angel's most recent deal with DSB, adding a further 12 two-car MQ sets. The €37m deal was announced in December 2001 for delivery from May this year.

Porterbrook entered the European passenger market in April 2001 with a deal to supply 42 double-deck vehicles to DSB on a four-year operating lease. Worth €55m, the fleet of 33 intermediate coaches and nine driving vehicles is being built by Bombardier Transportation's G