British Intercity trains: an original financial acquisition

By Frédéric de Kemmeter – Railway signalling and freelance copywriter – Suscribe my blog
27/02/2022 –
(Version en français)
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Little known in Europe, Azuma trains are a popular feature of the British railway landscape. Short presentation

The Azuma trainsets are Class 800 dual-mode multiple unit trains built by Hitachi for the Great Western Railway (GWR) and the London North Eastern Railway (LNER, East Coast line). This type of train uses conventional electric catenary traction, but also has diesel generators to allow the trains to run on non-electrified track. Based on the A-train design, these trainsets were built by Hitachi between 2014 and 2018.

It is not widely known outside UK, but the purchase of these trains is an initiative of the Department for Transport, not the private franchise operators.

The Intercity Express Programme (IEP) was both the biggest privately financed rolling stock deal in history, anywhere in the world, and one of the largest, most ambitious and complex PPP project. It was originally launched in June 2005 as a response to the growing cost and risk of maintaining an ageing InterCity 125 (IC125) train fleet, principally on the East Coast and Great Western Main Lines.

The aims of IEP were ambitious: to develop a new generation of trains offering increased capacity, environmental advantages, greater reliability and flexibility. The programme was designed to deliver better value for money on a whole-life, whole systems basis.

In consultation with rail industry stakeholders, four options were appraised in response to these criteria.

  • The first was doing nothing – which was rejected as untenable ;
  • The second was life-extending existing IC125s – which was judged to entail significant technical risk and unlikely to be cost effective, especially to take IC125s beyond the 2020 deadline for compliance with accessibility legislation ;
  • The third was procurement of a new Intercity Express train ;
  • The fourth was piecemeal procurement of ‘off the shelf’ trains as the need arose.

The appraisal concluded that a new train would meet the DfT’s strategic objectives and deliver best value-for-money (VfM). Procurement began in November 2007, and in early 2009 Agility Trains (comprising Hitachi Rail Europe and John Laing Investments), was selected as preferred bidder. During the procurement process, IEP has undergone a series of specification changes in response to a changing set of external and internal circumstances.

A special financial operation
To make a policy of procuring trains centrally and leaving details to the industry were new in the UK. There is no precedent for PPPs in rail in the UK. IEP innovated on almost every key issue in creating a novel contractual structure to accommodate this first-time use of a PPP structure for the procurement of rolling stock – the deal has to remain bankable whilst at the same time balancing the interests of DfT, Agility and its sponsors, Hitachi and funders, and fitting within the existing rail industry framework of provision.

The train availability based structure was genuinely novel in the railway market. It is the first time a « no train no pay » structure has been used and will drive exceptional performance. As these are moving assets providing a key public service, DfT required considerable flexibility in respect of the deployment of the trains. This ranges from amendments to the passenger timetable at one end of the spectrum, to redeployment of trains to different routes and use of new depots at the other.

This is a major challenge within the constraints of a project finance deal. As such there were detailed negotiations to ensure that the interests of all were adequately and innovatively protected in respect of any such variations.

The final decision on the award of contract, and its value and composition, originally expected by early 2009, was delayed by several years: a delay to 2010 was caused by the preparation of plans to electrify part of the rail network, which would affect the final order. Finally, the decision was taken in March 2011 to proceed with the procurement and to electrify the Great Western Main Line. A programme that today, in 2022, is still not complete. As is now well known, the project ran seriously late and over budget.

Given the size of the overall program, the transaction has been split into two:

  • an initial funding for the Great Western Mainline (GWML) fleet, which has now reached financial close;
  • a second financing for the East Coast Mainline (ECML) fleet for which a commercial close has been achieved, and for which financial close is targeted for 2014.

A £4.5 billion order for 596 carriages for use on the East Coast and Great Western main lines was announced in July 2012. Financial close on the first phase, for trains to run on the Great Western routes, was reached at the same time, with closure on the second phase predicted for 2013.

A £1.2bn option for a further 30 nine-car electric trains to replace the Intercity 225 on the East Coast Main Line was taken up on 18 July 2013.

The trains were assembled at the Hitachi Newton Aycliffe facility, alongside the related Class 801 from bodyshells shipped from the Kasado plant in Japan; no body construction takes place in the UK. As well as resembling the Class 801, the units are also very similar to the Class 802 units, which have uprated diesel engines and larger fuel tanks.

new maintenance depots were constructed at Doncaster Carr depot, Filton Triangle (Stoke Gifford), Maliphant Sidings (Swansea), and at the former Eurostar North Pole depot.

A total of 80 train sets were constructed, with 36 five-car and 21 nine-car units intended for operation with Great Western Railway (GWR), plus 10 five-car and 13 nine-car with London North Eastern Railway (LNER)

IET 800319 heads away from Castle Cary working an Exeter St Davids – London Paddington service (photo Savage Kieran via wikipedia)

27/02/2022 – By Frédéric de Kemmeter – Railway signalling and freelance copywriter
Suscribe my blog

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