Deutsche Bahn Sets Sights on East Coast Rail Service

CASH-RICH Deutsche Bahn is expected to make a bid for the East Coast rail service that links Scotland with Newcastle, York and London when the franchise becomes available in the next year or so, pitting the German state-owned transport group against other potential bidders such as Stagecoach and FirstGroup.

The East Coast rail service was nationalised in 2009 after the Government refused to bail out the struggling rail operator National Express.

The troubled bus and rail firm was forced to abandon the franchise after it failed to renegotiate its £1.4 billion contract with the Government.

DB, which bought Arriva, the Sunderland-based bus and rail company, in a £1.5bn deal, is believed to have a £2bn cash pile for acquisitions in the UK and elsewhere in Europe. It makes so much money that it recently paid its owner the German Government a dividend of 500 million (£437m).

The company posted a profit of 1.06 bn (£926m) in 2010. Dividend payments are expected to continue, rising to 525m (£459m) from 2012 to 2014, and then to 700m (£612m) in 2015.

DB plans for expansion come as the EU is drafting new rules for the community s rail transport system. The EU s legislative package is intended to guarantee fair competition, strengthen regulation and bolster investment in Europe s railways.

DB already has a substantial presence in Britain. It bought the English, Welsh and Scottish Railway, a major freight operator, in 2007 and renamed it DB Schenker Rail (UK). DB Schenker took over the EWS service in Scotland and has a substantial business north of the Border, where it carries coal and intermodal containers, among other goods.

DB already runs Chiltern Railways and the Royal Train in Britain.

Arriva said recently that the combined business would be interested in competing for five British train franchises in the next 18 months, putting it up against the big Scottish transport groups, Stagecoach and FirstGroup, which operates the ScotRail franchise that is up for tender in 2014.

DB and Arriva are looking at buying rail routes across the Channel. Cash-strapped local authorities in Europe are selling off transport services in a process that is expected to lead to the full privatisation of the market by 2018.

Deutsche Bahn has made no secret that it wants to be a key player in the pan-European transport industry.

We intend to be the drivers and not the driven, said the German goliath s chief executive Rudiger Grube after concluding the deal for Arriva.

Arriva provides transport services including buses, trains, commuter coaches and water buses, and operates in 11 European countries: the Czech Republic, Denmark, Hungary, Italy, the Netherlands, Poland, Portugal, Slovakia, Spain, Sweden and the UK. It operates bus services linking Paisley and other communities in Renfrewshire with Glasgow.

City analysts say the fragmented nature of bus and rail contracts throughout Europe means that many acquisitions would initially be small bolt-on deals, but they predicted there would later be a wave of consolidation as companies seek economies of scale.

Arriva merged with DB after takeover talks with SNCF, the state-owned French railway collapsed.

SNCF wants to become a key player in the UK but has not yet made any big deals. Its privately owned French rivals, Veolia and Transdev, have a solid foothold in the British rail and bus market with a sizable presence in northern England and elsewhere.

Copyright 2008 LexisNexis, a division of Reed Elsevier Inc. All rights reserved.
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