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Abellio awarded East Midlands rail franchise

Abellio will take over the East Midlands route. Photo: PA Images

Dutch rail operator Abellio has been awarded the East Midlands Railway franchise, while UK firm Stagecoach was disqualified from the competition because of a row over pensions.

Passengers will benefit from new trains with more peak-time seats, reduced journey times and more than £17 million of station improvements, the Department for Transport (DfT) said.

Abellio will take over the East Midlands route - which runs from London St Pancras International to Northamptonshire, the East Midlands, Lincolnshire, Staffordshire and South Yorkshire - on August 18 and will run trains until August 2027.

Stagecoach, which currently operates East Midlands Trains, said it was informed by the DfT that it has been banned from three franchise competitions - East Midlands, South Eastern and West Coast Partnership - for submitting non-compliant bids "principally in respect of pensions risk".

Bidders for the franchises were asked to bear the full long-term funding risk on relevant sections of the Railways Pension Scheme, Stagecoach said.

It added that the Pensions Regulator is seeking additional funding because of "serious doubts" over the Government's ongoing support for the industry-wide scheme.

Stagecoach chief executive Martin Griffiths said: "We are extremely concerned at both the DfT's decision and its timing. The Department has had full knowledge of these bids for a lengthy period and we are seeking an urgent meeting to discuss our significant concerns.

"The Pensions Regulator has indicated that an additional £5 billion to £6 billion would be needed to plug the gap in train company pensions."

The rail industry proposed solution would have delivered an additional £500 million to £600 million into the scheme.

This, Mr Griffiths said, would have provided "better stability and security for members" and better value for taxpayers.

"We are shocked that the Government has rejected this for a higher-risk approach. We would urge that a full independent value-for-money review is undertaken into this issue without delay."

Stagecoach shares were down nearly 2% in morning trade at 130.9p.

A DfT spokesman said: "Stagecoach is an experienced bidder and fully aware of the rules of franchise competitions.

"It is regrettable that they submitted non-compliant bids for all current competitions which breached established rules and, in doing so, they are responsible for their own disqualification.

"Stagecoach chose to propose significant changes to the commercial terms for the East Midlands, West Coast Partnership and South Eastern contracts, leading to bids which proposed a significantly different deal to the ones on offer."

"We have total confidence in our process. We have awarded the East Midlands franchise to Abellio after they presented a strong, compliant bid.

"Stagecoach have played an important role in our railways and we hope they will continue to do so post the conclusions of the Rail Review. However, it is entirely for Stagecoach and their bidding partners to explain why they decided to repeatedly ignore established rules by rejecting the commercial terms on offer."

In relation to the South Eastern franchise competition, Transport Secretary Chris Grayling announced that his department is negotiating with current operator Govia to extend its deal to November 10, with the option of a further extension to April 2020.

The West Coast Partnership franchise is due to be awarded in June.

The winning bidder will be responsible for services on both the West Coast Main Line from March 2020, and designing and running the initial HS2 high-speed services from 2026.

Virgin Trains - a joint venture between Virgin Group (51%) and Stagecoach (49%) - has operated services on the West Coast route since 1997.

The pensions row means a joint bid for the West Coast Partnership by Stagecoach, Virgin and SNCF has been disqualified.

A Virgin Trains spokesman said: "We're very disappointed by the DfT's unexpected decision. We've led the industry for more than 20 years with our ground-breaking innovations, such as automatic delay repay, and award-winning customer service.

"We're studying the DfT's decision carefully to understand why they've taken this action and would like to reassure all our customers that they can still book and travel as normal."