Lessors seeking to reduce deal terms from 15 to 5 years.
Further uncertainty in the UK rail market exists as the future of a number of major projects remains clouded, including the Intercity Express Programme (IEP), which was to replace the current fleet of Intercity 125s and 225s, as well as Crossrail and Thameslink – all of which potentially mean big business for lessors operating in the UK.
And rumours have been circulating recently that the IEP is effectively “dead in the water”, while Thameslink and Crossrail could see fleet sizes cut by 50% or more.
“I don’t know if anybody other than politicians thinks these projects are going to happen [in their current form],” a source said.
“Roscos were recently asked what it would cost to ‘life-extend’ the existing high-speed train fleet to 2025, at which point it would be at least 50 years old.”
The possible sale of HSBC Rail (see Leasing Life, February 2010) could also mean shifts in the arena if its new owners decide to rein in or, indeed, try to increase its market share – although HSBC Rail itself has continued to refuse to comment, either on the sale itself or on the market in general.
Another source added that he believed the previous government had been “sitting back” over the last year to 18 months, saying financing volumes had been “nowhere near” the levels seen a decade ago and more.
What is more, the source said, passenger levels have not risen at the rate expected, meaning potentially there is neither the scope nor the funding to build new trains.
“There is a question over whether the government should go ahead with the procurement of more rolling stock – that is being reviewed,” the source said.
He added that it has been “extremely difficult” for lessors to get hold of capital, meaning companies – reportedly including roscos – are focusing more on “life-extension” of current stock than on seeking new deals.
The Department of Transport (DfT) categorically denied any significant curtailment of either Crossrail or Thameslink in terms of carriage numbers but admitted it was awaiting a report from Sir Andrew Foster on “the value for money of the [IEP] and the credibility and the value for money of any alternatives which meet the programme’s objectives”.
It also denied the IEP has been put on hold indefinitely, as some sources suggested.
Nevertheless, it has been reported that European lessors are not even registering interest in projects like the IEP and Crossrail as stock has not yet been built and it is not clear when, or if, it will be.
Their reticence is apparently partly because of restricted access to capital, and partly because funders are seeking to reduce typical deal terms from between 7 and 15 years, to between 2 and 5 years – a period which may not even cover the time it will take to order and build new stock.
One source at a German transport lessor said: “Banks are having trouble refinancing cheaply for longer terms.
“If it’s a very large project, costing €500m or €1bn, it could take three, four or five years [to build the trains] – that is very unattractive for the funder.”
The fact therefore seems to be that funders – in the UK and on the continent – are not willing to look that far ahead as long as the barrier of restricted capital access remains in place.
The purchase of new rolling stock was to fall under the government’s High Level Output Specification programme (HLOS), which the DfT announced was on hold as of 24 May. An “urgent reappraisal” of the programme was ordered on 3 June.
A spokesman for the department said: “We will rigorously re-assess the business case for each HLOS procurement in the light of the changed circumstances, reviewing all the options to ensure that we deliver value for money for taxpayers’ money.”
The spokesman neither confirmed nor denied that the government’s focus would be on “life extending” existing stock up to 2025.