FirstGroup reaches deal on termination fee for the TransPennine Express company

FirstGroup plc today revealed it has reached an agreement with the Department for Transport on the termination fee payable for the TransPennine Express train operating company.

A library image of a FirstGroup train, operating on the west coast

In a statement, FirstGroup said: "As previously indicated, a condition of the Emergency Recovery Measures Agreements (‘ERMA’) put in place by the DfT to provide continuity for rail passengers and the industry during the coronavirus pandemic was that train operators and the DfT would work to agree whether any payment is required to terminate the pre-existing franchise agreements, and if so how much, based on a pre-coronavirus trajectory financial model.

"The DfT and FirstGroup have now agreed the financial impact of the termination for TPE which requires a further FirstGroup contribution of c.£6m, over and above the £42.5m already paid into the operating company.

Sign up to our Business newsletter

Sign up to our Business newsletter

"The DfT has extended the TPE ERMA term until 19 September 2021, following their conclusion that no event of default would have taken place had the pandemic not occurred, although DfT and the group are working collaboratively with a view to entering into a National Rail Contract in advance of that date."

The statement added: "As at 31 March 2020, £80m remained of the group’s contingent capital exposure to the TPE contract that had been provided for in the accounts as an impairment of Right of Use Assets under IFRS 16. Following today’s agreement, this impairment provision will be released and will be credited to the income statement as an adjusting item in the Group’s accounts for the year to 31 March 2021."

The TPE agreement is the final termination agreement for the group’s train operating companies and follows the agreements reached for a FirstGroup contribution on South Western Railway of £33.2m and of nil on the West Coast Partnership, the statement added.

The statement said: "Following this agreement, the group is working towards agreeing directly awarded National Rail Contracts for each of the West Coast Partnership, TPE and SWR with the DfT. These will come into effect by the end of their respective ERMAs, when the pre-existing franchise agreements will terminate. This settlement reduces the overall financial risk within the First Rail portfolio."

Commenting on the announcement, chief executive Matthew Gregory said: “We welcome this agreement with the DfT, and are continuing to discuss a long-term National Rail Contract for TPE which will focus on passengers and operational performance, with a more appropriate balance of risk and reward.

"We are working closely with the Government and our other partners to ensure that TPE continues to provide the safe and vital services that are essential to communities across the North of England and Scotland.”

A Department for Transport spokesperson said :“We are pleased to note that TransPennine Express have accepted their Termination Sum.

“Both parties are now working towards signing a National Rail Contract which would bring us one step closer moving towards a new, simpler and more effective model that puts passengers back in control.”