Revealed: FirstGroup's secret £50m bailout from taxpayer

Figures from FirstGroup today revealed profits from its rail operations plunged more than 20% last year.

But they would have been far worse were it not for a handout from the Department for Transport because recession-hit passenger revenue numbers are not coming in on budget.

The news indicates the extent of the crisis on the railways.

Stagecoach's South West Trains is in dispute with the department in a bid to claw back money while National Express is expected by many in the industry to have to hand the keys back to its King's Cross-based East Coast Main Line business.

At issue is the falling profitability of the rail companies serving London.

Job losses in the capital have put the brakes on expected commuter passenger growth and the economic crisis has also seen passengers who used to travel first class trading down to standard.

In addition leisure travellers have wised up to the rip-off fares on the railways and are now more likely to pre-book cheaper advance tickets rather than pay full whack "walk-on" fares on the day.

Sir Moir Lockhead, the FirstGroup chief executive who has been the victim of abuse from passengers who christened the Paddington services Worst Late Western, said today: "What we have is a very resilient business with very good protection."

What Lockhead means is that under the terms of its contract to run First Great Western, if passenger revenues begin to fall below the targets it said it would hit in its franchise agreement, then the department will use taxpayer money to make up the shortfall.

In the case of First Great Western, if that shortfall is worse than 94% of target then the department for Transport and the taxpayer pick up 80% of the cost.

Lockhead admitted in FirstGroup's financial year to the end of March that handout was worth £50 million to First Great Western, a franchise which was planned to be so profitable that from this year it is supposed to be making so-called premium payments back to the Treasury. The emergency handout arrangement for First Great Western continues this year.

It also begins to kick in for the first time at the group's other commuter franchise First Capital Connect running on the north-south Thameslink railway.

FirstGroup's rail businesses today reported profits for the year down from £120 million to £94 million with profit margins down by nearly a third to 4.4%.

The handouts have not stopped plans for FirstGroup to cut about 1000 staff on the railways.

FirstGroup's group profits, including its London bus and United States operations, grew by 30% to £200 million. Its dividend is up 10% to 18.75p.

...and there's trouble down the line for others

There is barely a London train company without its problems.

King's Cross: Profits are being wiped out on the East Coast Main Line, once reckoned to be Britain's most lucrative railway. Passenger revenue growth has slumped from 11% a year ago to just 0.3%.

National Express and its chief executive Richard Bowker, who used to run the Government's former rail franchise quango signed up to a contract in which it was expected to pay the Treasury £1 billion in excess profits over the next five years. But the contract does have a "revenue support" safety net for the Government to pick up the bill if income falls. Bowker is now widely expected to hand the keys back unless he can negotiate a new deal.

Liverpool St: Passenger revenue growth at National Express East Anglia has fallen to just 3.8%. Though the East Anglian train franchise is supposed to pay the Treasury £500 million in excess profits over the next five years it is already getting revenue support from the Government and a £180 million taxpayer handout to put on more peak commuter trains.

Fenchurch St: Passenger numbers are still growing at 4.6% a year on the National Express-run c2c line despite the jobs carnage in the City.

Cannon St/Charing Cross: Passenger growth has slowed to around zero on Southeastern, operated by Go-Ahead. Its passengers have borne the brunt of some of the largest year-on-year rises in commuter fares, raised to subsidise the new high-speed trains that will from later this year take east Kent commuters to St Pancras.

Victoria: Passenger numbers have dived on Southern Railways line, run by Go-Ahead, and passenger revenues are down about 10% on the Gatwick Express. Heavily subsidised Southern is to be relicensed from September.

Waterloo: Stagecoach has warned that South West Trains will slump to a "significant operating loss" unless the Government agrees to start bailing it out. It is supposed to be paying excess profits to the Treasury of £460 million in the four years from 2010. SWT also argues the millions it makes from station car parks should be not counted as railway revenue.

Euston: Virgin Rail's decade-long disaster on the West Coast Main Line continues. Disruption has restricted passenger growth to just 0.5% on the Virgin-Stagecoach joint venture which, at £1.2 billion over the next five years of handouts, is the most heavily subsidised train company on the network.

St Pancras International: Passenger numbers have collapsed 11% on the chronically loss-making Eurostar service.