Train Leasing Profits Treble, £400,000,000 dividends

[DJP78]

Profits of UK’s private train-leasing firms treble in a year

More than £400m paid in dividends in 2022-23 while rest of railway faced cuts and salary freezes

www.theguardian.com

£400 million paid in dividends by rolling stock lease companies, whilst rail workers wage demands ignored

Net profits up from 14.3% to 41.6%

Chief execs on £1m salaries

 

[yorksrob]

£409m to shareholders, yet the country can't afford enough to have decent length trains on trans-pennine, Northern etc.

This is exactly why the country is in the mess its in.

 

[LNW-GW Joint]

Note Roger Ford's comment that when the DfT took on procurement for the IEP project, cutting out the Roscos, they did a worse deal.
Leasing is also likely to include maintenance of new trains by the manufacturer, so it's not just a financial operation.
There are several new leasing companies apart from the original ex-BR three (eg Rock Rail), and they are global businesses, not just UK.

 

[uww11x]

£409m to shareholders, yet the country can't afford enough to have decent length trains on trans-pennine, Northern etc.

This is exactly why the country is in the mess its in.

Not the ROSCO's fault TPE couldn't be bothered running their stock with extra capacity to be fair.

 

[Iskra]

I’m glad this is finally making waves in the media, the existence of the parasitic ROSCO’s often over-charging for cheaply inherited assets is one of the great scandals of privatisation. We could all quite easily do without the ROSCO’s. They do seem to be declining somewhat though, so perhaps this money can be better utilised in the future.

 

[yorksrob]

Not the ROSCO's fault TPE couldn't be bothered running their stock with extra capacity to be fair.

Between the Government, the ROSCO's and the TOC's, they all seem to manage to make an expensive system that doesn't work for the passenger.

 

[JonathanH]

We could all quite easily do without the ROSCO’s.

Is that actually true? Ultimately, they are finance companies and rolling stock needs finance because it is an expensive commodity. The same applies to companies who supply us with mortgages to buy houses. It is somewhat simplistic to say that we could do without them.

 

[Iskra]

Is that actually true? Ultimately, they are finance companies and rolling stock needs finance because it is an expensive commodity. The same applies to companies who supply us with mortgages to buy houses. It is somewhat simplistic to say that we could do without them.

Is there a reason why the Government couldn't directly buy the stock and lease it themselves to TOC's, using any profits to invest in the railway?

 

[TUC]

Profits of UK’s private train-leasing firms treble in a year

More than £400m paid in dividends in 2022-23 while rest of railway faced cuts and salary freezes

www.theguardian.com

£400 million paid in dividends by rolling stock lease companies, whilst rail workers wage demands ignored

Net profits up from 14.3% to 41.6%

Chief execs on £1m salaries

Capital and revenue costs are separate issues. Besides which, even if they weren't, one could make just as good an argument for using the surplus to cut fares rather than increase wages. The latter would create more income in the long term to support the former.

£409m to shareholders, yet the country can't afford enough to have decent length trains on trans-pennine, Northern etc.

This is exactly why the country is in the mess its in.

How is it the ROSCOs fault if the DfT and TOCs are so bad at business and contracting that the ROSCOs run rungs around them? The answer is for DfT and TOC procurement staff to be better at their jobs

 

[Tetchytyke]

Is there a reason why the Government couldn't directly buy the stock and lease it themselves to TOC's, using any profits to invest in the railway?

The government don’t want to have the capital expenditure show up on the books, basically. It’s the same daft logic that led to PFI, with similar results.

I’m mostly intrigued by the massive jump in profits. A lease should surely just be x carriages for price y, therefore I’m confused as to how profits can jump quite as dramatically as they have. For lease-and-maintain contracts I can see how the margin improves if DfT decided to park the trains in a siding, as with the TPE Mark 5s, but otherwise I must admit I’m confused at such a dramatic change.

The only reason I can think is that the ROSCOs haven’t been buying any new trains since Covid, so they’re now into the “coining it in” section of the contracts relating to the immediate pre-Covid fleet replacement.

Note Roger Ford's comment that when the DfT took on procurement for the IEP project, cutting out the Roscos, they did a worse deal.

That’s not quite the gotcha that Roger Ford thinks it is when we see the profit margins that have been negotiated between DfT and the ROSCOs.

I’ll let others decide how much of this is incompetence and how much is back-scratching…

 

[Clarence Yard]

Is there a reason why the Government couldn't directly buy the stock and lease it themselves to TOC's, using any profits to invest in the railway?

That’s an expensive set of assets to be on the Governments books and you have to take on the maintenance cost liability as well.

Pretty pointless leasing it to the TOCs either because, thanks to TOC costs being paid for by the DfT, there is no DfT profit to be had.

When you have no alternative stock to play in negotiation, a ROSCO can’t be beaten down on price but the ROSCO charging methodology is transparent so you know in general terms what you are going to have to pay.

Without knowing what bits of the ROSCOs are profitable this year and for why, it isn’t clear why they have made a different sum to last year but as their activities involve non UK DfT rail businesses, it is hard to generalise.

 

[The exile]

Capital and revenue costs are completely separate issues. Besides which, even if they weren't, one could make just as good an argument for using the surplus to cut fares rather than increase wages. The latter would create more income in the long term to support the former.

Only where the capacity exists to cope with the increased passenger numbers. In lots of places that’s already a big IF.

A bit like with the rainfall statistics under discussion elsewhere - it’s the long term profit trends that are really significant.

 

[Iskra]

The government don’t want to have the capital expenditure show up on the books, basically. It’s the same daft logic that led to PFI, with similar results.

I’m mostly intrigued by the massive jump in profits. A lease should surely just be x carriages for price y, therefore I’m confused as to how profits can jump quite as dramatically as they have. For lease-and-maintain contracts I can see how the margin improves if DfT decided to park the trains in a siding, as with the TPE Mark 5s, but otherwise I must admit I’m confused at such a dramatic change.

The only reason I can think is that the ROSCOs haven’t been buying any new trains since Covid, so they’re now into the “coining it in” section of the contracts relating to the immediate pre-Covid fleet replacement.


That’s not quite the gotcha that Roger Ford thinks it is when we see the profit margins that have been negotiated between DfT and the ROSCOs.

I’ll let others decide how much of this is incompetence and how much is back-scratching…

There are still more efficient mechanisms they could use to obscure this, if they really wanted.

Is there an argument to say the ROSCO's abuse the market?

That’s an expensive set of assets to be on the Governments books and you have to take on the maintenance cost liability as well.

Pretty pointless leasing it to the TOCs either because, thanks to TOC costs being paid for by the DfT, there is no DfT profit to be had.

When you have no alternative stock to play in negotiation, a ROSCO can’t be beaten down on price but the ROSCO charging methodology is transparent so you know in general terms what you are going to have to pay.

Without knowing what bits of the ROSCOs are profitable this year and for why, it isn’t clear why they have made a different sum to last year but as their activities involve non UK DfT rail businesses, it is hard to generalise.

Appreciated, and while there is some risk, a nice profit is being made. Why would anyone have an issue with assets that make a substantial profit?

 

[TUC]

Is there a reason why the Government couldn't directly buy the stock and lease it themselves to TOC's, using any profits to invest in the railway?

Because so much of TOCs' income comes from government subsidies. Therefore, all you would be creating is another money-go-round.

 

[Tetchytyke]

Because so much of TOCs' income comes from government subsidies. Therefore, all you would be creating is another money-go-round.

But that’s what we have now, except the money drops out at the end into the laps of the ROSCOs.

I still think it mad that we’re leasing trains at a pretty penny from ROSCOs that were bought and paid for by the taxpayer under British Rail, but there we are.

 

[Iskra]

Because so much of TOCs' income comes from government subsidies. Therefore, all you would be creating is another money-go-round.

I don't see how that's an objection if it's a profitable venture, where the profits are kept and invested in the network rather than siphoned off to private individuals.

 

[43066]

Besides which, even if they weren't, one could make just as good an argument for using the surplus to cut fares rather than increase wages. The latter would create more income in the long term to support the former.

That’s demonstrably nonsense, when the railway is close to maximum capacity, and demand for rail travel is price inelastic. Raising fares increases revenue, as has been shown year after year. Settling the wage disputes would also save the industry money, but the government is preventing that for ideological reasons, at the taxpayers’ expense.

How is it the ROSCOEs fault if the DfT and TOCs are so bad at business and contracting that the ROSCOEs run rungs around them? The answer is for DfT and TOC staff to be better at their jobs

So you’re happy for ROSCOs to cream off hundreds of millions from the taxpayer, while the DfT runs the railway into the ground because “it’s too expensive”. Laughable.

 

[hwl]

Is that actually true? Ultimately, they are finance companies and rolling stock needs finance because it is an expensive commodity. The same applies to companies who supply us with mortgages to buy houses. It is somewhat simplistic to say that we could do without them.

Exactly they are only making just over 4% profit which is small compared to other sectors.

 

[sor]

Is that actually true? Ultimately, they are finance companies and rolling stock needs finance because it is an expensive commodity. The same applies to companies who supply us with mortgages to buy houses. It is somewhat simplistic to say that we could do without them.

The state has more efficient ways of financing the things it needs. It is somewhat simplistic to say that they are comparable to a residential mortgage

Like with most of the other 80/90s financial and political "innovations" - the state managed to do it perfectly well before, but apparently we can never return to that. Private firms must *always* be involved for ideological reasons and *always* get a cut, no matter how low the risk is to them and what it costs us (like most of the PFI deals)

 

[hwl]

Is there a reason why the Government couldn't directly buy the stock and lease it themselves to TOC's, using any profits to invest in the railway?

As DfT point out in the article Governments and Treasury would always spend the money elsewhere (School and hospital etc) so the rails would have less good stock..

 

[43066]

Exactly they are only making just over 4% profit which is small compared to other sectors.

The net profit is quite a lot higher than 4%, as noted in the article and the OP.

 

[hwl]

The government don’t want to have the capital expenditure show up on the books, basically. It’s the same daft logic that led to PFI, with similar results.

I’m mostly intrigued by the massive jump in profits. A lease should surely just be x carriages for price y, therefore I’m confused as to how profits can jump quite as dramatically as they have. For lease-and-maintain contracts I can see how the margin improves if DfT decided to park the trains in a siding, as with the TPE Mark 5s, but otherwise I must admit I’m confused at such a dramatic change.

The only reason I can think is that the ROSCOs haven’t been buying any new trains since Covid, so they’re now into the “coining it in” section of the contracts relating to the immediate pre-Covid fleet replacement.


That’s not quite the gotcha that Roger Ford thinks it is when we see the profit margins that have been negotiated between DfT and the ROSCOs.

I’ll let others decide how much of this is incompetence and how much is back-scratching…

First time paying out dividends since the beginning of Covid so this is several years being paid out.

 

[Iskra]

As DfT point out in the article Governments and Treasury would always spend the money elsewhere (School and hospital etc) so the rails would have less good stock..

That's not a given; the Pacer's were disposed off a little too early in my opinion leaving TOC's short of suitable stock, all because of negative media attention and them becoming a political football. Clearly, there are some agreed standards of acceptability when it comes to rolling stock.

And let's also not forget, we actually have an overall surplus of rolling stock as there's plenty of lengthy, modern trains in storage. But, are generally short of the rolling stock we actually need deploying on the railway. Who is responsible for that wasted money?

 

[yorksrob]

Exactly they are only making just over 4% profit which is small compared to other sectors.

It's not really about other sectors though. It's more about whether its an efficient way to run a public service which requires taxpayer funding.

 

[TUC]

That’s demonstrably nonsense, when the railway is close to maximum capacity, and demand for rail travel is price inelastic. Raising fares increases revenue, as has been shown year after year. Settling

If demand is price inelastic, why are there so many Advance fares? The lower fares are there to attract customers who otherwise may use other ways getting where they are going

I notice you are London-based. London is the least representative part of the UK and should never be used as a guide as to what is best for the country as a whole. For many of the rest of us, using rail is just one option. For example, where I live around 20 miles from Leeds, it's a toss-up whether it is cheaper to catch a train or to drive and then park. Certainly the latter wins in terms of convenience.

 

[43066]

It's not really about other sectors though. It's more about whether its an efficient way to run a public service which requires taxpayer funding.

The ROSCOs also aren’t making 4% profits! That sort of figure is usually what TOCs have made historically, and isn’t grossly excessive. The ROSCOs have generally made higher profits than this, and face essentially no commercial risk.

As noted in the article it’s ridiculous that the DfT has made no attempt to negotiate changes to the leasing arrangements during Covid, while also imposing cuts on the industry that have knackered reliability (and no doubt stunted revenue recovery) for the last couple of years.

If demand is price inelastic, why are there so many Advance fares? The lower fares are there to attract customers who otherwise may use other ways getting where they are going

Because they fill up trains at less popular times, (notice how they’re disappearing from a lot of the intercity operators). Overall fare rises increase revenue, why do you think the DfT puts fares up each year?

I notice you are London-based. As with so many public policy issues, London is the least representative part of the UK. For many of the rest of us, using rail is just one option. For example, where I live around 20 miles from Leeds, it's a toss-up whether it is cheaper to catch a train or to drive and then park. Certainly the latter wins in terms of convenience.

And since the majority of UK train journeys involve London and the south east, it’s highly relevant when discussing railway policy. Good luck driving into central London and parking for a day and it being cheaper or more convenient than taking the train.

 

[LNW-GW Joint]

Is there an argument to say the ROSCO's abuse the market?

There was a long-running and testy argument between the DfT and the CMA (Competition and Markets Authority) about the ex-BR rolling stock market.
DfT accused the Roscos of profiteering, but the CMA said it was the DfT's fault for fixing the market (reviewing all TOC procurement and directing what to buy).
Things are slightly more fluid since then (2010-ish), with more Roscos and a lighter hand from the DfT (except for IEP, Thameslink and now HS2).
Off-lease stock is a sign of the market working, with the Rosco losing revenue if it can't lease the stock.
So the idle fleets of class 379 and soon 350/2 and other cascaded EMUs means the Roscos have to work harder for their money.
Also the remaining ex-BR fleets will be razor blades in the next decade so the historic issues will disappear.

On ownership, the government doesn't own commercial ships, buses or aircraft, so why should it own trains?
Leasing is common throughout the transport industry where the operator has better uses for the capital, or can't raise it.
There is even more "scoreboard pressure" on the Treasury at the level of government debt.
Labour won't have a magic money tree any more than the Tories.

 

[sor]

On ownership, the government doesn't own commercial ships, buses or aircraft, so why should it own trains?
Leasing is common throughout the transport industry where the operator has better uses for the capital, or can't raise it.

I would certainly hope it owns the heavily customised government and military vehicles!

A key difference between trains and road vehicles is that the latter is generally a commodity item. Lease firms can buy masses of Ford Transits or Audi A4s knowing that someone will want them and will take them as they are. They aren't restricted to certain areas of the country due to differences in road construction. They can then be sold when they're a few years old. There is less customisation than there used to be (eg BT vans used to be a distinctive shade of grey that made any ex-company vehicles obvious - now it's white). None of that applies to a train of course.

 

[DJP78]

I think it’s pertinent to ask the question as to whether it is in the interests of the railway to watch £400m in dividends depart the railway into the hands of shareholders?

That money is a combination of tax payer subsidy and passenger revenue, generating eye-watering 41% profit margins for the ROSCO’s.

Whilst I appreciate it is a complex situation to simply bring back in-house rolling stock overnight, due to the prohibitive expense, nor do I think the status quo is working.

The railway seems a victim of short-termism, like many other sectors. Perhaps a longer term 20 year strategy is needed where a gov model of ownership would lead to considerably more cost effective rolling stock procurement. Revenue (profit) could then be reinvested in obtaining new trains that could be drip fed into the network, supporting UK jobs by providing continuity of orders for the manufacturers.

Direct ownership, maintenance included, is reportedly x2-x3 times less expensive than leasing.

At the very least, the DFT failing to challenge ROSCO’s represents an abrogation of their duties, leading to passengers paying ever higher fares.

On ownership, the government doesn't own commercial ships, buses or aircraft, so why should it own trains?

There’s a material difference between aviation / commercial shipping; private ventures and buses / trains; public transport which should be run for the benefit of society to support the country and facilitate GDP

Labour won't have a magic money tree any more than the Tories.

Irrefutable. IF Labour win next GE, they’ll have one hand tied behind their back owing to state of public finances

 

[JamesT]

The government don’t want to have the capital expenditure show up on the books, basically. It’s the same daft logic that led to PFI, with similar results.

I’m mostly intrigued by the massive jump in profits. A lease should surely just be x carriages for price y, therefore I’m confused as to how profits can jump quite as dramatically as they have. For lease-and-maintain contracts I can see how the margin improves if DfT decided to park the trains in a siding, as with the TPE Mark 5s, but otherwise I must admit I’m confused at such a dramatic change.

The only reason I can think is that the ROSCOs haven’t been buying any new trains since Covid, so they’re now into the “coining it in” section of the contracts relating to the immediate pre-Covid fleet replacement.

I'm wondering if there's some index-linking in the leasing arrangements. The article mentions rolling stock costs rising by 30% over the last 5 years, but 22% of that would simply be standing still against CPI.

I would certainly hope it owns the heavily customised government and military vehicles!

A key difference between trains and road vehicles is that the latter is generally a commodity item. Lease firms can buy masses of Ford Transits or Audi A4s knowing that someone will want them and will take them as they are. They aren't restricted to certain areas of the country due to differences in road construction. They can then be sold when they're a few years old. There is less customisation than there used to be (eg BT vans used to be a distinctive shade of grey that made any ex-company vehicles obvious - now it's white). None of that applies to a train of course.

Have you heard of AirTanker? The RAF lease Airbus A330 MRTT for air to air refuelling and transport. The leasing company do hire the planes out to airlines when they're not used by the military.