ROSCO's - Why have them?

[heart-of-wessex]

I'm sure this has cropped up in all conversations, and indeed it did with my mate when I said the 442's are going off lease soon, and he said 'So why to companies lease stock, I don't get it? Do they all lease?'

Apart from the GWR bits and bobs, I couldn't really think of anyone, and actually, I couldn't answer it as I can't really think why either. I'm sure there must be some reason, just from my view, surely leasing cost's a lot more than just buying the train outright? Is this something that just happens here I wonder or do even DB/NS/BNSF do the same in their own countries?

I saw a poster about this sort of thing in the service station loo's once, not scrictly train related no, but was advertising that you could lease van's long term on no contract, apply your own livery so to speak but you got maintenance and bills covered. Is this sort of the same for ROSCO's? Will they cover certain costs that makes leasing more attractive?

 

[Domh245]

They will cover the upfront costs of buying new trains (the most expensive bit), and according to documents like this: http://www.porterbrook.co.uk/downloads/brochures/319 Brochure.pdf

They also cover all of the heavy maintenance.

 

[RepTCTC]

There's a disconnect between the life of stock and the life of TOC franchises.

Stock needs to hang about in service for a pretty long time (hopefully, someone will add some numbers to that) in order to stand a chance of recouping the initial investment, whereas TOC franchises can be over and done in comparatively short periods of time. Consequently, ROSCOs are able to pony up for new stock on the basis that they'll always be able to lease them to whatever TOC happens to want them, and TOCs are able to get their mitts on stock without having the make investment decisions where the break even point would be beyond the end date of their franchise.

Furthermore, TOC franchises (and the infrastructure on which they run) are subject to an awful lot of political interference, so even taking a view along the lines of "if we buy a load of new trains then performance levels will be so much better that we're bound to keep the franchise" would be extremely brave to say the least.

 

[LNW-GW Joint]

They are basically banks who finance the purchase of new trains, with long term technical support thrown in.
Many deals include all maintenance, so you rent working trains and let the leasing company worry about reliability.
It takes much of the risk out of acquiring rolling stock, and means you avoid raising the capital.
It's much like renting a house instead of buying it, or a PFI deal for a new hospital instead of funding it directly.
Much of the world's airline fleets are leased, and so are things like ships and containers.
It works best when there is a real market for used trains/planes/ships etc as the economy and individual operator demand goes up/down.
The problem with rolling stock in the UK is that it is not really a free market, with its gauge restrictions, stock tailored to particular routes and DfT interference.

 

[richieb1971]

Sounds like they exist because the system has no better solution to the problem. Not sure if this is a good thing or a bad thing.

What are the ROSCO's called? I've heard people talk of them but never heard of what they are called.

 

[LNW-GW Joint]

Sounds like they exist because the system has no better solution to the problem. Not sure if this is a good thing or a bad thing.
What are the ROSCO's called? I've heard people talk of them but never heard of what they are called.

The original 3 were Angel Trains, Eversholt Leasing and Porterbrook Leasing.
The names came from the BR office their HQ was at when they were set up.
These 3 still exist, but have been through several owners including main-stream banks (eg RBS, Santander, HSBC).
They are mostly owned now by offshore finance companies and pension funds.
More recently, special companies have been set up to fund/manage particular fleets - notably Agility Trains which will own the IEP fleet (a consortium of Hitachi, Barclays and others).
So "ROSCO" now means more than the initial big three.

 

[WatcherZero]

There are 3 main ones who each own around a third of mainline rolling stock in the country, their names are Angel Trains, Eversholt Rail Group and Porterbrook. There are a couple of minor ones who own usually a single fleet, Macquarie European Rail and QW Rail Leasing. It could be argued Hitachi will essentially become a fourth major ROSCO though subsidiary Agility Trains, in its case it manufactured them too.

They exist because trains cost a lot of money upfront whereas the money they generate through revenue which recoups the cost comes in slowly over decades, so you need to borrow to finance their purchase similar to having a mortgage on a house (very few people could afford to buy a house outright when they are young). Generally a train will last 30-40 years and its initial purchase price will be recouped after around 15 years (with extra costs for major refurbishments and upgrades) whereas most franchises only tend to be around 7 years or less.

 

[SF-02]

Its along the same misguided lines as PFI. Instead of the state borrowing to buy outright and pay back at very low interest rates (eg 1%), banks fund ROSCOs and charge them higher interest (eg 5%). This costs much more long term as with higher interest which is compounded over decades. And who pays that ultimately? Passengers and taxpayers. Banks do well out of it.

 

[najaB]

Its along the same misguided lines as PFI.

It's only misguided if you believe that the State should fully own the railway. If you believe that the railway is better run by private industry then leasing makes sense, and is common in other industries. Using airlines as a comparison, most of them lease their aircraft and engines as they are *very*expensive assets with long payback times. Most airlines don't have billions of Euros/Dollars in the bank to sink into such large capital purchases.

These days many if them don't even lease the engines, they rent the use of the engines with power-by-the-hour contracts which means they only pay for the time the engines are turning.

The result is that airlines are able to spend more on their soft product and keep prices down too. I'm sure the railway industry is similar in that regard.

 

[WatcherZero]

Also while Government borrowing rates are at a historic low that hasn't always been the case with most of the time since privatisation banks able to produce funding at a lower rate than public borrowing (touching 15% in the late 80's its generally been in the 5-8% range until 2008, its currently not 1% but 2.5% for 30 year and 1.8% for 10 year) and without the impact on public borrowing figures which then feeds back into government interest rates. The banks/pension funds love ROSCO's despite the downside of a very low rate of return (generally around 3%) because it is an ultrasafe investment with which they can use on the balance sheet to offset riskier borrowing or investments with much higher risk/return such as futures and commodities trading.

If the Government knows it can use private borrowing rates around 3% guaranteed versus the risk that its own borrowing rate will probably rise back to the 5-8% norms over the lifetime of the stock you would be stupid to take it.

 

[Yew]

To shovel taxpayers money into the pockets lf large corporations and conservative party donors?

 

[Bevan Price]

It is a racket to make money for financial organisation, a consequence of John Major's decision to fragment the passenger network rather than keep it as a single unified system (public or private)

It allows ROSCOs to mess about with stock allocations to suit their own financial policies rather than meet the needs of passengers (e.g. the plan to move 323s from Northern to London Midland without caring about the effects on Northern passenger services.)

 

[Clip]

To shovel taxpayers money into the pockets lf large corporations and conservative party donors?

So there were none who shovel money into any other political parties pockets then?

what happened in 13 years of labour rule who kept the status quo? are you saying they didn't get a penny to keep the status quo even after it was claimed in opposition they would renationalise the railways?(in as much words yes but you get the picture you pedants(I'm looking at you darlo )

I find your statement hard to believe and possibly biased just so you can have a rant.

 

[AlexNL]

Is this something that just happens here I wonder or do even DB/NS/BNSF do the same in their own countries?

Nederlandse Spoorwegen has their own lease company, NS Financial Services which is based in Ireland for tax reasons. The majority of the NS rolling stock is owned by NSFSC. New rolling stock, however, will no longer be procured by NSFSC as the "Ireland route" was seen as inappropriate by the new Minster of Finance (the legal owner of NV Nederlandse Spoorwegen). The new Sprinter and Intercity rolling stock will be procured by the "NS Lease B.V." ROSCO based in Utrecht.

In the past, when private operators took over some of the routes that were operated by NS, they have rented rolling stock from NSFSC until new rolling stock (mostly from Stadler) became available.