The privatisation of the UK rail industry set in motion a series of adjustments that affected almost every facet of the industry, and it is was within this changing market that Angel Trains, one of three original rolling stock companies (ROSCOs) was created in 1994. Originally owned by Japanese investment bank Nomura, Angel Trains was bought by The Royal Bank of Scotland in 1997. It remained a subsidiary of the bank until 2008 when it was acquired by a consortium of infrastructure and pension investors.Specialist market
Whilst the market is no longer exclusively home to the three original ROSCOs, Angel Trains still holds the largest market share at around 36 per cent, leasing to 20 of the 21 UK train operators. Clearly the rationale behind the creation of the ROSCOs remains relevant to today’s operations, as chief operating officer Kevin Tribley elaborates: “Franchises were initially designed to be between five and seven years in length, whilst trains generally have a life of 30+ years and therefore there is a mismatch in the horizons of franchise bidders and the investment required in rolling stock.
“Equally TOCs were established to operate a passenger service, but they are not capital investment businesses, whereas the buying and owning of trains is very capital intensive and as such requires a different business model. Therefore the ROSCOs’, and specifically Angel Trains’, purpose is to bridge the world of finance and rail operations. We access third-party finance, which enables us to invest in rolling stock and then lease those trains to TOCs, on the assumption that we will have a long, steady and stable cash flow that enables us to pay off these debt facilities and the returns expected by our shareholders.”
These shareholders are one of the defining characteristics of Angel Trains’ make-up,
because unlike private equity companies looking to make a quick return, pension and investment funds are looking for this long-term horizon in their investments.The fleet
Over the years Angel Trains has invested over £3.2 billion into new rolling stock and refurbishments, and currently operates a portfolio of over 4400 rail vehicles. This includes a number of flagship fleets such as the Pendolino trains operating on the West Coast Mainline, and large Desiro fleet, which is spread across South West Trains, London Midland and East Anglia. “About 39 per cent of our vehicles are electric multiple units (EMUs), 27 per cent are diesel multiple units (DMUs), 27 per cent are high-speed trains, and the rest are locomotives as we are the largest locomotive lessor in the UK. Of that configuration it is fair to say that nearly half of our trains operate on commuter services, in or around London or the northern conurbations, around a quarter are intercity, and the remainder are regional trains and freight locomotives,” elaborates Kevin.
He continues: “We have vehicles in all parts of the asset cycle from having recently been announced as preferred bidder in procuring new rolling stock for London Midland, to accepting 106 additional Pendolino vehicles for strengthening and lengthening services on the West Coast Mainline. As such we have a whole raft of very modern and new trains, some mid-life stock, and equally stock that we are looking to undertake further work on to ensure that there is an opportunity for their continued service until the end of the decade, and in a number of cases, beyond.”
Bringing in new thinking
As a ROSCO, Angel Trains sees itself in the role of asset manager undertaking a whole host of activities to continue to support the assetthroughout its entire life – be that through new technology or the obsolescence of a certain component. The company has a hand in all areas from project management at manufacture to ensure the train is in accordance with specification, initial service support and even maintenance services depending upon the nature of the lease.
Taking the ‘green’ agenda as an example, Kevin outlines just some of the initiatives Angel Trains is introducing: “From large flagship refurbishments during the life of a train, to more day-to-day stuff, we are very conscious of how we can improve the efficiency of the trains in relation to the environment. Recently we re-engined the high-speed trains with new MTU engines that are significantly more fuel efficient, as well as trialling the use of fuel additives in the portfolio to reduce fuel consumption. We’re also working on standardising the types of wheel sets that are available in the UK and therefore helping to improve reclamation, and reduce the scrap of wheel sets and axles, alongside things like regenerative braking and efficient lighting.”Recognising value
Certainly the model of rolling stock procurement by TOCs in co-operations with ROSCOs such as Angel Trains has been hugely successful since privatisation. Despite the tighter financial market, in 2010 alone the business refinanced £2.4 billion of its debt facilities and is now well placed to continue to support future investment in UK rail. Yet, with the Government currently reviewing its franchising policy, and the recent recommendations of the McNulty report, there is a degree of uncertainty about how the market will operate going forwards. “We are waiting to see the terms of the structure that the Department for Transport (DfT) provides to the industry as to whether it is appropriate to procure new trains in that environment, or whether there will be a greater emphasis on continuing to use existing trains in a more efficient manner, and investing in these to ensure a comfortable and safe environment,” explains Kevin.
“There was an initial period at privatisation where there was a requirement to significantly improve the quality and age of rolling stock in the UK, and Angel Trains was successful in winning a fair share of this work. In more recent times, the focus has moved to getting costs down, and something that was clear from the McNulty review is how does the industry reduce its costs to make it a more sustainable model going forwards. However, passenger demand is on the up and we are now carrying more travellers then any other times since the 1920s, therefore demand for rolling stock will increase but in a time when money constraint may be tight. As such, we recognise that we have to offer value for money in our services,” he adds.
Despite these constraints, Angel Trains has a clear business plan for the future, which at its simplest consists of re-leasing its portfolio. Ninety-four per cent of its assets are up for release in the next five years, which not only represents a massive opportunity, but also a significant risk for the business, in realising the value within these vehicles. Yet, with such a deep understanding of the market, Angel Trains will continue to offer value for money for all stakeholders.
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