Stagecoach chief Brian Souter yesterday launched a furious attack on the integrity of "chaotic" Department for Transport (DfT) officials over a series of disputes worth about £200m, but said the Perth-based company remained committed to the railway industry.
Souter said he expects a W-shaped recession with another downturn in the coming months and is determined to force the government to pay a subsidy his company believes it will be due on its key London commuter line.
He said: "We are starting to wonder if there are competency and integrity issues with the government at the moment. It is very chaotic.
"I think there is something dysfunctional. They are either dysfunctional or deceitful.
"If that was a private company in a relationship with us, we would sue them."
The disputes centre on its South Western Trains (SWT) service into London Waterloo and focus on five issues: l Whether SWT is due govern- ment support to compensate from falling growth from April 2010 or February 2011. This could be worth £70m to £100m to Stagecoach.
l How much compensation the company is due for DfT failures over the installation of a smartcard ticketing system. This could total £40m to £80m.
l A dispute over compensation for changes in the way fare increases are imposed. Stagecoach said it could be due "tens of millions".
l A disagreement over whether car parking revenue counts toward total franchise revenues.
l A dispute over whether Stagecoach is owed money for its participation in an exercise on the future development of the railway.
The disputes are of such importance to the Perth-based company because Souter is convinced the UK is heading for another downturn, putting particular pressure on SWT, which relies on London commuter business.
"I do not believe we are looking at a U-curve," Souter said. "We are looking at a W-curve. My personal view is that we will see (the economy) probably trailing off a bit more then coming back again."
Stagecoach acknowledges that its railway business is heading for a loss in the financial year ending 2010.
However, Souter says the revenue support from early 2010 "is the difference between South West Trains making a profit and a loss" in the following financial year.
Neither side disputes that, if there continues to be pressure on revenues, Stagecoach will be entitled to enter support from early 2011.
South West Trains is due to pay a premium of £42m for the current financial year.
Souter's anger is not only at the fact the disputes have arisen but the DfT's handling of them. He is particularly furious that the government has sought to resolve the disagreement over revenue support by seeking to have it heard in the High Court rather than by arbitration. The High Court will rule on whether to hear the case in September.
Souter notes the DfT has taken a variety of different approaches on other disputes with Stagecoach. He said: "As a listed company, it is not that we are not confident of our position. We are strongly confident we will end up with a very large cheque being returned, but how long will it take? Uncertainty is something investors do not like."
He added: "We do not want to be in a litigious relationship. Is this the way they want to run the railways? Are they going to run it through lawyers and courts?"
The DfT did not respond to a request for comment.
Souter maintained that Stagecoach would retain its railway business whatever the outcome of the disputes: "We will be in the railway business for the long term. We will tough this through. We believe when we get out of recession we can return to very high growth."
The company denied comments from some brokers that it could be forced into refinancing if it loses the key cases.
Stagecoach has already cut £50m from its annual running costs in the past months and yesterday vowed to do more, infuriating some staff.
The National Union of Rail, Maritime and Transport Workers (RMT) said there should be a moratorium on dividend payments across the transport sector while thousands of workers face the threat of redundancy.
Shares in Stagecoach actually soared 10p yesterday to close at 127.75p after it beat analyst expectations with a 12.6% rise in pre-tax profits to £196.4m in the year to April 30 and upped its dividend from 5.4p to 6p per share.
Notably, it saw an 11.7% rise in revenue from its UK bus operations after a 3.2% increase in like-for-like passenger journeys.
Even under-pressure UK Rail, which includes the East Midlands franchise, saw like-for-like revenue up 6.2% to £689.5m, but operating profit down 5.8%, due in part to passengers buying cheaper fares.
Stagecoach's revenue from its 49% share of Virgin Rail was down 18.2% after a series of problems on the West Coast Main Line. However, compensation from Net- work Rail meant operating profit was up 1.9% to £42.7m.
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