GNER eases ahead of rail rival on points

The fight for the lucrative licence to run express trains on the east coast main line from London to Edinburgh was meant to be a David and Goliath battle – with the giant winning in the first round.

Alas for Sea Containers and its subsidiary Great North Eastern Railways (GNER), which currently holds the franchise, there are two Goliaths in the ring. Virgin Trains, which runs the west coast main line to Glasgow, spoiled everything by bidding for the east coast link with proposals that refused to be dismissed lightly. Sea Containers had called for an early end to the franchise – it was not due for renewal until 2003 – so that they could secure a fresh mandate for 20 years and buy lots of spanking new trains.

As the estimable Roger Ford of the magazine Modern Railways said, lack of new rolling stock has been the main weakness of a train company which in every other regard has "done nothing wrong". In most industries that phrase would be regarded as a grave insult. In Britain's beleaguered rail system it is something of a recommendation.

After a prolonged and sometimes farcical process, the Strategic Rail Authority has assessed both bids for the London–Edinburgh route and made its recommendation to the Government. The report from the authority is sitting on the desk of the new Secretary of State for Transport, Stephen Byers, who is due to publish it any day. The smart money is on GNER to win on points after an unseemly 15-round slugging match.

The incumbent has won more friends than enemies since it was awarded the franchise in 1995. And it has suffered more than most over the last two years – generally considered to be the industry's worst period since the Second World War.

While the company was not involved in the 1999 Paddington disaster in which 31 people were killed, the deep concerns over safety it provoked were felt over the network.

Last year however it was a GNER service that was derailed at Hatfield, killing four people and prompting the most comprehensive, expensive and disruptive engineering programme ever on the network. The phenomenon of "gauge corner cracking" caused the derailment and Railtrack inspected all high-speed routes to discover the extent of the problem. It imposed hundreds of speed restrictions that rendered timetables redundant and passengers speechless. GNER's services, along with the other high-speed operators were hit hard by delays and cancellations which meant revenue plummeted by around 40 per cent for the two months following the disaster. To make matters worse, GNER was insured for "lost business" by the collapsed company Independent Insurance. While it is hoping to get the bulk of an estimated £65m from Railtrack – which has admitted a considerable degree of culpability – GNER will also have to join a queue of creditors pursuing the insurers' provisional liquidators, PricewaterhouseCoopers.

At a time when the east coast main line was struggling to recover, there came the bizarre disaster at Great Heck in north Yorkshire, caused by a deadly series of coincidences, in which 10 people lost their lives. A car pulling a trailer left the M62 motorway, careered down an embankment and came to rest on the main line. A GNER express hit the vehicle and then partly derailed before smashing into an oncoming freight train. Christopher Garnett, chief executive of GNER, was close to tears when he visited the site wondering what the company and its passengers had done to deserve such a freak accident which the Health and Safety Executive's rail inspectors found was completely beyond the rail industry's control.

GNER is still attempting to recover from its winter of discontent. Passengers numbers are around 10 per cent below pre-Hatfield levels, but management hopes they will be back to "normal" by the disaster's anniversary 17 October. It remains to be seen when – or whether – the train operator, will resume the growth trajectory it enjoyed before Hatfield. Whereas most of the commuters in the south-east of England are virtually forced to catch a train on a daily basis, travel on GNER is largely optional. Both leisure and business travellers can make the journey between London and Edinburgh by air, car or coach. It seems that some passengers may have been permanently disenchanted with GNER services.

Despite the travails of last winter however its corporate reputation for "not doing anything wrong" has remained largely intact. Service to customers is generally considered high, although observers say the London-to-Edinbugh link was well-run under British Rail. First-class travel on GNER trains is thought to have improved substantially since then. Enhancements in "second-class" compartments have been less marked and GNER has carried on the work initiated by the state-run Inter-City operation. Last winter apart, services have been reasonably reliable by UK standards.

The performance of its rival for the east coast main line has been less than impressive. British Rail landed Virgin with rolling stock and infrastructure more in keeping with the National Railway Museum in York than a modern transport system. Under its redoubtable chief executive Chris Green, the company is beginning to turn it round, although the Virgin brand name has been tarnished by incessant failures of both locomotives and infrastructure. Its bid early last year for GNER's east coast licence was too ingenious for the Strategic Rail Authority (SRA) to ignore. Clearly the SRA decision means life or death for GNER – it has no other interests. While the submission from the Sea Containers offshoot was workmanlike, the centre-piece of Virgin's imaginative proposal was the construction of a high-speed link between Peterborough and York.

Sir Alastair Morton called for fresh proposals in which suggestions for a new dedicated route were submitted separately. Amid allegations that it might be infringing intellectual property rights, the SRA announced its own study into a high-speed line.

Later last year the authority asked both bidders for proposals for Special Purpose Vehicles (SPVs) aimed at upgrading the infrastructure which had originally been the responsibility of the beleaguered Railtrack. The SPVs are meant to be one-off consortia to finance work on the modernisation of the track.

All this, in the words of Winston Churchill, amounted to activity rather than action. It led some railwaymen to observe that the Strategic Rail Authority was neither "strategic" nor "authoritative".

Eventually Sir Alastair apparently over-ruled his own advisers and opted for GNER and passed his views to ministers. Industry sources say the Treasury objected because the Virgin bid appeared to be better value for money. Rather than humiliate Sir Alastair, the Government batted it back to the authority for further consideration. In a manner more suited to the early rounds of Wimbledon, Sir Alastair has subsequently batted it back to minsters.

Whichever company is chosen, the whole issue could end up in court. Both Virgin and GNER could demand a judicial review of the decision-making process which left passengers, bidders and ministers in a state of some confusion.