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Train leasing – exporting a good idea
Timothy Jackson
Warsaw, 31 March 2004
Train leasing – exporting a good idea -2-31 March 2004
Executive Summary
• What is innovative about train leasing ?o Not just innovative financing….o Not just maximising commercial opportunities….o Not just management of financial or operational risk
But a combination of all of these
• Where did this potent cocktail originate ?o Radical privatisation of British Rail……o Experience, liquidity and innovation of City of London….o Analogy with the aviation sector
“engineers of added value”
• Train leasing can add value in a surprisingly wide variety of applications
Train leasing – exporting a good idea -3-31 March 2004
The British experience – the facts
BR Business Unit Privatised Entity Means of disposal Timing of Disposal Current Position
Heavy Maintenance depots
Trade sales June 95 Mainly owned by key manufacturers
Telecommunications British Rail Telecom Trade sales December 95
Passenger rolling stock fleets
3 x Roscos New companies created January 96 Now all owned by major banks
Freight operations 3 x trainload freight companies ( EWS)
Trade sale February 96 Consolidated into one company
Engineering companies
TesCos Trade sales + buy-outs March-April 96
Infrastructure Railtrack Public flotation May 96 Failure Network Rail
BR Infrastructure Services
13 x companies Trade sales February – July 96
Passenger operations 25 x TOCs Franchised Dec 95 – March 97 Regional consolidation
The train operating lessors were the only new entities created in this process and represent an innovation and a success story
Train leasing – exporting a good idea -4-31 March 2004
The British experience – the lessons learned
- Fragmentation
- Contractual complexity
- Privatisation of infrastructure
+ Massive and accelerated investment in rolling stock
+ Efficient use of capital, disconnected from fleet size, franchise length or operator credit
+ Preservation of scale economies and technical know-how to manage train fleets
+ Balance between public service obligation and transfer of risk to private sector
We don’t provide finance, we invest in trains
Train leasing – exporting a good idea -5-31 March 2004
The British experience – why were the train leasing companies created ?
• Pressing need to raise capital out of sale of existing train fleet and to avoid the budget burden of investment in new rolling stock
A cash drain becomes a cash source
• Separate train ownership from train operations, to encourage and facilitate entryof new players onto the track
Disaggregation of railway into core skills
• Allow shorter-term operational decisions in an industry used to planning with notoriously long-term capital assets
Mismatch train life and concession/operation term
• Preservation of economies of scale for efficient procurement, maintenance and funding of rolling stock
Whole life investment optimisation, with private sector skills added
• Preservation of critical safety and engineering skills and responsibility Rolling stock engineering allied to financial engineering
Train leasing – exporting a good idea -6-31 March 2004
Angel Trains – rapid transformation
1993 Railways Act launches rail privatisation in United Kingdom
1994 Angel Trains established inside the former British Rail
1995 Transferred from BR to the Department of Transport
1997 100% taken over by The Royal Bank of Scotland Group plc
1998 UK’s largest ever order of freight rolling stock:280 locomotives from GM-EMD for English Welsh & Scottish Railways
1999 UK’s largest ever order of passenger rolling stock: 53 high-speed tilting trains from Alstom / Fiat Ferroviaria for Virgin Rail Group
2000 Incorporation of Angel Trains International in London and Angel Trains Cargo in Antwerp
2001 Offices opened in Madrid and Stockholm
2002 Offices opened in Cologne and Rome
Train leasing – exporting a good idea -7-31 March 2004
Angel Trains – current situation• 100% subsidiary of The Royal Bank of Scotland Group
• Europe’s largest train leasing company
• Total investments exceed € 4 billion, of which € 450m outside domestic British market
• Some major investments in UK:
• € 550m in 280x GM-EMD Class 66 freight locomotives for EWS
• € 1 billion in 53x Alstom Pendolino high speed tilting trainsets for Virgin Rail
• € 1 billion in 785x Siemens Desiro EMU cars for Stagecoach and First Group
• € 320 million in diesel and electric trains for First Group, Arriva, etc.
• Trains leased out in Austria, Belgium, Denmark, France, Germany, Italy, Luxembourg, Netherlands and Spain
• Lessees outside UK comprise both national railways (DSB, SNCF) and private operators (Connex, Arriva, rail4chem, Graz Köflacher Eisenbahn, etc.)
• Total staff of approx. 200, located in London, Derby, Antwerp, Cologne, Madrid and Rome
• Credit rating of A+ from Standard & Poors
• Recognised across the rail industry - governments, operators, manufacturers and banks - as an informed and pro-active investor in trains
Train leasing – exporting a good idea -8-31 March 2004
Technical capabilities
• Procurement
• manufacturer neutrality
• Experienced and multilingual team, with technical and commercial skills
• purchasing power, due to scale of orders with all leading manufacturers
• Asset management
• expertise in the planning and monitoring of maintenance
• quality control audits
• mandatory modifications, technical upgrades and enhancements according to local regulation or operator requirements
Train leasing – exporting a good idea -9-31 March 2004
Financial capabilities
• Financial optimisation• equity funds from RBS• capital markets: three long-term securitisations, short-term commercial
paper programme• public sector long-term lending agencies: EIB, KfW, ICO, EDC• private bank loans• tax leverage
• Residual value• core competence for Angel Trains• no support from external appraisers or guarantors• maturities ranging from short-term hiring (2-5 years) to long-term leasing
(15-20 years) depending on the market and asset type
Train leasing – exporting a good idea -10-31 March 2004
Regionalisation in European Railways
• Causes• EU directives: separation of rail infrastructure from operations• utilities directive requires competitive tendering for public sector procurement of services
from private sector suppliers• more local decision making preferred• transfer from central to regional government of the financial burden for local passenger
rail services
• Consequences• devolution of responsibility for regional rail services has now become standard in Europe
for the Länder, Régions, Provincie, etc. but at different paces and in different ways• entry into the market of new private or regional operators (Arriva, Connex, Transdev,
Ferrovie Nord, FGC, Regentalbahn,...) alongside incumbent national railways• typical concession length from 7 to 12 years• perceptible improvement in quantity and quality of service offered
Train leasing – exporting a good idea -11-31 March 2004
Some references in Western Europe• DSB
• initial rental of three Siemens Desiro DMUs• replacement, less than two years later, by twelve new trains, with a technical specification
adapted to the Danish market
• Connex• supply of three Siemens Desiro DMUs within six months, thanks to DSB exchange above• rental of a total of twenty-eight Siemens and Bombardier DMUs, spread across four
different concessions
• Arriva• lease of twenty-nine Alstom LINT41 DMUs• first private operator in Denmark
• SNCF• rental of a total of twenty-three diesel locomotives to SNCF Fret• Franco-German certification for cross-border service
Train leasing – exporting a good idea -12-31 March 2004
Prospects in Poland……
• establishment of PKP Regional Service
• increased involvement of Voivods
• pilot privatisation of SKM and WKD
• large rolling stock renewal requirement
Angel Trains willing to work with operators and administrations on the basis of proven structures and proven assets