Sea Containers subsidiary GNER loses U.K. management agreement

By Jennifer Lanning Drey

Portland, Ore., Aug. 14 - Sea Containers Ltd. said it was disappointed by the U.K. Department for Transportation's decision to award the new 10-year franchise agreement to a new operator rather than to the Virgin and Stagecoach consortium, of which Sea Containers' subsidiary Great North Eastern Railway (GNER) was a part.

"By teaming up with Virgin and Stagecoach, we were part of a strong and robust bid for the next franchise and so we are disappointed that the government has decided that our combination of talents did not meet its financial requirements," Bob Mackenzie, chief executive officer of Sea Containers, said in a company news release.

In December, GNER voluntarily entered into a management agreement to continue delivering train services after the early ending of the previous 10-year franchise, which had begun in May 2005. The early ending was the result of unexpected external events including the loss of revenue due to the London bombings in 2005, higher energy and fuel costs and regulatory access being granted for a new open access entrant on the route, according to the release.

GNER was never in breach of the franchise agreement; however, it was apparent that the company was not going to be able to meet the significant increase in franchise premium obligations due from May 2007.

The management agreement had allowed GNER to provide the original benefits under the terms of the 2005 franchise and make a profitable contribution to the parent company every month since last December, Mackenzie said in the release.

Sea Containers, a Hamilton, Bermuda-based provider of passenger and freight transport and marine container leasing, filed for bankruptcy on Oct. 15, 2006 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 06-11156.

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