GNER loses appeal over east coast rail franchise

The future of the train operator Great North Eastern Railways (GNER) was plunged into further doubt yesterday after it lost a legal challenge to a decision by the rail regulator to allow competing services on its East Coast Main Line.

Senior executives warned that it jeopardised the company's ability to pay the £1.3bn it had promised the Treasury over the 10 years of its franchise.

The operator had sought a ruling that the decision by the Office of Rail Regulation amounted to "an unlawful grant of state aid" in favour of the two other companies - Hull Trains and Grand Central Railway Company.

The operator contended that the competitors would be charged less for access to the same rail network for the provision of equivalent services.

The news comes amid signs that GNER is up for sale following the announcement that its chief executive, Christopher Garnett, is to be replaced.

Chris Bolt, the chairman of the ORR, welcomed Mr Justice Sullivan's decision, pointing out that it meant Grand Central could continue with its preparations to run services between London and Sunderland, and Hull Trains could continue to run its additional service between London and Hull.

Dismissing GNER's case, Mr Justice Sullivan said that, while he granted permission for a judicial review, he rejected GNER's grounds for the substantive application.

Bob Mackenzie, the chief executive of Sea Containers, the parent company of GNER, who will be taking over from Mr Garnett at the train operator, said: "Today's decision is truly extraordinary. It undermines the profitability of GNER and devalues a public contract agreed with government."