Wednesday, October 3, 2012

U.K. Department of Transport Fails Finance

Sir Richard Branson's Virgin Trains, which has been operating a British railway line since 1997, recently lost on a bid to continue operating the line until 2027. So Virgin Trains sued over the decision. In the buildup to the court case, the U.K. Department of Transport (UKDT) retracted the offer to run the line by rival FirstGroup. So why the the UKDT back down? While the reason given was vague, it is probable that the UKDT did not properly evaluate the cash flows it would receive from the winning bid. As the article states, it seems likely that the UKDT did not discount the back-end loaded payments which made FirstGroup's bid appear larger than Virgin Trains.