DEBT-RIDDEN East Coast Mai n Line franchise holder National Express has rejected a takeover approach from the UK’s biggest rail operator, it was revealed yesterday.

And the move by FirstGroup came as it emerged that National Express – laden with £1.2bn of debt – unsuccessfully attempted to change the terms of its East Coast franchise agreement with the Department for Transport (DfT).

Speculation has mounted for some time that National Express wants a way out of its key Edinburgh to London franchise, which it operates throughout the region.

It agreed to pay £1.4bn over the life of the eight-year deal, which was sealed in 2007 before the recession, but has now been hit by stalling passenger numbers.

The group based its bid for the contract on year-on-year passenger growth and increased revenues, but last month revealed growth in passenger numbers during the first quarter of only 0.3 per cent, compared with nine per cent in the same period last year.

Speculation is mounting that the route could be in turmoil for a second time in three years, after GNER had its East Coast franchise deal terminated in 2006 by the Government, when it announced that it could not meet its payments.

A potential combination of under-pressure National Express and FirstGroup would consolidate Aberdeen-based First- Group’s position as the UK’s biggest transport firm.

FirstGroup is already the UK’s largest bus and train operator, running more than one in five of all local buses, and a quarter of the UK’s passenger rail network.

Neither company was available for comment yesterday, though FirstGroup did confirm it had made a “preliminary approach”.

The revelation of the unsolicited bid from FirstGroup came only hours ahead of a crucial trading update from National Express, which confirmed it is reviewing a “range of options” over its finances.

National Express signalled its plight earlier this year by cutting 750 jobs and warning that more could follow, and speculation was rife last night that tomorrow’s trading update could signal a cash-call from shareholders.

Reports have circulated that talks between National Express and the DfT had collapsed because the Government refused to budge from the original contract.

Last month Lord Adonis said that there was “no question” of rail companies being allowed to re-negotiate their contracts. Any moves to walk away from the East Coast deal by National Express could impact on other franchise deals.

National Express, which operates buses in the West Midlands and Dundee, has three rail deals – the East Coast and East Anglia franchises and the c2c London commuter service.

FirstGroup runs four rail franchises – First Capital Connect, First Great Western, First ScotRail and First TransPennine Express – as well as operating Hull Trains services under an open access agreement.