MILLIONs have been wiped off the value of National Express after the embattled transport group lost the east coast rail franchise.

Shares dipped by as much as 12 per cent after an announcement that the Government was ready to take over the loss-making main line train service from Edinburgh to Kings Cross.

National Express bosses say they expect to lose £20m running trains on the road in the first six months of the year.

If the outlook does not improve the company will be forced to give the franchise up.

The Department for Transport will step in and run the service using the same staff and will tender for a new operator from the end of 2010.

The government also warned that it may terminate National Express' current, profitable contract to operate rail services on the East Anglia main line and associated commuter routes.

Secretary of State for Transport Andrew Adonis said:"A company which had defaulted in the way National Express now intends would not have pre-qualified for any previous franchises let by the Department.

"I note that the parent groups of previous franchise failures are no longer in the U.K. rail business. It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging."

Although the company is at loggerheads with the Government there is one thing they both agree on: that trains will continue to run on the main line.

National Express agreed to pay the Government for the right to run trains on the line when it won the franchise.

But the transport group faces a double headache: falling passenger numbers and rising fees.

The money it hands over to the Government will increase from £85m last year to £395m by 2015.

Bosses asked the Government to renegotiate more favourable terms but ministers turned the request down.

Everyone now agrees National Express paid too much for the franchise. GNER bid £1.3 billion in 2005 and was forced to walk away a year later, admitting it couldn't afford the cost.

Yet National Express paid £1.4 billion for the same franchise in 2007 when GNER quit.

To make the line pay it needs to see revenue from fares increase by at least 10 per cent every year but since the turn of the year revenues have slowed and are no increasing by just one per cent.

Despite the route's on-going troubles there seems to be no shortage of companies wanting to take the franchise over. Virgin and FirstGroup are both expected to launch a bid.