Arriva has failed to make the shortlist drawn up for the new Northern Rail franchise by the Strategic Rail Authority (SRA), it was confirmed today.

As Arriva Trains Northern, the company had been running part of the area which will comprise the new franchise to begin in autumn 2004. But for the shortlist, the SRA chose Serc/Ned Railways and FirstGroup, which has been running First North Western services, which will now be incorporated into the new franchise.

The new franchise could be as long as eight and three quarter years, with the last two years dependent on achieving performance targets.

The franchise will incorporate rural and urban services throughout the whole of the North of England, including in and around the Greater Manchester, South Yorkshire, West Yorkshire and Tyne and Wear Passenger Transport Executive (PTE) areas.

It will also be responsible for a number of services running from, and into, the Merseyside PTE area.

The SRA's operations managing director Nicola Shaw said: ''The Northern Rail franchise will be one of the first of a new generation of customer-focused operations, designed to deliver for passengers.''

''We have selected two strong contenders and the competition will continue to be robust. In consultation with the region's PTEs, we will ensure that the right company is selected to run this new franchise for passengers.''

FirstGroup chief executive Moir Lockhead said: ''We will be working hard to provide a bid which gives improved services for passengers across the region and excellent value for money for the taxpayer.''