Tornado

There seems not to be a NVR Santa special thread so I though I would carry on here. Last Saturday the first day . The first two trains were less than half full and todays booking form pages shows plenty of room on all trains ,the nearest one to be full up is the Sat before Christmas ,19 left ,one to two hundred on some other days. No problem getting on the platforms for non passengers gates were open at the end of the platforms. The trains depart from plat one and arrive at plat 2.The were made up of 45596 ,eight mk ones and a clss 45 on the rear going out ,45 leading on the return. Although I didn't manage to go last year I think this is the first time foreign coaches haven't been used. Two photo's attached from last Saturday.

 

I know somebody from the loco owning group of a GW 4-6-0 which is permanently based at one railway, as opposed to being more of a roaming engine. The steaming fees the railway pays the group per day of operation this year have been something like £785 (I forget the exact figure). Of course, I would imagine were the loco to visit another railway for a period those fees would increase, and you'd potentially pay a higher rate per day for a loan, but I'm not sure whether that would scale up to something like a Bulleid having a steaming fee of £1600 per day for a railway it is resident at. Maybe as a guest though

 

I sometimes wonder why I bother to reply to questions on this forum. A question was asked and answered from a position of some knowledge (albeit in fairness a year out of date). You’re not wrong, but these points weren’t part of the ask. The question was about “going rate” which presupposes (by definition?) you have a willing seller and a willing buyer. I am beginning to understand the reason why some people with inside knowledge have long since stopped engaging.

 

Need to figure in costs to get the loco to site, and away, that will not be cheap either....

 

Thanks 21B. It's before Covid when I last had any info on asked for hire fees but back then small industrials were around £300 day and I was aware of large locos being hired for over £1K, even more for the main line. As I've said, I'm aware of small industrial owners asking for £500/day and I'd have expected large main line locos to be £1500-1600 today; more for a few celebrity locos. It can also depend on what's in the agreement, especially with regard to where maintenance responsibility lies on long term hires. Asking and getting can be different figures, though and, where loco owning groups are concerned, it is often said that they subsidise heritage railways because their hire income doesn't cover the true costs.

 

That's usually outwith the hire fee and the responsibility of the hirer.

 

The Erlestoke Manor Fund stated they needed around 100 steam days per year for 7812 to earn anywhere near reasonable income to contribute towards the overhaul kitty. This is the primary reason for hiring to the West Somerset Railway for the summer season, as the SVR couldn't offer anywhere near this in their business recovery plans.
Incidentally, next year returnee 7802 will be SVR based with more steaming dates being offered than in recent seasons. 7812 will return to Minehead and stay there until at least 2026. With 2 locos earning hire fees, this should help progress the overhaul of 5164, which will eventually replace 7812. Having 3 locos, with 2 always in steam, is considered a viable business model as there should always be an income stream - a tricky situation for single loco owning groups.

 

It is worth recognising that while most loco owning groups in effect subsidise heritage railways in cash terms, there is a quid pro quo. The railways provide in turn all the operational infrastructure required to enable the locos to run and generate fare income - everything from track and carriages to trained staff and ticketing. So there is a transfer of value in both directions, hopefully to the mutual benefit of both. It's just a bit more obvious the flow from loco owner to railway since it is very obvious in cash terms - the amount that a loco owner has to raise in fundraising over and above hire fees is in effect the extent to which they subsidise their host railway.

Tom

 

Oh, you poor traumatised soul. I grovelingly apologise for interrupting your learned dissertation on this subject. Obviously you operate on a higher plane than mere grunts such as myself.

 

Really?

 

He's subsonic obviously...

 

I read in this week’s Trackside that the 70ft dismantled ex-Calais turntable is up for sale, currently at the Dean Forest. Presumably the A1ST will be looking at it for DLW2 ?

 

Nope, mentioned it today.

 

Say a 10 year overhaul bill is £1.5m in 10 years’ time. So call it £1m in today’s money.

That’s £410 in straight line cost every single day regardless of if the machine is in steam or not. Just sitting still with no staff, you are in for £410 every single day you own it.
If it steams 100 days a year, you can say it’s £1500 for every day it steams. If it steams for 50 days its £3000 a day. I would be in no way surprised if SNG and similar machines were in this range.

If I were an owner of a big mainline loco, my business case would be starting on this basis, because I don’t see how else to manage a seven figure cost in 10 years’ time.

It’s a frightening thought when you consider the monthlies. £8300 of fixed cost every single month that cannot be escaped. The loco will deteriorate and it will need an overhaul at the end of the 10 year.

In an ideal world I would have the cash to absorb the running costs, and then I’d put the income from the hire fees in to an investment that makes 8% a year (not hard to find) so that even if the hire fees stay flat over the 10 years, the fund grows to cover the inevitable increase in cost of the overhaul due to inflation.

There is of course no guarantee that hire fees will track inflation, but you can be pretty sure engineering costs, time & materials, absolutely will.

At the end of each quarter, or year, id be hoping that the overhaul fund was within 80-90% of the total accrued cost for the period.

Then there is the operational piece, none of which I have touched on at all, which all has to be accounted for.

Those more versed in this than me undoubtedly have their own methods. Maybe if the loco covered all its operational costs for the 120 months, you’d be happy enough and feel ok about putting in another £1.5m in cash.

There’s a perverse aspect to all this. You have 10 years to make investment decisions which is a good length of time. Stocks and or Bonds fit well in to that duration. This helps considerably in offsetting some of the overhaul cost in the future.

Being asked to manage a seven figure cost 10 years in to the future is not a small challenge. The only way we see these machines stay on the mainline is if this considerable risk is well managed by owners. I cannot say I envy them in this regard.

The other obvious thing I have missed is that a loco needs to haul a train to generate revenue. Well, typically.

If 400 £300 tickets get sold for a day out (£120k gross) I'd be looking at a chunk of that for the machine overhaul cost.

Perhaps some of you that had opinions on FS charging £7 for a look at her in Kings Cross the other month will now think twice given that her last overhaul was over £5m, or to put it another way, £42k for every single month of the 10 year of inescapable fixed cost.

Could you deal with a £42k per month fixed cost that was non-negotiable.... I really do have great sympathy with anyone brave enough to own these machines. I would be in no way surprised if ten year overhauls are £2m on average by 2035.

 

.......which is why you need a pretty good relationship with a TOC which is going to give you fifty days of work per annum as part of its own business model rather than use its own in house resources.

 

I don't disagree with anything you've said here (other than confusing weeks and months in your calc) in a true commercial world and it largely echoes what I said earlier. One reason why loco owning groups with active volunteer resources are able to make things work is that they generally keep the costs down by doing a lot of work themselves. However, the reality then becomes that, by accepting lower higher fees, they are subsidising the hiring organisation. Against that, though, they run the risk of not getting sufficient hire work to pay for the upkeep.
If you want examples of this, just look at the NYMR. A good number of years ago they sent 3672 to Bury with the intention of it having a contract overhaul. When the true costs became known, it was quietly returned to Grosmont to languish in the sidings. A future for it only started to appear when a group of volunteers got together and started to raise funds and work on the loco, thus reducing the railways costs significantly. In a similar vein, 76079 has now been withdrawn and put up for sale because the overhaul costs have been put at £1m+. NELPG, on the other hand are currently able to sustain their fleet of four locos and pay for their overhauls and unforeseen repairs because they have a good volunteer workforce, albeit an ageing one.

 

You make excellent points on what is effectively risk management of a locomotive, of which I can see 3 types.

Type 1. You own a locomotive that is powerful, popular and reliable enough that you can place it on a commercial footing which I outlined above. Its operational and capital expenses can be managed on a purely commercial basis. You can if you need to, pay commercial rates for overhauls and operational costs safe in the knowledge that outlays will be mostly if not entirely covered by operating income.

Type 2. You own a locomotive that is not as powerful but is popular enough to attract mainline tours and therefore attract good revenue. You can take a blended commercial and altruistic approach to the operational and capital expense management, using goodwill and perhaps some volunteer labour to ensure longevity of the machine and hopefully it will build up some kind of capital from its commercial ventures to pay for its overhaul at least in part. It may require some subsidy at overhaul but you own other locos so you can minimise the cost of the overhaul as you already have sunk costs in plant and equipment if you also happen to own or have access to overhaul facilities.

Type 3. You own a locomotive that either can only attract moderate commercial income or cannot realistically be called upon to attract much in the way of commercial revenue. It attracts no mainline revenue streams. You either own it as part of a railway group where the capital and operating costs are absorbed by the wider organisation, or you have enough in house engineering resource to overhaul the machine on an "at cost" basis outside the commercial rates charged by the primary overhaul shops, at least for large parts of the overhaul.

Now comes the caveat. Who can think of any loco that really falls neatly in to this?

Big mainline operators often have fleets of locos. Independents often have a number of machines, some of which are mainline and others not. Some owners have overhaul shops and some do not. Not all big mainline machines are being overhauled on a purely commercial basis. Tornado isn’t, its still subsidised and it was built for the mainline! Some type 3 machines are let out commercially and then come “home” for their overhaul. As Steve says, some get sold. If there is no money at the end of the ticket then basically any income has been consumed by operating expense, obviously.

There’s almost certainly a sweet spot with a big loco, where you own an overhaul facility and can do that work at cost for your own machines and on a commercial basis for other machines you don’t own. Basically a cross subsidy. You also have 2 or 3 machines out earning revenue so you can tap in to economies of scale on the plant and equipment for the overhaul shop. A big lathe is a much easier purchase to justify when you own 50 wheelsets than if you own 10. If you can cut other peoples wheels too, then that lathe starts paying for itself and you are effectively able to cut your own wheels for free… The other end of the sweet spot is that you have balanced the overhaul costs with the income, so you don’t have so many locos that you cant run them all and have to stable a number of them. Again, I can think of one operator where many locos are stabled up, for whatever reason.

If I started from a clean sheet for type 1, Id only buy one of the very popular locos and put it on a commercial footing in so far as I could. Id do all I could to sub-con overhauls and extract guarantees to cover losses on steam days where the loco failed. I’d be aiming for a very regular annual schedule of running days on the mainline to try and set a baseline for income for the life of the ticket. My primary task after loco health is one of securing income from charters.

For type 2, I’d really want that machine to be 1 of a family so that costs can be spread around. Id also like access to, or own, a friendly overhaul facility where overhaul costs can be either marked down to cost among the fleet, or done at favourable rates. It cant earn big bucks, so iv got to manage it on a shoestring.

For type 3, the machine would have to have a permanent home on a heritage line and it would have to do nearly all of its overhaul in house with a lot of volunteer labour and skill to help with overhaul costs. However, on this, if I did have the space and a few machines to run, id be very, very tempted to work hard on getting the overhaul facility up to a standard where it could attract sub contract work from others, and create that cross subsidy to effectively reduce the cost of overhauling the home fleet. This comes with its own issues, because managing an engineering overhaul business as a corollary to managing a locomotive fleet is not really focussing purely on external customers, which is really what you should be doing if you run an engineering overhaul business. If someone does that and does it well for a long time, they are skilled at the art of balancing the risk. There is one obvious standout in that space.
This whole preservation space has worked well for a long time, but as costs escalate dramatically over the next few years, careful management will play out as it always does. Those who manage it well will prevail.

 

I wonder if you are describing the marketplace as it was twenty or thirty years ago. Then you had an independent sector with a range of locos like 60019, 60009, 70013, 61264, 34027, 46203, 46233, 45305, 61994, 76079 etc. Plus you have an NRM in the business of maintaining some locos for use on the main line. That era seems to me to have largely gone.

Now you have the WCR, LSL and TY umbrellas. So if you are an independent, the question is what sort of commercial relationship you have with a TOC. It could be a tight one (60007, 46201, 45690, the Riley 5s). Or it could be a loose one (45596). Or it could be a relationship with the service provider with the TOC in a subsidiary position ( 35028/Belmond/DB).

What I think is not clear is which of these spaces the A1LST intends to operate in with apparently no DB and no SRPS to partner with. What's the model? To me as an outsider the obvious opportunity for the baseload which could work for both parties is the Northern Belle. If not, then what?

 

Latest reports in Trackside say DB will partner with the A1 when needed so I don’t think it’s so clear cut.