PUBLIC transport group National Express today announced a half-year loss of �48.1 million as it took a heft hit from the cost of surrendering its East Coast rail franchise.

PUBLIC transport group National Express today announced a half-year loss of �48.1 million as it took a heft hit from the cost of surrendering its East Coast rail franchise.

The embattled company, which faces a debt mountain, takeover speculation and strike action today and tomorrow on its National Express East Anglia operation, included provisions of �54.7million against the impact of walking away from the National Express East Coast franchise when its committed funding runs out later this year.

However, National Express said it remained confident that the Government had no legal grounds for its threat to seize the group's other franchises - NXEA and south Essex commuter route c2c - as a result of its plan to abandon the East Coast franchise.

And it said that, excluding the East Coast operation which lost �20million during the first half, the profit performance of its rail business had been “robust”.

With a “resilient” performance from its UK and overseas bus operations also included, National Express said that its pre-tax profit before exceptional items was down by 42%, at �55.7million against �95.3million for the first half of last year.

The group added that its cost saving programme was on target to deliver savings worth �40 million a year and that it had reduced its net debt during the first half by more than �200million to �977.5million.

Executive chairman John Devaney, said: “Like all businesses, we are taking the necessary steps to manage the challenges of the current economic environment. The majority of our businesses have traded solidly through the first half, despite the challenging conditions.

“Our strategy remains clear - we will continue to deliver a more customer-driven strategy but with additional emphasis on reducing net debt, strengthening the balance sheet and making cost savings.

“Going forward our focus will be on our market-leading bus and coach operations in the UK, Spain and North America, while continuing to deliver excellent performance in our remaining rail franchises. This clear focus and the actions we are taking give us substantial confidence in the future of the group.”

The Government is setting up a state-owned company to take over the East Coast rail operation when the �40million of support committed by the National Express group to the franchise runs out, which is likely to happen before the end of the year.

National Express's decision to walk away from the East Coast operation came after the failure of attempts to renegotiate the premiums due to the Government under the deal, which was signed before the onset of the recession sent revenues plummeting.

The Government retaliated by threatening to strip the group of its other franchises under “cross-default” provisions although National Express repeated yesterday that its legal advice was that Ministers had no grounds for such a move.

However, the threat has sparked a wave of speculation over the future of National Express, which has also seen its chief executive, Richard Bowker, quit to take up a new rail job in the United Arab Emirates.

A consortium consisting of the group's biggest shareholder, the Spanish-based Cosmen family, and private equity group CVC has tabled a buy-out proposal and has also held talks with rival group Stagecoach over a possible break-up of National Express.

National Express said today it was “evaluating whether value can be achieved for shareholders through third party approaches to acquire the group”. But added: “It is important that these are fully assessed for value and deliverability.”