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Down the tubes?

There is now a very high chance that Eurotunnel, the Anglo-French consortium operating the Channel Tunnel rail-link between London and the continent, could be liquidated by this September, having failed to reach a key agreement earlier this week with creditors. The saga of how the operator would persuade a group of banks to let it restructure a huge pile of debt has been chugging along for months. Now there is a real risk that this marvel of civil engineering could be known as one of the biggest transport commercial flops in history. The free-marketeer in me says well, the venture was never based on fully commercial grounds in the first place. The folks concerned probably no doubt rightly thought that if the project was a flop, then the fortunate taxpayers of Europe would pick up the tab, just as they did with that other venture of high-tech wonder and dubious economics, Concorde. The romantic in me would be very sad to see this wonder of rail come to an end. I have used the Eurotunnel service several times, both for work and for short breaks to France in recent years. Every time I have marvelled at the smoothness of the service, only occasionally marred by delays in the English side of the operation, or by the odd rude French ticket inspector.

It certainly beats messing around in airport lounges, that is for sure.

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16 comments to Down the tubes?

  • From my home in London to Calais takes about 2 1/2 hours. I travel there three or four times a year, do some shopping, fill up with petrol and have a great meal. The savings I make on basic groceries, wines and beers more than pay for the fares and dinner. I would be extremely sad if the service closed.

  • There is no chance of the British and French governments allowing use of the tunnel to “come to an end”, because of the enormous embarrassment it would cause them. If Eurotunnel go into liquidation, you can bet your bottom Euro that the British and French taxpayers will end up supporting the operation until someone can be found to buy it.

  • Oh, I very seriously doubt that operations through the tunnel will cease. The tunnel isn’t going to be filled in. The company will be liquidated, the assets (principally the tunnel itself) will be sold off, and the long suffering creditors will receive have a (small) portion of their money returned. The tunnel itself will end up in the hands of someone with expertise at generating the maximum amount of cash out of semi-monopolistic infrastructure assets. (Macquarie Bank are very good at that type of thing – it wouldn’t surprise me at all if they end up owning it). The creditors are liquidating Eurotunnel rather than restructuring it because the asset is worth more to someone else than is any income stream they can extract from it using the existing corporate structure. The existing legal structure has all kinds of contracts written into it that are very hard to reverse (as special laws were passed when they were signed and in many instances they have power above normal contracts), and these have some odd consequences – for one thing I have never caught a Eurostar train that was not full of empty seats, which is a direct consequence of the fact that there is essentially a legal floor on fares. Liquidating the company would give the tunnel itself a clean legal and contractual structure which would allow the tunnel to be operated under market conditions rather than the whims of late 1980s French and English politicians. This would do the whole thing a world of good.

  • Michael Jennings is right.

    I’ve seen some results for Eurotunnel in the past, and discounting the debt, they’d have made a profit. The banks aren’t going to liquidate and fill it in. They’d rather get some money for it instead.

  • I imagine the remaining cross-channel ferry operators are quaking in their boots at the thought of Eurotunnel being liquidated. Whoever acquires the infrastructure will be re-activating it with a vastly lower debt burden and will be able to undercut the ferries to the point where they will no longer be commercially viable.

  • hardatwork

    Yep M Jennings is right. Eg. Canary Wharf never closed.

  • David,

    It’s already quite competitive on that short route now. I checked out prices for August this year, and it’s not hard to get a 2 week crossing for less than £100 (I found one for £58!).

  • tranio

    you can get a one way ferry trip in British Columbia from Vancouver to Victoria , a 1 1/2 journey, for about $48 cdn which is close to 25 pounds. a reservation would add about $7.

  • Laughing Cavalier

    The best thing that could happen to the tunnel is bankruptcy. Then a new firm could buy it at a reasonable price, free of debt and operate it profitably at reasonable prices. A win all round except for the banks who wrote the money off against tax years ago anyway.

  • David B. Wildgoose

    One of the original proposals was to lay what was in effect a huge pipe along the seabed instead of laboriously digging a tunnel underneath the seabed. It put forward a realistic (and relatively fixed) cost projection only to be rejected as being “more expensive” than the drilling option – which ended up costing double what they predicted.

  • Chris Harper

    Yeah, if the company goes bust the asset will still exist and will be used. Services will not stop.

    The problem is – the ferry services will be under even greater competative pressure because the new owners will not have the existing massive debt burden to service. And that competition will still be artificial because the bloody thing would never have been built had not the governments interfered with the markets.

    It remains a misallocation of resources.

  • Jason

    I disagree entirely, rudeness is a quality I look for in my French ticket-inspectors, just as with Cantonese waiters.

  • Concorde actually was able to fly at a profit and did so, but only after BA had been privatised and was so able to use the plane in such a way as it was able to make money. That it should probably never have been built, being just a government a vanity project, but with the correct commercial preasures it was able to find a niche market.

    Unfortuanly for the Chunnel, another government vanity project, there is no niche market that spending haft an hour getting bored in a tunnel will satisfy and the market has meant that the mass market is already satisfied with other solutions.

  • John K

    Concorde made an operating profit only because the taxpayers of Britain and France paid the development costs. That was rather a big write off.

    The Channel Tunnel did not make financial sense, and the only way it will carry on operating is by the shareholders being wiped out. It should therefore never have been built. However, it has been, and it will continue, but it was a huge misallocation of resources.

  • chris: The Channel tunnel is used by the best part of 10 million people a year, and also carries a lot of freight. Concorde was only ever used by a few tens of thousands at most. Concorde made a small operating profit after the production and development costs were written off. Excluding the costs of servicing the debt on its production, the channel tunnel undoubtedly makes a much larger operating profit, although with the very odd accounting rules that apply to the parent company, it is hard to tell.

    Your observation that Concorde found a niche market and the channel tunnel somehow hasn’t is one of the more bizarre things I have read in years.

    The channel tunnel cost too much to build, and for that reason shouldn’t have been built, but there is a large number of people who regularly use it. Concorde cost too much to develop, but even after being developed it cost too much to operate. The number of passengers who were prepared to pay the fares that were charged to use it was tiny. BA and Air France each had seven concordes. but typically only used one or two of them, because there simply were not any other routes on which the rest could be flown profitably.

  • hey

    As to the commercial competitiveness of the Concorde: don’t forget the protectionist restrictions that forbade supersonic travel over land, implemented by foreign governments to hobble Concorde long before the watermelons came to dominate those kind of planning concerns on other issues around the world.