Rising costs put trains deal for Thameslink route at risk

The future of the £1.4bn deal to provide trains for the Gatwick to Luton airport Thameslink route has been thrown into doubt as costs spiral due to funding delays.

Sources close to the 1,200-carriage project said that Siemens, the German giant that won the contract at the expense of Derby train engineers last year, will have neither loans nor credit rating in place as planned by the end of the month.

There have also been delays to the signing of financial terms with the Government, which should have been agreed early this year.

All of these overruns to the timetable are expected to add tens of millions to the cost of the money that Siemens borrows. Banks will toughen up the terms of their loans to reflect what now appears to be a riskier deal than when it was first announced.

Hikes to the project's cost would spook the Government, particularly after the West Coast main line franchise debacle, which saw First Group stripped of the contract after a flawed government selection process. The Transport minister Simon Burns has already said that his department will have to look at other options if a deal with Siemens is not finalised soon.

One source said: "This whole process is taking considerably longer than anyone is prepared to talk about. There are two possible outcomes here: that Siemens fails to raise the money and therefore the whole deal unravels or, more likely, one way or another a deal is struck at a greater financial price.

"That could be tens of millions of pounds extra, and then the value for money equation comes into play, and my gut sense is that the deal will stand or fall by that."

A Siemens source said that the company remained "optimistic" that it will soon agree commercial terms with the banks and that Moody's will assign a suitable credit rating to the special purpose vehicle set up to carry out the contract. However, the source conceded that these issues will not be resolved until next month and that the final sign-off with Government will be in the new year.

The problems will add to the initial anger over Siemens' selection as preferred bidder for the Thameslink trains. Unions argued that Canadian rival Bombardier should have been chosen so as to secure jobs at its Derby site, which is the last remaining train factory in the UK. Bombardier has cut more than 1,000 jobs at Derby since the announcement.

Siemens says it will create up to 2,000 new British jobs through Thameslink.