BUSINESS AS USUAL ASSURANCE FOR CUSTOMERS AND STAFF

NorthLink Orkney and Shetland Ferries Ltd has welcomed the announcement today (April 8) from the Scottish Executive that the contract for provision of ferry services to and from the Northern Isles is to be retendered early.

The five-year contract, which came into force on October 1, 2002, should have run until September, 2007. Under the new arrangements the contract will be retendered with immediate effect and it is the Scottish Executive’s intention that it will be in operation as soon as possible in 2005. The decision has been taken after consultation with, and the agreement of, NorthLink.

It is the company’s intention to examine in close detail the provisions of the new service specification and the terms and conditions of the new contract. A decision will then be taken on whether NorthLink will submit a bid.

Chief executive Bill Davidson said: “We would certainly hope to bid again. After all of the work that we have put in, and the very positive feedback that we have received, I believe that a NorthLink bid would be welcomed by our customers. We believe that, in the 18 months that we have been in operation, we have developed service levels, promotion and pricing very close to where they ought to be.

“We have set a new benchmark for the provision of ferry services to and from the Northern Isles. Our three, new cruise-quality passenger ferries – and our freight vessels – are operating a service which is faster, more frequent and more comfortable than anything which has gone before. We have provided new, improved shore facilities, better pricing structures and growing traffic levels. It would be unfortunate if the expertise and experience gained since we went into service were to be wasted now,” he said.

NorthLink – a joint venture involving Royal Bank of Scotland and Caledonian MacBrayne – was awarded the contract to operate the lifeline services to and from Orkney and Shetland in December, 2000.

The company’s winning bid was formulated on the basis of historic (1998/1999) traffic data and market conditions as they existed when the bid was constructed in 1999/2000.

Even before implementation of service in October 2002 it was clear to NorthLink that, in the intervening period, fundamental changes and unforeseen events had adversely affected the financial model on which the bid had been prepared and accepted by the Scottish Executive.

NorthLink has been involved in detailed discussion with the Executive since the summer of 2002 and Scottish Ministers indicated their willingness to consider additional support for the company, subject to any necessary approvals from the European Commission and the Scottish Parliament, if this proved necessary to secure the delivery of the lifeline services.  Since then, NorthLink has been working with the Scottish Executive on potential solutions to NorthLink’s anticipated financial problems.  Unfortunately this work has been unsuccessful and NorthLink has therefore agreed to continue to operate the services on a revised funding basis until a fresh tender can be developed and a new contract let.

Davidson added: “That is the situation which we have arrived at today. Clearly, we are disappointed that we cannot run as planned for the full term of the existing contract but in a business with a finite shelf life – the five years of the contract – it would be very difficult for us to trade our way out of the negative financial situation which had evolved .

“The fact that Scrabster Harbour Trust were a year late in completion of their pier for the Pentland Firth service meant that our £28m vessel Hamnavoe was tied up at Leith for six months. The resultant revenue loss on the route – allied to the start-up of a competing Pentland Firth service – severely damaged our financial model.

“Similarly, the arrival of a competing freight service on the main Northern Isles routes – although short-lived – had an adverse effect on our revenue stream. These events, allied to what we believe were incomplete or erroneous figures supplied to bidders, meant that we were on the financial back foot even before service got under way,” said Davidson.

He added: “We believe that we have set the standards for the future and, all things being equal, it is our intention to be part of that future. For now it is business as usual for staff and customers. We are involved in a growing business and it is our intention to maintain that level of growth so long as we are providing the services, which obviously depends on the outcome of the retendering exercise.”