The East Midlands Railway franchise has been awarded to Abellio East Midlands after Stagecoach was banned from competing.
Transport Secretary Chris Grayling said the eight-year franchise would start on 18 August, promising new trains and an 80% increase in morning peak seats into Nottingham, Lincoln and London St Pancras, as well as a new express service from Corby through Luton into London.
But the result comes after the Department for Transport (DfT) banned train and bus operator Stagecoach from competing for the franchise, as well as for two others: South Eastern and the West Coast.
Stagecoach currently operates East Midlands Trains and also has 49% of a joint venture with Virgin Group on the West Coast route, which is to be awarded in June.
Bidders had been asked to bear the full long-term funding risk on relevant sections of the Railways Pensions Scheme, according to Stagecoach.
But the Pensions Regulator had sought extra funding due to “serious doubts” about the government’s future support for the scheme, it said.
Stagecoach chief executive Martin Griffiths said: “We are extremely concerned at both the DfT’s decision and its timing.
“The department has had full knowledge of these bids for a lengthy period and we are seeking an urgent meeting to discuss our significant concerns.
“The Pensions Regulator has indicated that an additional £5bn to £6bn would be needed to plug the gap in train company pensions.”
The rail industry proposed an additional £500m to £600m for the scheme and Mr Griffiths said this would have provided “better stability and security for members” and better value for taxpayers.
“We are shocked that the government has rejected this for a higher-risk approach. We would urge that a full independent value-for-money review is undertaken into this issue without delay.”
The disqualification of Stagecoach means that their joint bid for the West Coast franchise with Virgin and SNCF has also been banned.
A Virgin Trains spokesman said they were “very disappointed” by the “unexpected decision”.
“We’ve led the industry for more than 20 years with our ground-breaking innovations, such as automatic delay repay, and award-winning customer service.
“We’re studying the DfT’s decision carefully to understand why they’ve taken this action and would like to reassure all our customers that they can still book and travel as normal.”
A DfT spokesperson said: “Stagecoach is an experienced bidder and fully aware of the rules of franchise competitions. It is regrettable that they submitted non-compliant bids for all current competitions which breached established rules and, in doing so, they are responsible for their own disqualification.
“Stagecoach chose to propose significant changes to the commercial terms for the East Midlands, West Coast Partnership and South Eastern contracts, leading to bids which proposed a significantly different deal to the ones on offer.
“We have total confidence in our process. We have awarded the East Midlands franchise to Abellio after they presented a strong, compliant bid.
“Stagecoach have played an important role in our railways and we hope they will continue to do so post the conclusions of the Rail Review.
“However, it is entirely for Stagecoach and their bidding partners to explain why they decided to repeatedly ignore established rules by rejecting the commercial terms on offer.”