National Express's jettisoning of the East Coast rail franchise has reduced the likelihood of a tie-up with FirstGroup, analysts said yesterday, but the Aberdeen company is considering another attempt to secure the Scotland to London line for itself.

National Express's jettisoning of the East Coast rail franchise has reduced the likelihood of a tie-up with FirstGroup, analysts said yesterday, but the Aberdeen company is considering another attempt to secure the Scotland to London line for itself.

Yesterday, just days after National Express rejected an all-share takeover approach from FirstGroup, the government said it would take over the East Coast Main Line as talks with National Express drew a blank.

At the same time, National Express's chief executive, Richard Bowker, said he was quitting in August, for a job in the Middle East.

National Express, which has been struggling to deal with falling passenger numbers on the line it took over two years ago, will run the operation until its committed funding runs out later this year.

The group warned its shareholders yesterday that the East Coast business made an estimated £20m loss in the first half of the year. The company also faces losses on a £40m loan to this subsidiary and a £32m performance bond the government can call on in the event of a default.

Douglas McNeill, analyst at Astaire Securities, said the move made a FirstGroup bid unlikely.

"A bid for the whole of National Express is probably off the agenda.

"National Express's debt is very high and taking on that debt could have been something FirstGroup could have contemplated if it could have relied on a revenue stream from East Coast."

However, he said that FirstGroup could still seek to pick up parts of National Express as the transport company tries to cut its £1bn-plus debt pile.

He noted that National Express's North American school bus business would be attractive to FirstGroup, as the Aberdeen company is the market leader in that sector.

The Department for Transport (DfT) said it intended to tender for a new operator from the end of 2010. It said the Scottish Executive and passenger groups would be consulted on the specification for the new contract.

A spokeswoman for FirstGroup indicated that the company, which unsuccessfully bid for the East Coast franchise last time, would consider another attempt to secure the franchise.

"Potentially we would be interested. We are a long-term operator in UK railway. We would look at new opportunities."

National Express's troubles could get even deeper as the DfT said it could take further contracts from the company.

"It is simply unacceptable to reap the benefits of contracts when times are good, only to walk away from them when times become more challenging," it said in a statement.

National Express said its legal advice was that its other franchises, National Express East Anglia, which includes the Stansted Express and London commuter service c2c, would not be affected by the loss of the East Coast.

However, the DfT said: "The government believes it may have grounds to terminate these franchises."

Many analysts are tipping National Express to go for a £500m fundraising to boost its coffers. But a legal dispute with the government would harm its chances of getting any rights issue away.

Bowker has become chief executive-designate of Union Railway in the United Arab Emirates. Chairman John Devaney is taking on executive duties until a replacement is found.

National Express shares fell 25.5p, or 8.2%, to 284p, while FirstGroup fell 3.75p, or 1.1%, to 354p.