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Fresh Cross-Channel Competition Delights Travelers, Hurts Chunnel

OPERATORS of passenger ferries plying the waters between Britain and France are set to exploit the financial crisis besetting Eurotunnel, operator of the new Channel Tunnel undersea rail link.

The Anglo-French "Chunnel" company has had to declare a unilateral 18-month standstill of interest repayments on the 8 billion ($12.3 billion) it owes the 225 banks funding one of this century's boldest engineering projects. Meanwhile, companies with brand-new ships offering high-grade facilities are vigorously marketing cut-price fares to passengers.

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One ferry company is offering foot passengers the chance of a day's shopping in Britain or France for as little as 1 ($1.55). Other bargains include a day trip for a car and four passengers for 10, and a 60-hour stay on the other side of what the French call La Manche for 45.

The impact of this cut-throat campaign to persuade people to travel on ferries instead of trains has obliged Eurotunnel to seek more time to prepare a counterstrategy.

Cash-strapped Eurotunnel is also about to demand some 2 billion back from contractors who it claims have added to the company's difficulties by supplying unsatisfactory equipment and causing unacceptable delays.

Sir Alistair Morton, Eurotunnel's British co-chairman, says he is confident the undersea "fixed link" can be brought back to financial health. Transport analysts are not so sure.

Richard Hannah of the London securities house UBS says part of Eurotunnel's problem is a "massive fight-back" by Channel ferry operators.

Eurotunnel claims to have a 39 percent market share of cross-Channel vehicle traffic against 31 percent by P&O Ferries, its main rival. But last month, Sir Alistair concedes, Eurotunnel failed to meet its forecast of carrying 160,000 cars in the prime vacation season.

But the difficulties besetting Eurotunnel run deeper than cut-throat competition from ferry companies. Revenue problems have their origin in a doubling of accumulated debt during the years of Chunnel construction (tunneling ran a year late) and lengthy delays in starting up regular services. Eurotunnel is just able to cover its 260 million annual operating cost, but it cannot meet interest charges running 2 million a day.

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"Eurotunnel had little option but to stop paying interest," Mr. Hannah says. Eurotunnel planned to break even in 1998, and start repaying the 8 billion loan. Hannah and other analysts point out that the interest-payment standstill will add to Eurotunnel's burdens, because charges will accrue over the next 18 months and must be paid eventually.

Morton told a news conference on Sept. 13 that suggestions that Eurotunnel was already bankrupt because it could not repay its debts were "off the mark."

One source of possible comfort for the Chunnel operators is a huge increase in traffic between Britain and France. The number of passengers rose by 22 percent in the first half of this year compared with the same period in 1994. Freight volumes rose 29 percent.

Hannah says freight carriage is one of the Chunnel's big advantages over ferries. Goods can be on- and off-loaded much more rapidly, and reach their destination faster.

One option the banks may urge Eurotunnel to pursue is a new rights issue, but in its eight-year life the company has already returned twice to its shareholders for a total of 1.4 billion in extra capital. Morton appears to be pinning his hopes on the banks not deciding to pull the plug on Eurotunnel while a new strategy is devised.

One thing is certain: The British and French governments will not bail out Eurotunnel. Under the 1986 treaty authorizing the project, they agreed that no public money should be injected into a project that was to remain wholly in the private sector.

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