Bus and rail firm Go Ahead said it was reviewing options for its Midlands business after the division failed to meet targets.
The Newcastle company reported a poor performance from the division, below medium term requirements. The firm said it had no further comment beyond the update on how badly the regional arm had fared.
Go West Midlands has 494 staff and runs 197 buses under the Diamond Bus brand in West Bromwich, Dudley and Walsall, and the north and west of Birmingham.
In a trading update for the six months to the December 31, the firm said trading elsewhere remained strong and in line with expectations to improve on last year's first half operating profit of £55.2 million.
Its regulated London bus operations continue to perform well with additional mileage from new and enhanced contracts, despite higher costs.
The firm has recently completed the acquisition of First Group's regulated bus operations in Orpington, consisting of 35 vehicles and around £5 million of annual revenue.
Growth in its deregulated bus operations continues, with high single digit percentage increases in revenue as a result of carrying more concessionary and nonconcessionary passengers.
But it said: "The performance of our Go West Midlands business remains below our medium term requirements and we are reviewing options for this operation."
Its rails operations were doing well, while there had been a 'good start' to the London Midland operations which began on November 11.
London Midland runs from London Euston to Liverpool via Birmingham New Street as well as local services to towns including Northampton, Stoke on Trent and Stratford upon Avon.
The franchise is made up from the old Silverlink County and a major part of the Central Trains franchises.
London Midland employs around 2,600 people, around 160 of whom are based in their New Street head office.
Passenger revenue to date has increased at a similar level to the 12.7 per cent increase in the first quarter, Go Ahead said.
Growth in passenger numbers continues albeit at a slightly slower rate than last year. Overall, the first half operating profit from rail was expected to be above the first half of last year, but to be more than offset by a second half reduction, due primarily to lower subsidy receipts and increased franchise costs.
Go Ahead added it had arranged a £340 million banking facility to refinance all of its other facilities.
The company said: "Overall, the board expects the group to deliver a good performance for the first half and for the year as a whole."
Meanwhile train manufacturer Bombardier has won a £92 million order for its next-generation Turbostar diesel trains from UK train leasing company Porterbrook, part of Banco Santander's UK arm Abbey.
Bombardier said Porterbrook had ordered 12 two-car trains and 15 three-car trains on behalf of Go-Ahead Group's London Midland franchise.
The Canadian train maker said it will manufacture the trains at its factory in Derby.
Go-Ahead has said it would use the trains to replace older rolling stock running on regional services in Birmingham. Yesterday Go Ahead's shares fell by by 0.4 percent to 2444p