Rising unemployment in the West Midlands is resulting in fewer people using the region’s buses, National Express said yesterday.

The Birmingham-based group said operating profits from its UK Bus & Coach division on a continuing basis fell by 21 per cent to £21.8 million in the six months to June 30, largely as a result of higher fuel and pension costs.

National Express operates buses under the West Midlands Travel brand and has recently agreed a new strategic partnership with regional travel authority Centro to modernise services.

It has introduced 90 new vehicles and revamped some less used routes while equipping stops with real time electronic information.

National Express said: “Underlying revenue growth was two per cent with Bus continuing to grow, despite some slowing in volume caused by rising unemployment, particularly in the West Midlands.”

The interim results statement yesterday, however, was dominated by the fact that the group slumped into the red in the first six months of the year as it lost more than £20 million on its soon-to-be nationalised East Coast rail line.

National Express reported interim pre-tax losses of £48.1 million against profits of £52.4 million a year earlier as it also set aside a hefty sum to cover its exit from the East Coast rail franchise, which is being taken back into government hands later this year.

The news added pressure to the embattled company as its faces crippling strike action on the East Anglia line in a two-day walk out starting yesterday.

It is also the focus of a potential bidding battle as suitors circle the troubled group.

National Express has made provisions of £54.7 million surrounding the East Coast route from London to Scotland, which it walked away from earlier this month after failing to renegotiate a deal with the Government.

It stressed that, having taken legal advice, it was “confident” the Government could not also seize its East Anglia and c2c franchises and would fight any moves for cross-default.

National Express is fighting battles on a number of fronts after a torrid past few weeks that have also seen its chief executive Richard Bowker quit to take up a new rail job in the United Arab Emirates.

Its first would-be buyer, larger rival FirstGroup, walked away last week, citing “uncertainties” surrounding the business following the East Coast exit.

National is now being eyed by another transport group, Stagecoach, alongside a consortium led by National’s shareholder, the Spanish Cosmen family, and private equity giant CVC.

The company said it had to concentrate first and foremost on a plan to get the group back on track and refinance its £1.2 billion debt mountain.

It said it was “evaluating whether value can be achieved for shareholders through third party approaches to acquire the group”.

On an underlying basis, National said it made half-year profits of £55.7 million, a drop of 42 per cent on the year before.

The company played down concerns about its ability of continue as a going concern flagged up by its auditors Ernst & Young yesterday.

This was based on a note to the accounts in which the company said it would be at risk of breaching its banking covenants if it were unable to reduce its debts sufficiently.