LONDON (Dow Jones) – The U.K. government said it was stripping UK-based rail and bus operator National Express PLC (NEX.LN) of its East Anglia rail franchise from 2011, just months after the company lost its East Coast franchise for failing to meet its financial commitments.

The Department for Transport said the termination of the East Coast franchise--which was two weeks ago taken over by a state-run company--was a default under the East Anglia franchise deal, and the East Anglia franchise would be taken from the company on March 31, 2011 and wouldn't be extended to 2014.

It wasn't immediately clear what would happen to National Express' other U.K. rail franchise, C2C, which operates some commuter routes into London.

The U.K. government gives train operators fixed-term franchises to run services, but has the right to end franchises early if the companies fail to meet financial or performance targets.

The company said the U.K. government's decision to take away its East Anglia franchise was expected given the default on the East Coast franchise, but also said it was disappointed with the decision given an "excellent improvement in performance" over the five-and-a-half years it has run the routes.

National Express has been in turmoil since it lost the East Coast franchise. It has issued a profit warning, suspended dividend payments, seen one potential takeover suitor walk away from a deal and ended talks with another suitor, and had its strategy criticized by its largest shareholder. It is now planning a rights issue to raise GBP360 million to shore up its balance sheet, which is burdened by over GBP1 billion of debt. It's also looking for a new chief executive officer after Richard Bowker resigned in July when the U.K. government announced it would take the East Coast franchise.

It won the East Coast franchise when the U.K. economy was booming, but said it couldn't meet its financial obligations to the franchise once boom turned to recession and rail passenger numbers started declining.

National Express shares Wednesday closed at 338 pence. They have lost 29% of their value since the start of the year amid concerns about the company's debt levels, the loss of the East Coast franchise and its failure to find a buyer or to cement a merger.