Alvis set to buy Vickers tank business

The long-awaited consolidation of Britain's armoured vehicles industry under a single ownership is close at hand after confirmation that Alvis is in advanced talks with Rolls-Royce to acquire Vickers Defence Systems, the makers of the Challenger tank.

The deal, which would bring production of all fighting land vehicles under one roof in the UK, was due to have been completed last autumn. But fears that it will result in the closure of the Vickers tank factory in Newcastle, which is close to Tony Blair's Sedgefield constituency, have held up talks.

Alvis, the maker of the Scorpion and Piranha light-armoured vehicles, bought the GKN division which makes the Warrior four years ago in return for which GKN acquired a 29.9 per cent stake in Alvis. Alvis's Coventry plant was subsequently closed and production shifted to GKN's Telford site in Shropshire. This is also now the site for UK production of the MRAV or battlefield taxi capable of carrying 11 troups, which Britain is manufacturing in partnership with Germany.

There are fears that Challenger tank production will also move to Telford if Alvis succeeds in buying the business. Rolls-Royce inherited when it bought Vickers in 1999.

Weekend reports suggested Alvis would pay no more than £20m for the business although this sum could be increased if Vickers is finally successful in landing a £2bn Greek order for the Challenger.

A Rolls-Royce spokesman refused to comment on the talks with Alvis."We never respond to market rumours or speculation," he said. Alvis was not available.

Rolls-Royce sold Vickers turbine components businesses for £74m to a buy-out led by Royal Bank of Scotland just over a year ago.

Paul Heiden, the group's finance director, has been leading negotiations over the sale of the remainder of the business.