BAE braced for cutback in warship orders

Click to follow
The Independent Online

BAE Systems is bracing itself for cutbacks in naval destroyer and Nimrod reconnaissance aircraft orders next week following the Chancellor's public spending review.

BAE Systems is bracing itself for cutbacks in naval destroyer and Nimrod reconnaissance aircraft orders next week following the Chancellor's public spending review.

Geoff Hoon, the Secretary of State for Defence, is to announce detailed expenditure plans next Wednesday. Although his department has been granted a real-terms increase in its budget of 1.4 per cent a year, a number of procurement programmes are likely to be cut.

Mike Turner, chief executive of BAE, said it believed the Type 45 destroyer programme could be reduced from 12 ships to eight. The vessel is being built jointly by BAE's Clydeside yards in Glasgow and VT group in Portsmouth.

There is also speculation that Mr Hoon will announce a reduced order for Nimrod maritime patrol planes. The original plan to order 21 aircraft has already been scaled back to 18 and there could be a further slimming down of the MoD's requirement. Mr Hoon is not expected to announce cutbacks in the Eurofighter or Joint Strike Fighter programmes. However, protracted negotiations are going on between the MoD and BAE over the precise number of Eurofighters which will feature in a second tranche order because of an increase in costs associated with a change in the specification of the aircraft.

The £25bn Eurofighter programme was conceived in the Cold War era as an air defence aircraft to deter Soviet aggression. But MoD planners now want an aircraft with greater strike capability. The decision on Type 45 orders will help BAE determine whether or not it will keep its shipbuilding yards on the Clyde and its submarine facility at Barrow in Cumbria.

Mr Turner said that BAE's shipbuilding business would produce no profits for the next three years, even though £750m worth of work was going through the yards. He said this was compounded by a lack of a UK strategy for naval shipbuilding and continued reservations among investors that BAE's exposure to warships would result in further heavy write-downs in the future.

BAE said in April it intended to seek offers for the two Glasgow yards and Barrow but it has still to issue a memorandum for sale to potential bidders. General Dynamics of the US, one of the front-runners to buy Barrow, is thought to have gone cold on the idea while Thales of France is doubtful whether any of the yards would be allowed to go to overseas buyers. That leaves VT Group as a potential buyer of the two Scottish yards.

There is scepticism about whether BAE's move is a device to put pressure on the MoD to agree improved terms for the purchase of two new aircraft carriers. BAE puts the cost of them at £4bn against the MoD's budget of £2.9bn.

Comments