BAE threatens ministers: back us or we quit aircraft carrier deal

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The Independent Online

BAE Systems is close to pulling out of the £3bn deal to build two aircraft carriers for the Royal Navy after relations with the Government sank to new depths.

BAE Systems is close to pulling out of the £3bn deal to build two aircraft carriers for the Royal Navy after relations with the Government sank to new depths.

Britain's largest defence company has spent weeks haggling with the Ministry of Defence over the contract after it was rejected as the lead contractor.

The MoD will rule in the next fortnight that it wants BAE to form an alliance with other companies such as France's Thales and British shipbuilder VT Group to head the project.

A source close to BAE said that unless the MoD reversed the decision, the chances of it throwing in the towel were "very high". If BAE did back out of a primary role, its only involvement would be as a contractor.

The news will trouble the City, which is concerned about the deepening row between BAE and its largest customer, the MoD.

BAE admitted last week that it was considering selling its naval-ship division. The move was interpreted by some analysts as a deliberate snub to the MoD, which would not want the sale to go ahead while BAE was involved in the aircraft carrier project.

It is understood that BAE's investment bank, Goldman Sachs, has approached Thales, VT and General Dynamic about the business. However, all three have expressed reservations about buying BAE's shipbuilding assets.

Thales is not interested in buying the business outright. A well-placed source revealed that the French company was instead interested in forming a joint venture with BAE.

VT is understood to be interested in some of BAE's ship building interests. But it has balked at the mooted price tag of £350m-£400m.

A source close to General Dynamics said the American firm was only "lukewarm" on the idea of buying the shipyards.

The MoD has the power to block any sale but would first take advice from the Department of Trade and Industry. The MoD refused to comment.

A DTI spokesman said: "If BAE proposed to sell its shipbuilding interests then we would have to consider how this fitted with the Defence Industrial Policy."

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