Outlook: Royal Ordnance firing blanks

QUESTION - WHICH two companies have produced more aircraft in Britain than any other? If you thought the answer was British Aerospace, or its predecessor companies, you would be wrong. The answer is the once separate car makers, Austin and Morris. Nearly all Britain's aircraft making capacity was closed between the two great wars with the result that come 1939, the only option was for Austin and Morris to cease car production and go full time into making Spitfires and Hurricanes.

You have been warned, British Aerospace might say. BAe yesterday issued the Government with an ultimatum; the company will close its Royal Ordnance factories, leaving Britain without a munitions industry, unless it gets some guaranteed orders from the Ministry of Defence. The globe looks a pretty threatening place right now, but it not immediately apparent that world war three is about to break out. Even so, BAe does have a point.

There is little purpose in BAe spending large amounts of money developing state of the art bullets and munitions if the military's needs are eventually going to be catered for by low-cost overseas producers. Dual sourcing for defence orders was introduced by Peter Levene when he was in charge of defence procurement in the mid 1980s. Up to a point it succeeded in its purpose of driving down costs, but it was always likely to result in just the sort of problem BAe is now complaining of. the new Government has already proved a softer touch than its predecessor on launch aid. BAe is gambling it will be the same on defence procurement.