Swan Hunter needs lifebelt from MoD to stay afloat

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A FEW civil servants at the Ministry of Defence will decide this week whether Swan Hunter lives or dies.

Soffia, the French group which had hoped to buy the historic Tyneside shipbuilder, will be trying to persuade the MoD to throw a lifebelt to the 650 employees left at the yard.

The deal fell through last week when a key contract, the refit of the Sir Bedivere, was awarded to the rival Rosyth yard.

But Soffia believes that smaller MoD refit work - the sort of contracts that keep the yards ticking over - could still enable it to keep Swan Hunter alive while it searches the world for bigger business.

However, the thin line of hope that is keeping Swan Hunter afloat may be about to be cut.

The MoD has been saying that while it is happy to talk to Soffia, there are no immediate plans to give Swan Hunter any more work.

The loss of the Sir Bedivere contract was seen as the final blow to Swan Hunter.

A smaller, pounds 6m order to refit the RFA Olwen was unexpectedly given to the yard, - but only if it yard was put on a viable financial footing before 1 August.

But the Olwen provides only about three months' work and is not enough to persuade Soffia it is worthwhile investing in the yard. The company wants a guarantee of about two years' work.

The MoD does have the business to give, but so far has not shown the political will.

For instance, it could bring forward to November, when existing Swan Hunter work runs out, a pounds 45m order for an ocean survey vessel. This is due to be placed in January. Orders for three Type 23 frigates are to be placed next year which, with Swan Hunter closed, would almost certainly go to Yarrow. But with the promise of one frigate order and a couple of refit contracts, Swan Hunter would survive, says Soffia's CMN division.

'Our aim is to achieve a healthy competitive structure for non-nuclear refitting,' said Malcolm Rifkind, Secretary of State for Defence, last year.

Yet what many people find annoying is that the MoD's declared aim of providing competition in British shipbuilding is undermined by its own policies.

Last week VSEL, the submarine builder, saw its share price jump 34p when Swan Hunter lost the Sir Bedivere contract.

One analyst said: 'With Swan Hunter out of the picture, VSEL is left with a near- monopoly in the surface warships market.'

VSEL has a monopoly on building large surface ships and submarines; Yarrow on frigates; Vosper Thornycroft on small ships and minehunters. And Rosyth and Devonport have both been guaranteed refit work by the MoD.

Fred Henderson, chairman of Soffia's CMN Support Services, said: 'The closure of Swan Hunter will seriously diminish competitiveness in the warship building industry, with consequent adverse cost implications for the MoD.

'Swan Hunter is the only UK yard with the proven capability for both new-build and refurbishment work for warships and auxiliaries larger than frigates.'

Rosyth was able to undercut bids for the Sir Bedivere contract only because it had been guaranteed other work by the MoD, Soffia claims.

Industry sources say all the five initial bids were around pounds 50m, but Rosyth was able to reduce its tender by pounds 10m.

Mr Henderson said: 'It could only do this because of the guaranteed workload through to the end of the century. The MoD is committed to place 50 per cent of all surface ship refits with Rosyth.

'It is axiomatic that Rosyth will expect to recover any shortfalls through their pricing on the guaranteed non-competitive refits.'

Without extra work, Soffia will not take over Swan Hunter. Without a buyer the receiver will close the yard and sell the assets.

Only the MoD has the power to decide the end-game.

(Photograph omitted)