Speculation about the future of the company, celebrated as "armourer to the nation'' during the First World War but now ranked fourth largest among UK defence companies, increased last week following its announcement of a drop in profits to pounds 12.1m from pounds 18.8m and the merger between Alvis and GKN.
The pounds 78m Alvis-GKN combination could be "a knock-out blow for Vickers", said Danny Bevan, an analyst at Credit Lyonnais Securities in New York. Dwindling orders already had Vickers weighing the closure of its tank factories, in Newcastle and Leeds, which each employ 600 people.
Vickers' chief executive, Paul Buysse, said the company will now concentrate on its defence, marine propeller and turbine businesses. The job losses will come from Vickers' two tank factories and the plant in Leeds will close down.
Vickers has been busy reorganising its businesses throughout the year. Measures include the sale of Rolls-Royce Motor Cars, Cosworth Engineering and the luxury boat maker, Cantieri Riva. The sale of assets has created pounds 200m in cash reserves which could finance a defence acquisition.
Vickers now has firm orders for 386 tanks from the British army and 90 from Oman, but it has struggled to keep pace with competitors in winning contracts. Last year it failed to win a $5bn (pounds 3bn) contract to build 600 of Europe's next-generation armoured vehicle. GKN is one of the manufacturers in the project.
The market for military vehicles has withered as the buying power of customers in Asia and the Middle East has suffered from the economic slowdown and slumping oil prices. European countries have also cut their post-Cold War defence budgets by 40 per cent in the last decade amid pressure to reduce government deficits. And the biggest spenders, including Germany and France, have their own domestic armoured-vehicle manufacturers.
Apart from the tank business, Vickers has a marine propeller business, whose largest subsidiary is Kamewa, and a turbine unit that makes turbo- chargers. In 1997, those businesses had sales of about pounds 300m, 28 per cent of Vickers' total. Defence accounted for 32 per cent, and the recently sold automobiles and components units for 40 per cent.
Vickers' outlook is reflected in its share price. Its stock trades at a 7 per cent premium to assets, according to analysts, suggesting investors consider it has limited growth potential. GKN and Alvis trade at a 750 per cent and 500 per cent premium to assets, respectively.
So, with cash in hand, Vickers may be tempted to bid for Alvis, which has a market value of pounds 150m. Such a move would assure Vickers of defence work into the next century, give Vickers entry into the $5bn multi- nation armoured vehicle contract, and put it in a position to participate in further consolidation of the European defence industry.