Low sales put 4,000 arms jobs at risk

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BRITISH AEROSPACE may close its Royal Ordnance ammunition division, putting more than 4,000 jobs at risk, unless sales pick up sharply in the next 12 months.

Sources close to the defence contractor said yesterday the future of the business was in jeopardy because it could not afford to compete with state-subsidised rivals. They added that sales to the Ministry of Defence, Royal Ordnance's biggest customer, had collapsed in the past decade, as a swathe of orders went to cheaper, state-backed competitors. A merger with the German defence group Rhinemetall was being discussed as a possible solution to Royal Ordnance's plight.

"Life in the UK ammunition business is very tough. Sales to the MoD went from pounds 350m 10 years ago to pounds 150m as state-backed firms from South Africa, South Korea, China and Israel entered the market. Talks with the Germans are at a very early stage, but a joint venture is a possibility," said one source.

Despite Royal Ordnance's attempts to increase its exports sales, which have doubled in the past 10 years and now account for 60 per cent of turnover, MoD orders remained crucial to the division's survival, they added. An MoD spokesman said that although the government had "a strong strategic interest in the future of the UK ammunition industry, Royal Ordnance's survival will depend on its ability to remain competitive and win orders in the UK and overseas".

Royal Ordnance has already undergone a major shakeout since being bought by British Aerospace in 1987. Since then, BAe has closed five plants and cut its workforce by almost 80 per cent from 19,000 to just over 4,000. The existing staff operates from 12 sites around the country, including plants in Lancashire, Nottingham, Durham and Wolverhampton. They manufacture propellants and shells for tanks and rifles.

Earlier this year, the company cut 199 jobs in Nottingham and said it would shut a plant in Faldingworth which employs 57 people.

The latest crisis is part of a widespread slump in the global ammunition industry which has been squeezed by tighter defence budgets in Europe and a plunge in Asian demand.

Experts claim defence spending among European nations has fallen by around 40 per cent since the late 1980s, while the number of suppliers has remained constant. This has forced a number of firms to turn to export markets in the Middle East and South East Asia, where they face stiff competition from state-owned suppliers.

Steel group, Avesta Sheffield, which is 51 per cent owned by British Steel, yesterday revealed plans to axe 1,000 jobs over the next two years as a direct result of poor market conditions blamed on the Asia crisis. The company said it had to bring costs down to the same level as the its competitors as it reported losses of $41m (pounds 25m) in the first three months of the financial year to June 30.