Americans to take over BAE project

DEFENCE giant BAE Systems has bowed to pressure from the Ministry of Defence and agreed to play second fiddle to US-based Kellogg Brown & Root in the Royal Navy's £2.9bn aircraft carrier project.

Although Britain's BAE was lined up to lead the project alongside French-owned Thales in January 2003, KBR - part of US defence giant Halliburton - will coordinate the building of the two aircraft carriers.

The UK government wanted an outsider to lead the project because of the number of firms involved. KBR will take on the MoD's former role as integrator, in charge of sub-contractors including VT Group and Babcock.

BAE (up 1¼p at 250½p) bosses, led by chairman Dick Olver, last month threatened to withdraw from the project if KBR was appointed to manage their construction. Olver was concerned about KBR's limited knowledge of the shipbuilding industry and feared it would channel work to its affiliated shipyard at Nigg on the northeast coast of Scotland.

Heated talks over the weekend ensured the MoD will have the final say over what will be built where and it will have ultimate control for the management of the project.

News of the deal should accelerate moves to integrate Britain's shipyards. Negotiations are ongoing to create a joint venture to unite dockyards belonging to BAE, VT, Babcock and DML.

The Royal Navy expects the ships to be in service by 2012. It may not be all plain sailing since such long-running projects are prone to time and cost overruns.

KBR sparked controversy after a fight with the US army over cost estimates for providing troops in Iraq with logistical support.

Competition Minister Gerry Sutcliffe has referred Finmeccanica's deal to buy parts of BAE's military communications and avionics business to the Office of Fair Trading.