Naval shipyards merger signalled

BRITAIN'S naval shipyards are coming under increasing political pressure to merge their operations by January to create a new national shipbuilding champion.

The merger of the warship-building and fitting businesses of BAE Systems, VT (the former Vosper Thornycroft) and Babcock would safeguard 20,000 jobs in a deal in which, it is hoped, the Ministry of Defence will guarantee work as far down the line as 2020.

The Evening Standard has learned that high-level, detailed planning meetings between MoD officials and senior company executives are taking place on a weekly basis with an agenda of sealing a deal between the three companies within two months.

The proposed structure would be a standalone joint venture in which each of the parties would hold a stake, probably dominated by BAE Systems' larger but unprofitable shipbuilding operations.

However, executives from the companies - while supportive of the initiative under Defence Secretary Geoff Hoon - fear they are being pushed to deliver the deal within an extremely tight timeframe on the basis of political expediency.

While most in the sector believe a merger of operations would boost the industry, it is thought senior Government figures are railroading the plans to make political capital before a potential snap General Election next spring.

One insider said: 'We all support the logic of putting the businesses together so long as the MoD comes up with a long-term programme.'

As it stands, after the construction of the Type 45 destroyers and the £2bn aircraft carriers on which the companies are working, the naval shipbuilding pipeline could start to dry up from 2011.

The companies want a flattening-out of the workload, including new vessels for the auxiliary fleet, taking the orders pipeline out to at least 2020.

'We all think this is great if a coherent policy can be achieved. But the question is: can the MoD deliver on a 15-year programme when it has to carry the Treasury and the Department of Trade and Industry with it?' said the insider.

'The sense of urgency in this is the political dimension and the fear of the companies is that if we cannot agree a new entity by January, then the political drive for it may have gone. If so, rationalisation of the industry may never happen.'

A central sticking point for a new national shipbuilding champion is just who will own what. By annual revenues from its shipyards on the Clyde, BAE Systems could lay claim to a 60% economic share of a merged entity. That is likely to be challenged by VT, which has shown its commitment to the industry by investing in and moving to state-of-the-art operations at Portsmouth.

BAE has made little secret that it wants to exit its lossmaking shipbuilding interests. The ship refurbishment operations of Babcock at Rosyth would also see it lay claims to a large stake in the entity.

A statement on the proposed merger may be made next week when VT and Babcock reveal half-year results.