BAE merger plan could save shipyards

Shipyards in Scotland under threat were given hope after the defence giant BAE Systems said it was seeking to merge its Clydeside operations with rival facilities across the UK.

The company said it was in talks with the Ministry of Defence to create a single firm to run the nation?s six shipyards – including three in Scotland – in an attempt to keep them all up and running. BAE owns Govan and Scotstoun on the Clyde, as well as Barrow-in-Furness in Cumbria. Fife?s Rosyth is owned by Babcock, while VT Group operates from Portsmouth and Swan Hunter from Wallsend.

A spokesman said the talks were at an early stage but that the group thought it “would be a good way ahead” for the shipbuilding industry. He added: “The idea would be to share the workload, rather an fight over boom and bust periods. The move would mean valuable support for the UK?s shipbuilders.”

BAE?s Scottish operations have been under threat for several years, as the issue of whether work should be carried out in Scotland, England or abroad has gathered pace. Combining the six yards would help to secure the jobs of the 10,000 shipbuilders, mainly by levelling out the traditional peaks and troughs in orders.

Officials at the MoD have said privately they are keen to spread the work, rather than force the yards into a cut-throat scramble for orders. The BAE spokesman said the strategy will be on the agenda when government officials meet with the defence contractors on 11 October when the scheme could get the go-ahead.

But controversy is likely to rage over the value of the stake that BAE will own in the new company. The defence firm wants a 50 per cent share to match its number of shipyards, but this could meet strong opposition from rivals. Industry analysts have played down the likelihood of rival contractors agreeing to let BAE take a 50 per cent stake, although the spokesman said, “if you look at our order book, it makes sense”. Both Paul Lester, the chief executive of VT, and Gordon Campbell, the chairman of Babcock, have expressed concerns over company valuation.

BAE?s chief executive Mike Turner told investors that the division was not expected to generate a profit until 2008, although the past few months have yet to throw up a serious bidder. Observers have suggested that the potential auction of the shipyards was merely a political ruse to force the government into action, although the BAE spokesman denied the claim last night. He said: “The review is continuing despite talks with the government.”