UPDATE 3-Britain gives go-ahead for new aircraft carriers
(Adds Thales details, updates shares)
By Dan Lalor
LONDON May 20 (Reuters) - Britain is set to sign a long-awaited 4 billion pound ($7.8 billion) deal to build two aircraft carriers, which will be the Royal Navy's largest ever ships and which are set for 50 years of service.
"Today's confirmation that we are proceeding with the two aircraft carriers underlines our commitment to both the Royal Navy and the UK shipbuilding industry," Minister for Defence Equipment and Support Ann Taylor said on Tuesday.
The 65,000-tonne carriers, due to be called Queen Elizabeth and Prince of Wales and to enter service in 2014 and 2016, are expected to each carry 36 F-35 Joint Strike Fighter combat jets (LMT.N) as well as four early-warning aircraft.
The manufacturing contract is going to a consortium that includes a shipbuilding joint venture being set up between two British companies, BAE Systems (BAES.L) and VT Group VTG.L. Other members include Britain's Babcock International Group (BAB.L) and France's Thales (TCFP.PA), which designed the ships.
Thales said the contract would be worth more than 500 million euros ($778.5 million) to the French electronics group.
Thales is also involved in a French project to build one new aircraft carrier, which is awaiting final approval from President Nicolas Sarkozy.
Britain and France agreed to co-operate on the layout of the combined three ships but the building work is expected to be carried out in national yards.
Final signing of the British contract had been expected earlier this year but was delayed as Britain's Ministry of Defence struggled to align its spending plans with its budget.
Signs the logjam had been broken came with the ministry's May 8 announcement that U.S. defence contractor General Dynamics Corp's (GD.N) Piranha 5 was the preferred design for the army's next generation of medium-weight armoured utility vehicles.
BAE shares closed down 0.6 percent at 455.50 pence, while VT ended 1.2 percent weaker at 663.5 pence. Babcock finished 3.3 percent lower at 592.5 pence.
BAE, Europe's largest defence contractor, and support services company VT, have long been ready to finalise their joint venture, but said they would not do so until the government was ready to put pen to paper on the carrier contract.
The MoD said on Tuesday it had "completed all the necessary financial, commercial, and management arrangements and has provided written assurances to industry that we are ready to sign contracts as soon as the new shipbuilding joint venture that will be part of the alliance of companies constructing the vessels has been formed".
VT said it and BAE would now finalise arrangements for combining their shipbuilding and naval support businesses, following the framework agreement signed in July 2007.
Taylor said the aircraft carriers would sustain around 10,000 jobs at the peak of production. They will be built at shipyards in Barrow-in-Furness, Glasgow, Portsmouth and Rosyth.
The carriers will be much smaller than U.S. counterparts, whose next generation, also due to start service in the middle of the next decade, will displace 100,000 tons and carry upwards of 75 aircraft.
The joint venture between the two largest British shipbuilders, under which VT has an option to sell its stake to BAE, is key to VT's attempts to be entirely focused on support services. (Additional reporting by Tim Hepher, Matthias Blamont in Paris) (Editing by Quentin Bryar and David Hulmes)
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