Fewer jets, one carrier seen in UK defense review

The band of the Royal Marines play on the deck of the HMS Illustrious aircraft carrier on the River Thames in east London, May 7, 2009.

LONDON (Reuters) - Britain is likely to order fewer fast jets than originally planned and keep at least one of two proposed aircraft carriers, but troop numbers will bear the brunt of spending cuts, a senior defense source said on Friday.

The Ministry of Defense (MoD) source said fewer new Joint Strike Fighters (JSF) would be ordered and a 10.5 billion pound ($16.4 billion) deal for air tankers was under scrutiny, part of measures to cut Britain's record budget deficit and restructure the military under a strategic review.

The defense budget, worth 36.9 billion pounds this year, is almost certain to escape the worst-case scenario of cuts of up to 20 percent in the next four years, two defense sources said. One said the MoD was planning for a 10 percent spending squeeze.

However, the MoD source said Britain had assured Washington that Trident, the UK's submarine-based nuclear missile system, would be renewed, which will cost up to 20 billion pounds.

Britain had initially ordered 138 JSF aircraft, built by U.S. manufacturer Lockheed Martin (LMT.N), and media reports have speculated that figure could be halved.

"They will be less than currently planned," the source told Reuters on condition of anonymity, without giving a revised figure for the order.

The JSF planes are intended for use on aircraft carriers, and Britain had planned to order two new ships, to be built by a consortium including BAE Systems (BAES.L), Thales (TCFP.PA) and Babcock (BAB.L) at a total cost of about 5.2 billion pounds.

The MoD has since considered scrapping the order, but the source said at least one carrier was likely. British shipyards say work has already begun on one of the vessels.

Also under scrutiny is a deal with an EADS-led (EAD.PA) consortium to lease military air tankers, criticized by a parliamentary watchdog this month.

"It's an extraordinary amount of money for the capability it delivers when other countries do it for a fraction of the cost," the source said, adding that a decision to scale back or scrap the order would be subject to contractual obligations.

The planes, due to enter service between 2011 and 2016, do not currently have protective equipment needed for Afghanistan.

PERSONNEL CUTS

The source said newspaper reports that Defense Secretary Liam Fox, on a visit this week to Washington, had promised Britain would retain Trident were correct.

The system, which involves at least one nuclear armed submarine being at sea at all times, is due for renewal in the 2020s, but funding is expected to be committed in 2014 or 2015.

The source said the system would be renewed without reducing its capability, and this would make scaling back the four submarines or the number of warheads currently used unlikely.

Policymakers have been examining whether big-ticket military equipment orders such as aircraft carriers could be scrapped to save money, alarming defense and industry chiefs.

The MoD source, and another senior defense official who spoke to Reuters earlier this week, said contractual obligations and the fact that much of the ordered equipment was needed made such a move costly and difficult.

Instead, there will be more focus on cutting personnel numbers, given that about one-third of the defense budget is spent on salaries. The army, which numbers about 102,000 people, was likely to see the deepest cuts, the sources said.

"Everyone gets hung up on equipment programs, but the big costs are personnel ... not just the army, but the army consumes the largest amount," the MoD source said on Friday, without giving the extent of the cuts.

The other defense source said earlier this week combat troops are unlikely to be thinned until after Britain withdraws the bulk of its 9,500 troops from Afghanistan, expected by 2015.

The MoD source said the ministry was also planning to find a way to close British military bases in Germany, but relocating the troops would be expensive and the move might not be included in the current strategic review.

"Dr (Liam) Fox has made it clear he wants the troops brought back. He wants to do it as soon as feasibly and financially possible. But it's not cheap to do it."

The MoD is due to present its proposal on the military's future to the National Security Council in the coming weeks, and the MoD's strategic review is due to be completed by the end of October. The finance ministry's spending review is on October 20.

(Editing by Andrew Dobbie)