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MoD gives go-ahead for aircraft carriers

European Aerospace & Airlines Correspondent

An image courtesy of BAE Systems. Britain gave the go-ahead on Wednesday for plans to build two aircraft carriers for the Royal Navy, estimating the cost at 3.9 billion pounds. The announcement also clears the way for an expected merger of BAE and VT Group. REUTERS/Handout

LONDON (Reuters) - The government gave the go-ahead on Wednesday for plans to spend 3.9 billion pounds to build two aircraft carriers, triggering a deal that will merge operations at the country’s two largest shipbuilders.

The Ministry of Defence’s decision to proceed with a formal order for the carriers came as part of an increased defence budget set to expand spending by 7.7 billion pounds from 2008 to 2011.

The carriers are to be called Queen Elizabeth and Prince of Wales and are due to enter service in 2014 and 2016, the ministry announced. That is later than the 2012 and 2014 targets cited in original plans, which date back to 1998.

The two 65,000-tonne carriers, which will be the largest ships ever to sail with the Royal Navy, are expected to each carry 36 F-35 Joint Strike Fighter combat jets, being built by Lockheed Martin, as well as four early warning aircraft.

As part of its announcement, the ministry said it had decided to keep open naval bases at Portsmouth, Plymouth and the Clyde in Scotland, allaying fears of a closure of at least one of the sites.

BAE-VT VENTURE

Britain’s two largest shipbuilders, BAE Systems and VT Group, responded to the news by announcing they had inked a deal on a shipbuilding merger, which they have been discussing since late last year.

The two companies said in separate releases to the London Stock Exchange that they had entered a legally binding framework agreement, in which BAE would hold 55 percent of the joint venture and VT the remainder.

Each will hold equal board representation and voting rights in the venture, which will incorporate an existing 50-50 joint venture that they already operate, Fleet Support Ltd.

The government has called for consolidation in the defence sector to serve the country’s long-term equipment and service needs better.

“This is terrific. If you’d said two years ago that BAE and VT would be able to work out a joint venture in shipbuilding and through-life support, people would have said you were crazy,” Defence Equipment and Support Minister Paul Drayson told Reuters in a telephone interview.

He said by joining forces the two firms would be better equipped to compete globally and that government would play its part by providing better clarity on its defence needs.

Drayson said the ministry, BAE, VT, Babcock International and French firm Thales would work a risk-sharing alliance to build the carriers while Halliburton spin-off KBR which has been involved up until now will no longer be.

France’s Thales is involved in the design of the British carriers, but Drayson said there were no plans to build any of the large hull blocks in France.

“We will work on where we can make savings, in joint procurement,” Drayson said of a commitment to cooperate on aircraft carriers by Britain and France, which plans to acquire a new carrier as well.

A spokeswoman for French shipbuilder DCN said the firm would continue to talk to the British about partnership proposals.

BAE was up 0.81 percent at 434 pence, off earlier highs, as of 4:22 p.m. VT, after a rise, was down 0.4 percent at 623p.

Additional reporting by Tim Hepher in Paris

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