U.K. May Alter Warship Timetable to Save Jobs at BAE Shipyards

BAE Systems Plc (BA/) and the British government are in talks to adjust warship manufacturing to avoid disruptions from reducing levels of work, according to Bernard Gray, the U.K.’s chief of defense material.

The timing of the shipbuilding already included in the government’s equipment plan could be adjusted, Gray said yesterday at the International Institute of Strategic Studies in London. “Our aim, of course, is not to form some gap where nothing happens but to have a successful transition,” he said.

BAE, which consolidated U.K. warship building capacity in 2009, lacks work to sustain three shipyards in England and Scotland and is considering closures to adapt to demand. After completion of two Queen Elizabeth-class aircraft carriers due to start coming into service in 2018, activity will dip before the building of Type 26 frigates commences. Several thousand engineering jobs are at stake, according to the Unite union.

“We are working with the industry to make sure we have a smooth transition between the aircraft carriers and Type 26,” Gray said. “There are a variety of choices.”

U.K. shipbuilding is “at a multi-decade high,” said Gray, who didn’t address how many shipyards the government wants to sustain. “There is some relativity to consider here about what the appropriate size of the shipbuilding industry is going to be for a sustainable, long-term future.”

The shipyards involved in a potential adjustment are located in Portsmouth, England, and Scotstoun and Govan in Scotland.

Overcapacity, Duplication

BAE Chief Executive Officer Ian King said last week that discussions with the government are taking place. The company, Europe’s largest arms manufacturer, has announced possible job cuts of as many as 3,500 workers in its U.S. naval shipyard business as the Pentagon reduces spending.

Gray said industrial capacity concerns stretch beyond the U.K. because of multiple suppliers of frigates and four makers of aircraft carriers. “Within Europe we have overcapacity and duplication,” he said.

The situation is similar in areas including armored vehicle production, where Europe will have 23 manufacturing programs in the next decade, Gray said. More cooperation is needed between allies, the former Financial Times journalist said.

“The challenge for us is looking at the programs of the future -- what are we prepared to do to pool and share,” Gray said. One opportunity to cooperate could come on a future utility vehicle for ground forces, he said.

‘Do Better’

The U.K. and France agreed in 2010 to cooperate more closely on national security issues, including on a range of defense equipment programs. A U.K. spending review in the wake of the pact and last year’s change in French government have hampered advances, stalling cooperation in missile and unmanned aircraft programs.

“Our collective progress has not been as swift as either of us would want,” Gray said. “We should do better than this.”

BAE said last week it will buy back shares worth as much as 1 billion pounds ($1.52 billion) over three years after demand outside the U.S. and the U.K. helped swell cash reserves. The move pleased some BAE investors, who had opposed a plan to merge with European Aeronautic, Defence & Space Co. (EAD) That effort failed on opposition from the German government.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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