BAE Says Carrier Negotiations are Part of Broader Shipyard Talks

BAE Systems Plc (BA/) is in “intense” negotiations with the U.K. government over contract terms for two aircraft carriers as part of discussions over naval shipyard capacity, Chairman Dick Olver said.

Discussions between the two sides are “constructive,” Olver said in an interview at the Confederation of British Industry’s annual conference in London today. Talks are focused on preserving British naval shipyard capabilities even as fewer vessels are built, he said.

BAE, which consolidated the U.K.’s warship building capacity in 2009, is reviewing the scale of operations amid declining demand at home and as work winds down on two Queen Elizabeth-class aircraft carriers due to start coming into service in 2018. The company lacks work to sustain its three surface shipyards located in southern England and in Scotland.

The U.K. government will “very soon” provide details of the renegotiation of contract carrier terms, Jean-Christophe Gray, spokesman for Prime Minister David Cameron, said today. The Financial Times reported costs would increase to 6.2 billion pounds ($10 billion).

BAE told investors on Oct. 10 it was renegotiating contract terms with the government over to reflect “increased maturity” of the program. The program’s price tag has already risen more than 50 percent since 2005 with the U.K. Parliament’s Public Accounts Committee saying in September further increases were expected.

“When people start talking about numbers early they are on inadequate definition,” Olver told the CBI. The revised costs “have a relatively high probability.”

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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