U.K. Shuts Henry VIII Shipyard as Navy Work Goes to Scotland

BAE Systems Plc, Europe’s largest defense company, will cease warship production at the historic Portsmouth yard on England’s south coast and eliminate 1,775 jobs as the focus of naval manufacturing shifts to Scotland.

Ship construction at Portsmouth will end in the second half of 2014 after more than 500 years, with the site’s work on Queen Elizabeth-class aircraft carriers moving 400 miles north to Glasgow, the company said today. Production of the new Type 26 Global Combat Ship will also take place in Scotland, it said.

BAE, which consolidated U.K. warship-building capacity in 2009, has been reviewing the scale of operations in Portsmouth, 70 miles southwest of London, and Scotstoun and Govan on the River Clyde as demand shifts to fewer, more capable vessels. Today’s announcement places all U.K. shipbuilding in Scotland ahead of next year’s independence referendum there, a proposed split the British government has said will not be successful.

“It is a huge blow to Britain’s manufacturing and industrial base, with many highly skilled workers faced with losing their jobs,” Ian Waddell, the Unite union’s national officer for shipbuilding, said in a statement. “We will have to examine the BAE business case in detail to see how we can secure a future for the workforces at both Portsmouth and in Scotland.”

Spanish Armada

Shipbuilding began in Portsmouth in around 1200 and was established on a large scale in 1495 when Henry VII commissioned a dry-dock there. Output accelerated under his son Henry VIII, with construction of the Mary Rose flagship among more than 85 vessels that later drove off the Spanish Armada.

Job cuts will be split among BAE sites, with 940 reductions planned at Portsmouth in 2014 and a further 835 across Filton, near Bristol, the Glasgow sites and Rosyth near Edinburgh.

The cuts will take place through 2016, London-based BAE said, adding that Portsmouth -- the main base for the Royal Navy -- will continue to provide extensive maritime services.

To help bridge a lull in Glasgow until construction of the Type 26 frigates, for which a production agreement is due next year, the U.K. government handed BAE an order for three patrol vessels used to counter piracy, smuggling and terrorism. Work will start next year, with deliveries due from 2017.

Industrial Giant

While the deal is valued at 348 million pounds ($560 million), the real cost is less than 100 million pounds as a prior agreement with BAE would have forced the government to pay for idled workers, Defense Secretary Philip Hammond told Parliament today. That accord can now be scrapped, he said.

The pro-independence Scottish National Party that runs a semi-autonomous government in Edinburgh said today that while the job losses are a blow, BAE’s commitment to shipbuilding on the Clyde is welcome. Deputy First Minister Nicola Sturgeon added that Scottish industry should take the announcement as a “wake-up call” and pursue export work beyond naval orders in the manner of Norway and similarly sized maritime countries.

The Portsmouth shipyard ranked as the world’s biggest industrial site by 1850 as Britain established a global empire, building almost 300 vessels for the Royal Navy in total, among them HMS Dreadnought, the first modern battleship.

After World War II Portsmouth lost its Royal Dockyard title and was left without warship production for 40 years from 1967, a drought that was broken with the launch of patrol vessel HMS Clyde in 2007 following a takeover by Vosper Thornycroft, which later sold its shipbuilding business to BAE.

Higher Tonnage

A brief resurgence saw Portsmouth produce export vessels for the navies of Oman and Trinidad and Tobago, plus sections of Royal Navy ships including Type 45 destroyers and the Queen Elizabeth-class aircraft carriers.

Portsmouth remains the home port for almost two-thirds of the Royal Navy’s surface ships, and the city will still have 11,000 jobs linked to the dockyard and naval activities, Hammond said, adding that the basing of the carriers and destroyers there will take tonnage to the highest in more than 40 years.

The government is liable to pay off workers losing their jobs, and BAE said the MoD will also cover other restructuring costs. Britain will spend 100 million pounds to expand the Portsmouth wharf to accommodate the new ships, Hammond said.

Financial terms for building the carriers have also been adjusted, with the program’s costs capped at 6.2 billion pounds -- about double the original price -- and the government and industry to split any further overruns, he said. The higher expense reflects a greater understanding of work involved in building the vessels, BAE Chairman Dick Olver said this week.

Robert Stallard, an analyst at RBC Capital in London, said that BAE appears to have done “a decent job” in its negotiations with the government, especially in securing the patrol-vessel contract, though the maturity of the carrier program may not be as advanced as anticipated.

“It has taken on more risk than planned,” he said in a note to investors.

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