fROM THE TIMES
Defence companies push Government for contracts
http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article6848237.ece
David Robertson
The defence industry is pushing the Government to sign equipment contracts worth up to £20 billion in the next few months, in an attempt to prevent the projects becoming a victim of cost-cutting next year.
Industry insiders have told The Times that intense lobbying pressure is being brought to bear on the Ministry of Defence (MoD) in the hope of getting big deals signed quickly.
The companies are concerned that if equipment contracts are delayed, they will be caught up in potentially severe budget cuts after the election.
Even those projects that survive the cuts are likely to be swallowed up by the Strategic Defence Review, to which both Labour and the Conservatives are committed. This is likely to delay procurement by at least 18 months after the election.
RELATED LINKS
Will defence groups keep a united front?
BAE pays £346m to take over UK shipbuilding
Among the contracts that are nearing completion but could be under threat if delayed is the £5 billion Private Finance Initiative (PFI) to replace the country’s search-and-rescue helicopters. Two consortiums are bidding for the 30-year contract, with Lockheed Martin, BIH and VT Group offering a Eurocopter, while Thales UK, CHC and Royal Bank of Scotland are offering a Sikorsky.
“All companies try to get their projects through before a general election because of uncertainty about whether they will be backed by a new government,” a senior defence industry insider said. “This year it is even more critical. We all know there are big cuts coming and nobody wants a project they have spent years getting to the point of signing a contract cancelled at the last moment.”
There are at least eight large projects awaiting final clearance by the MoD, totalling nearly £20 billion in value. Defence analysts say it is highly unlikely that they will all be signed in the months before a May election.
The contracts that are near to being signed include the Defence Training Review, a £12 billion PFI which all army training will be centralised at one base in Wales.The contract has been awarded to a consortium that includes QinetiQ, the defence research company, but the final sign-off keeps slipping amid rumours that the MoD is unhappy about the price.
Howard Wheeldon, senior strategist at BGC Partners, a City brokerage firm, said: “There is not a single defence project that cannot be cancelled between now and the end of the defence review, so I can understand why the industry is pushing its case to get them signed as soon as possible.”
Other projects include a £2.7 billion contract for A400M military transport aircraft, which is due to be signed at the end of
this year. The Conservatives have already questioned whether this could be cut, but Lord Mandelson, the Business Secretary, is understood to have backed the A400M deal as it will protect Airbus jobs in the UK. This is, therefore, considered one of the few projects that is safe.
The Royal Navy is hoping to buy refuelling ships in a £2.5 billion deal, but analysts have speculated that the MoD may try to save money by cancelling this project and leasing ships instead.
Another deal likely to be signed is the Future Rapid Effects System (FRES), an armoured vehicle for the Army. The original plan was to buy 3,000 vehicles costing £12 billion, but the MoD is now hoping to have signed a contract by February for 600 costing £2 billion. This may result in a decision to axe a pending £900 million contract to upgrade the Warrior armoured vehicle, which FRES will eventually replace.
A spokesman for the MoD said: “We engage regularly with the defence industry ... but our priorities are led by the current and future requirements of the Armed Forces. Our top priority remains Afghanistan.
“We continue to invest in defence equipment to meet the needs of current operations and to provide the capabilities needed for the future.”
BAE seals shipyard deal
• BAE Systems, Europe’s largest defence company, took full control of what remains of Britain’s shipbuilding indu
stry yesterday with the acquisition of BVT.
VT Group, the former Vosper Thornycroft, sold its 45 per cent shareholding in BVT for £346 million, ending 150 years of shipbuilding heritage.
• BAE and VT merged their shipbuilding assets last year in a deal that created BVT. The partnership contains three shipyards: Scotstoun and Govan, on the Clyde in Glasgow, and Portsmouth.
• VT will inject £43 million into the business to reflect lower than expected revenue from an export order to Trinidad and Tobago. Negotiations over how much compensation VT should pay for the Trinidad contract held up the final sale for several months.
• VT will now concentrate on its growing support services business, which manages contracts in areas such as nuclear decommissioning, waste management and facilities management
http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article6848237.ece
David Robertson
The defence industry is pushing the Government to sign equipment contracts worth up to £20 billion in the next few months, in an attempt to prevent the projects becoming a victim of cost-cutting next year.
Industry insiders have told The Times that intense lobbying pressure is being brought to bear on the Ministry of Defence (MoD) in the hope of getting big deals signed quickly.
The companies are concerned that if equipment contracts are delayed, they will be caught up in potentially severe budget cuts after the election.
Even those projects that survive the cuts are likely to be swallowed up by the Strategic Defence Review, to which both Labour and the Conservatives are committed. This is likely to delay procurement by at least 18 months after the election.
RELATED LINKS
Will defence groups keep a united front?
BAE pays £346m to take over UK shipbuilding
Among the contracts that are nearing completion but could be under threat if delayed is the £5 billion Private Finance Initiative (PFI) to replace the country’s search-and-rescue helicopters. Two consortiums are bidding for the 30-year contract, with Lockheed Martin, BIH and VT Group offering a Eurocopter, while Thales UK, CHC and Royal Bank of Scotland are offering a Sikorsky.
“All companies try to get their projects through before a general election because of uncertainty about whether they will be backed by a new government,” a senior defence industry insider said. “This year it is even more critical. We all know there are big cuts coming and nobody wants a project they have spent years getting to the point of signing a contract cancelled at the last moment.”
There are at least eight large projects awaiting final clearance by the MoD, totalling nearly £20 billion in value. Defence analysts say it is highly unlikely that they will all be signed in the months before a May election.
The contracts that are near to being signed include the Defence Training Review, a £12 billion PFI which all army training will be centralised at one base in Wales.The contract has been awarded to a consortium that includes QinetiQ, the defence research company, but the final sign-off keeps slipping amid rumours that the MoD is unhappy about the price.
Howard Wheeldon, senior strategist at BGC Partners, a City brokerage firm, said: “There is not a single defence project that cannot be cancelled between now and the end of the defence review, so I can understand why the industry is pushing its case to get them signed as soon as possible.”
Other projects include a £2.7 billion contract for A400M military transport aircraft, which is due to be signed at the end of
this year. The Conservatives have already questioned whether this could be cut, but Lord Mandelson, the Business Secretary, is understood to have backed the A400M deal as it will protect Airbus jobs in the UK. This is, therefore, considered one of the few projects that is safe.
The Royal Navy is hoping to buy refuelling ships in a £2.5 billion deal, but analysts have speculated that the MoD may try to save money by cancelling this project and leasing ships instead.
Another deal likely to be signed is the Future Rapid Effects System (FRES), an armoured vehicle for the Army. The original plan was to buy 3,000 vehicles costing £12 billion, but the MoD is now hoping to have signed a contract by February for 600 costing £2 billion. This may result in a decision to axe a pending £900 million contract to upgrade the Warrior armoured vehicle, which FRES will eventually replace.
A spokesman for the MoD said: “We engage regularly with the defence industry ... but our priorities are led by the current and future requirements of the Armed Forces. Our top priority remains Afghanistan.
“We continue to invest in defence equipment to meet the needs of current operations and to provide the capabilities needed for the future.”
BAE seals shipyard deal
• BAE Systems, Europe’s largest defence company, took full control of what remains of Britain’s shipbuilding indu
stry yesterday with the acquisition of BVT.
VT Group, the former Vosper Thornycroft, sold its 45 per cent shareholding in BVT for £346 million, ending 150 years of shipbuilding heritage.
• BAE and VT merged their shipbuilding assets last year in a deal that created BVT. The partnership contains three shipyards: Scotstoun and Govan, on the Clyde in Glasgow, and Portsmouth.
• VT will inject £43 million into the business to reflect lower than expected revenue from an export order to Trinidad and Tobago. Negotiations over how much compensation VT should pay for the Trinidad contract held up the final sale for several months.
• VT will now concentrate on its growing support services business, which manages contracts in areas such as nuclear decommissioning, waste management and facilities management
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