U.K. naval shipbuilding set for restructuring

Aircraft carrier blocks under construction in Portsmouth Aircraft carrier blocks under construction in Portsmouth

NOVEMBER 7, 2013 — With British taxpayers braced to receive more bad news on the costs of the two Queen Elizabeth class aircraft carriers, BAE Systems says it has reached agreement in principle with the U.K. Government on "measures to enable the implementation of a restructuring of its U.K. naval ships business."

The planned restructuring will see an end to shipbuilding in Portsmouth, England, with BAE Systems' shipbuilding operations being consolidated in Glasgow, Scotland. That has led to accusations that decisions have been influenced by next year's referendum on whether or not Scotland remains part of the U.K.

BAE Systems is a member of the Aircraft Carrier Alliance which is building the two ships. Its partners in the Alliance are Babock, Thales U.K. and the U.K. Ministry of Defense. BAE Systems Naval Ships is responsible for the majority of the hull build, with sections being built in Glasgow, Scotland, and Portsmouth, England, then being barged to Rosyth, Scotland for assembly into the completed ships. Other U.K. shipyards are also building some elements of the ship.

According to U.K. press reports, the price tag for the navy's new aircraft carriers is expected to top more than £6 billion, with defense secretary, Philip Hammond is expected to announce that the projected cost of the two carriers – which will not enter service until the end of the decade – has risen by a further £800 million to £6.2 billion: almost double the £3.5 billion estimated when the project was agreed by the Labour government in 2007.

The minister was expected to sweeten that pill by announcing that he has wrung various concessions from the Aircraft Carrier Alliance.

The measures BAE Systems has unveiled include "rationalization of the U.K. naval ship business to match future capacity requirements."

BAE Systems will consolidate its shipbuilding operations in Glasgow, Scotland. Shipbuilding operations at Portsmouth will cease in the second half of 2014. Lower Block 05 and Upper Blocks 07 and 14 of the second Queen Elizabeth Class Aircraft Carrier will be allocated to Glasgow.

Consultation will commence on a total employee reduction of 1,775 that is expected to result from these restructuring proposals, including 940 in Portsmouth in 2014 and 835 across Filton, Glasgow and Rosyth, progressively through to 2016.

BAE Systems says it "remains committed to continued investment in the Portsmouth area as the center of its Maritime Services and high-end naval equipment and combat systems business."

BAE Systems says the agreement it has provisionally agreed with the Government will result in:

Restructuring of the contract for the Queen Elizabeth Class Aircraft Carrier programme. Provision of additional shipbuilding work prior to the start of the Type 26 Global Combat Ships program .

In 2009, says BAE Systems, it "entered into a Terms of Business Agreement (ToBA) with the Ministry of Defense that provided an overarching framework for significant naval shipbuilding efficiency improvements in exchange for commitments to fund rationalization and sustainment of capability in the sector." It says that the just announced agreement, "together with an anticipated contract for the design and manufacture of the Type 26 Global Combat Ships program, will progressively replace that ToBA.

"BAE Systems, with the other participants in the Aircraft Carrier Alliance, has agreed changes to the Queen Elizabeth Class Aircraft Carrier contract. Under the revised terms, the contract will be amended to accommodate progra changes and activities previously excluded from the contract.

"Under the new Target Cost contract the industrial participants' fee will move to a 50:50 risk share arrangement providing greater cost performance incentives. The maximum risk to the industrial participants will continue to be limited to the loss of their profit opportunity.

"The revised contract reflects the increased maturity of the program, with structural assembly of the first of class vessel now substantially complete."

"A significant reduction in workload will follow the peak of activity on the Aircraft Carrier program, the six Type 45 destroyers and two export contracts," says BAE Systems. "The anticipated Type 26 program will, in future years, address some of that workload reduction. In the interim period, a proposed contract for the manufacture of three Offshore Patrol Vessels ... will provide additional capability for the Royal Navy and sustain key shipbuilding skills."

"Following detailed discussions about how best to sustain the long-term capability to deliver complex warships, BAE Systems has agreed with the UK Ministry of Defenzce that Glasgow would be the most effective location for the manufacture of the future Type 26 ships. Consequently, and subject to consultation with trade union representatives, the Company proposes to consolidate its shipbuilding operations in Glasgow with investments in facilities to create a world-class capability, positioning it to deliver an affordable Type 26 progra for the Royal Navy."

The cost of the restructuring will be borne by the Ministry of Defense, says BAE Systems.

Though the Ministry has yet to issue the expected news on the mounting costs of the aircraft carrier, a press release on the three proposed OPVs reads as follows:

"The new ships will be built by BAE Systems at their shipyards on the Clyde in a deal that will sustain jobs in the U.K.'s warship-building industry, and will play a key role in counter-terrorism, counter-piracy and anti-smuggling operations.

"The agreement with BAE Systems provides work for the company between the completion of the Queen Elizabeth Class aircraft carriers and the Type 26 Global Combat Ship, securing the vital skills needed to build the U.K.'s future warships.

"Defense Secretary Philip Hammond is also announcing today that more than £100 million will be invested in Her Majesty's (HM) Naval Base Portsmouth, which will be home to both HMS Queen Elizabeth and HMS Prince of Wales. The money will expand the dockyard to ensure it is ready for the arrival of the Royal Navy's biggest ever warships as well as for the Type 45 destroyers which are based in Portsmouth.

"Under the terms of a business agreement signed with BAE Systems in 2009, MOD would have been liable to pay for any periods when no shipbuilding was taking place at U.K. yards."