Shipbuilders bid to end boom and bust cycle

Naval yards ready to merge some of their operations in move to head off foreign competition. Clayton Hirst reports

Britain's shipbuilders are considering a partial merger in a bid to safeguard thousands of jobs and see off a threat from yards in the Far East.

The idea has been raised ahead of a Government-sponsored summit on the future of shipbuilding, which begins tomorrow in Bristol.

To be fronted by the defence procurement minister, Lord Bach, the summit is designed to trigger an industry-wide debate on the future of the naval shipyards and is expected to lead to a new Government policy on the sector before the election.

Britain's shipbuilders, headed by BAE Systems, VT Group, Swan Hunter and Babcock International, will call for the Ministry of Defence (MoD) to produce a timetable for future warship contracts. In return, some of the shipbuilders are prepared to consider merging some of their operations - such as human resources, marketing and finance departments - in a bid to cut costs.

"We have one major customer, which is the Government. Therefore, we need to demonstrate value for money," said an executive from one shipbuilder.

However, a return to British Shipbuilders, the state-owned holding company that was broken up in 1984, has been ruled out. Industry sources said that a full-scale merger of the yards would be too complex.

Britain is in the middle of the biggest boom in naval shipbuilding since the Second World War, with orders for destroyers, submarines and aircraft carriers.

But shipbuilders complain that the orders are placed on a haphazard basis, which has led to boom and bust in the industry. "Every 10 years we all employ a lot of people and then start shedding workers when the market dies down," said Paul Lester, the chief executive of VT. "We have to get to a situation where we have a stable workload so we can attract bright people to the industry."

Norman Brownell, the commercial director of Swan Hunter, said: "Skilled shipworkers won't sit at home or become call-centre fodder; they will move to where the work is."

Peter Rogers, Babcock's chief executive, called on the MoD to produce a 15-year plan, of which the first 10 years would be made up of relatively firm orders.

The MoD turned to Rand Corporation, an influential US think-tank, to help shape its views. It was asked to identify whether Britain's shipyards could cope with future demand.

Rand refused to comment publicly. But a source who has seen a draft of Rand's confidential report said it concludes that the yards would struggle with the volume of orders over the next few years. This has led to fears that yards in the Far East and Eastern Europe could pick up orders for support ships.

But controversially, the report says that one way to deal with the glut of orders is to allow companies from outside the naval shipbuilding industry to bid for work. These could include construction firm Amec and Halliburton subsidiary Kellogg Brown & Root, which both have experience building oil rigs.

In private, participants in the debate are worried that there are too many vested interests to produce sensible policy. One concern is that BAE, the biggest shipbuilder, may wield too much power in the discussions. The stakes are high for BAE as the company is expected to make a decision on whether to sell its shipyards after the MoD has produced its new policy.

Another source said: "I don't believe that the MoD will be anywhere near radical enough because all the shipyards are in politically sensitive areas."