07 Nov 2013

BAE Systems announces cuts: will UK defence suffer?

Summary: Following the BAE Systems announcement that it is to cut 1775 jobs in Scotland and England and end shipbuilding altogether at Portsmouth, the DCI blog looks at what the impact might be for the whole of the UK and what long-term effects might be felt in the UK defence industry.

BAE Systems recently announced that 940 jobs will be lost in its yard in Portsmouth, with a further 835 jobs lost across its other sites, the vast majority of which will be in the Govan and Scotstoun yards on the River Clyde.

The company has reported that the cuts have to be made in response to a significant drop in demand for defence ships across the UK.

The cuts mean that shipbuilding will be effectively ceased in Portsmouth for the first time in 500 years, with manufacturing work on the next generation of Navy warship – the Type 26 frigates – now being consolidated in Glasgow.

Defence procurement impact

While the news in undoubtedly a blow to those at risk or redundancy at the yards in Scotland and England, there have been attempts to offset the losses with the introduction of £100m of investment into the HMS Naval Base Portsmouth to expand the dockyard and prepare it for the arrival of Royal Navy warships.

In addition, three new ocean-going offshore patrol vessels are to be built on the Clyde, which will play a key role in counter-terrorism, counter-piracy and anti smuggling operations.

The 1775 job losses are also not likely to take effect immediately due to work on the aircraft carriers which has been planned until 2015.

As defence contractors across the world face similar setbacks and competition for the remaining work increases, it is vital that those selling to the defence industry maintain a competitive edge and identify all potential opportunities available early.

MOD deny political interference

BAE Systems have hit back at suggestions that the Government interfered with the defence contractor decision to close its Portsmouth shipyard rather than its Govan and Scotstoun sites in an attempt to avoid a political nightmare so close to the Scottish independence referendum next year.

There were widespread claims that the Government had insisted BAE keep the yards in Glasgow open for fear of antagonising Scottish voters.

BAE have stated that the decision to close Portsmouth was based purely on commercial capability, and that both BAE and the MOD agreed that Glasgow was the natural choice for shipbuilding in the UK based on expertise and cost-effectiveness.

However, it remains to be seen whether or not the Clyde manufacturing yards will continue to receive MOD work in the result of a ‘yes’ vote in the Independence referendum. It had been suggested that there could be a ‘get out clause’ in place in order to allow work to be transferred back to Portsmouth in the event of Scottish Independence. If the work is not transferred, it could be argued that the rest of the UK would have no major ship manufacturing capability after independence, and would effectively be relying on ‘foreign’ labour from outside the United Kingdom.

Vital defence intelligence

In unsettled defence markets, it is essential that businesses keep up to date on developments in the defence sector, changes to government legislation, breaking company news and competitor activity. The BAE Systems announcement could have major implications for defence manufacturing and capability for years to come. Stay tuned to www.dcicontracts.com/defence-blog for all the latest updates on this important issue.