Big orders, small doubts

Plenty of opportunities will arise for the big defence manufacturers, while the larger programmes will escape the axe in the Government’s Strategic Defence Review (SDR). But a smaller naval fleet will lead to the loss of promised refit contracts. And lower-tier suppliers say details of the likely affects are ‘sketchy’. This week the defence industry […]

Plenty of opportunities will arise for the big defence manufacturers, while the larger programmes will escape the axe in the Government’s Strategic Defence Review (SDR).

But a smaller naval fleet will lead to the loss of promised refit contracts. And lower-tier suppliers say details of the likely affects are ‘sketchy’.

This week the defence industry is still grappling with the small print of the review, designed to prepare for the era of ‘smart procurement’ and high-tech weaponry by abandoning capabilities the Ministry of Defence deems unnecessary.

A GKN source says: ‘The government is moving away from an all-round capability to concentrate on core skills and technologies.’

But overall the reaction from the defence industry is cautiously positive. Large companies have welcomed the announcement of two new 30 40,000 tonne aircraft carriers.

However, companies further down the supply chain have complained of a lack of detail.

‘Overall it’s quite good,’ says Alan Sharman, director-general of the Defence Manufacturers’ Association, which speaks for smaller suppliers to the big defence companies (see panel).

‘There doesn’t seem to be anything which will lead to obvious cuts in procurement. I think there will be new opportunities in the support area, too.’

New carriers promise

Eric Grove, deputy director of the Centre for Security Studies at the University of Hull, calls the review ‘conservatism masquerading as radicalism’, but concedes ‘it is more coherent than anything the last government did’.

Most enthusiasm surrounds the promised new carriers, which will be 50 100% larger than the present Invincible class carriers, with an airgroup more than twice the size.

Groves believes the construction of the first carrier will begin by about 2005. Initial estimates suggested they could be worth £3 4bn each, but Grove’s work for the House of Commons Defence Select Committee suggests a much lower cost of £600m a vessel. The higher estimates probably include the cost of the carriers’ new aircraft and helicopters.

Meanwhile, the commitment to buy two more Astute Class hunter-killer nuclear submarines in addition to the three on order was a move that surprised some observers.

Based on the value of the first three, the new subs could be worth about £1.3bn to GEC-Marine’s VSEL yard in Barrow-in-Furness, Cumbria.

A GEC-Marconi spokesman says: ‘The SDR has been welcomed; there’s nothing negative. Its impact on us is the same as on industry as a whole they haven’t cut high-tech programmes.’

BAe sanguine

British Aerospace is also sanguine about the review. ‘We are very interested in the carriers,’ a spokesman says. ‘The electronics and their integration will be an important factor. The ability to build large hulls is not necessarily the criterion. The whole thing could be provided as a package, from the hull to the aeroplanes.’

Another planned naval order is for two logistic landing ships. These could be worth £200m. The MoD said last week it would consider private finance initiative funding to build and operate these.

Refit yards, however, have been disappointed by the net fleet reductions of three frigates, two submarines, three mine hunter-sweepers and one patrol vessel, which will cut refit opportunities.

Reg Shield, marketing manager for DML, owner of Devonport Royal Dockyard, says: ‘Overall we’ve lost about £140m of business. It’s more than we hoped, but within the range we recognised was possible.’

The most immediate impact, he says, is the loss of the £5 10m docking and essential defects refit of the frigate HMS London, scheduled for the end of 1998. Under the terms of its MoD contract, it is entitled to be compensated.

‘We’d rather have work than compensation, so we’ll be pressing the ministry for some other work over the same period,’ Shield says.

Refits on hold

Further ahead, the £10 20m full refit of frigate HMS Brave was due to come to DML in 2000. There was also the planned refit and refuelling of the hunter-killer sub HMS Splendid, due in 2003, representing £100 120m of work.

‘We’ll be doing forward-load projections and we are working with the MoD to work out how we can reorganise our workload,’ Shield says.

Rival Rosyth Royal Dockyard has reasons to be more bullish. ‘We had been threatened with [hunter-killer] sub Spartan’s refit going, but that will start next year,’ says a spokesman. ‘The refit of [frigate] HMS London, expected in 2003, has been cancelled, but the MoD has said it will negotiate a broadly similar package of surface warship work.’

Among aircraft makers, BAe seized on the review’s assertion that ‘we do need strategic airlift’.

A spokesman says that the pan-European Future Large Aircraft ‘is the only one which will meet the European staff requirement for a strategic lift aircraft’. It plays down the review’s talk of an early lease of four US C-17 Hercules-sized aircraft.

The defence review puts an end to the order for more Merlin anti-submarine helicopters that GKN-Westland had originally expected. ‘This doesn’t come as any surprise to us,’ Westland says.

The company will not make any projections, but must hope the Merlin order could be switched to one for more RAF Mk3 support helicopters; a further ‘mini-review’ may decide more are needed.

In the meantime, Westland can console itself with orders for 10 extra Navy Lynx Mk8 conversions. Westland will supply kits to the navy’s Fleetlands repair station.

As for land vehicles, Vickers Defence Systems, maker of the Challenger 2 tank, is ‘upbeat’.

The review plans to put into storage, but keep ready for use, some of the 386 Challengers on order a figure now seen as exceeding peacetime requirements. ‘This represents a very good opportunity for maintenance, servicing and training,’ says a Vickers spokesman.

It is also ‘quite possible’ that tanks which go into storage could be made available for export.

Providing the new equipment to give Britain’s small army a vital qualitative edge has been an aim of the review.

One of the most important of the new projects is the Tracer ‘stealth’ armoured reconnaissance vehicle, which Britain and the US have finally agreed to develop. The programme is expected to be worth £3bn and an invitation to tender for the project definition stage was to be released to industry this week.

Bids for Tracer

Two consortia are expected to bid: SIKA, a joint venture formed by BAe and Lockheed Martin, with several other US and British firms, including Vickers, as subcontractors; and Lancer, an alliance of GEC-Marconi and GKN Defence, with United Defense and Raytheon Texas Instruments.

BAe says its involvement in Tracer ‘goes to prove that systems integration is going to be the key factor in all future high-tech military equipment’.

A possible sting in the review’s tail, which emerged in the Defence Select Committee hearings last week, is the 3% annual efficiency target required over the next four years. Conservative sceptics suggest this could mean a real cut of £2.5bn, though MoD staff questioned these calculations.

GKN’s assessment of the review points out: ‘The Government will be under pressure to deliver savings and stability at the same time as attempting to restructure root and branch.

‘Such an exercise would usually bring not only instability but also cost increases (spending to save) and it will be difficult for them to implement the resource restructuring within the planned timescale and budget.’

GKN concludes: ‘It is clear, therefore, that they saw industry as an ally in this. The review reflects this to a large extent.’

Small firms impatient for the nitty gritty details

Small suppliers have some reasons for optimism, says Alan Sharman, director-general of the Defence Manufacturers’ Association, although he warns that the defence review means ‘fewer actual weapons’.

If the MoD does buy the two large aircraft carriers which the review has mandated, ‘the potential for suppliers at all levels is enormous’, says Sharman.

‘For the platforms [vehicles, ships and aircraft] there will be quite a lot of new opportunities for software and electronics companies, providing better command and control and better fire control equipment.’

He adds that the better nuclear, biological and chemical defence equipment promised by the SDR will offer ‘opportunities for companies in stockholding and distribution’.

Asked to identify possible losers, Sharman says: ‘They will be on the metal-bashing end of the business, as there is talk about keeping platforms for longer and updating them more regularly. But I think this represents what was already a trend.’

Generally, defence firms further down the supply chain welcome the review but with reservations.

As a supplier to Yarrow Shipbuilders and the RN’s supplier of specification cable glands, Fairless Engineering of Stockton-on-Tees, Cleveland, is looking forward to the new carriers and the Project Horizon frigates.

Works manager John Robson says: ‘The aircraft carriers are good news. We hope the start date for building them is sooner rather than later.’ However, he also forsees less naval refit work.

Harkers Engineering, also based in Stockton-on-Tees, supplies aircraft landing gear components. Chief executive Malcolm Harker says: ‘One of the frustrations is that the review talks about the big things, but gets sketchy when it comes down to our level.’

As a supplier to Rolls-Royce and Messier Dowty, Harker is pleased that ‘they don’t seem to have killed anything major’.

But he adds: ‘All I’ve read so far is motherhood-and-apple-pie stuff about we’re going to get two aircraft carriers. When it gets to our nitty-gritty level, there’s no detail.’