Firms merge as review casts a shadow

Defence

The prospects for the defence industry are uncertain until the completion of the Government’s Strategic Defence Review.

The Government has said there will be no increased spending, and it lopped £168m off the defence budget to boost the health service. So hard choices seem inevitable. Significant changes may be made to spending priorities to afford the restructured mobile forces which George Robertson and his ministers say they now want.

Analysts point to the army’s Tracer reconnaissance vehicle and MRAV ‘battlefield taxi’ as unlikely to survive unscathed. This will be important to Britain’s three big armoured vehicle makers, Vickers, GKN and Alvis, at least two of which are likely to merge their armoured vehicle operations soon.

It is hard to see how the long-term costings will support spending on two further Astute class submarines, which ought to be ordered in this Parliament to keep the last government’s policy of retaining a dozen nuclear-powered attack subs. That policy may also not survive.

British defence spending has fallen by 29% in real terms since the mid-1980s, and large UK defence firms have rushed into joint ventures, strategic alliances and mergers to protect themselves.

Britain continues to fight for its strong position in defence exports, earning about £5bn in 1996. Export prospects for Eurofighter look promising, with Singapore a potential customer. This year may also see the long-delayed sale of four ex-Royal Navy Upholder class submarines. Another naval export prospect is the sale of two Vosper Thornycroft patrol boots (pictured) worth £50m to Qatar.

This year expect GEC-Marconi to announce alliances, mergers or even takeovers of at least one defence company in the US, and BAe to compete hard with GEC for Alenia’s affections.

In December the British, French and German governments jointly challenged their defence industries to produce restructuring plans to compete with the US defence giants.

The three countries’ defence industries must ‘set out a clear plan and timetable for action’ by 31 March, the message being rationalise or die. This may mean further job losses for BAe. Although France will take part in what French defence minister Alain Richard calls an ‘Airbus plus’, there is little evidence that France will allow such a firm real independence.

Germany’s Daimler-Benz Aerospace, France’s Aerospatiale and the UK’s BAe will lead European defence restructuring.

A problem is that the parallel restructuring of French defence electronics giant Thomson-CSF will take longer than expected.

George Paloczi-Horvath