U.K. May Lose Tank-Making Capability on Order Delay (Update1)
By Sabine Pirone
Dec. 15 (Bloomberg) -- Britain, where the tank was invented during World War I, may be unable to build armored vehicles after BAE Systems Plc said it can’t rule out closing factories in response to government spending cuts.
BAE, Europe’s biggest defense contractor, will review the future of its Land Systems unit, the U.K.’s only tank manufacturer, after the decision to freeze a 16 billion-pound ($24 billion) truck order, Mike Sweeney, a spokesman for the London-based company, said today by telephone.
“If the government wants an indigenous armored-vehicle capability in the U.K. they need to buy something soon from BAE,” said Nick Cunningham, a defense and aerospace analyst at Evolution Securities in London. “Otherwise BAE will have to restructure and scale back its manufacturing business, which could even include selling it or closing it down.”
The U.K. defense ministry scrapped an order for as many as 2,000 armored utility vehicles on Dec. 11 as it diverted spending to the war in Afghanistan. BAE had been counting on being awarded the contract to sustain manufacturing at the Land Systems unit. Britain introduced the world’s first tank at the Battle of the Somme in 1916, and its most recent, the Challenger 2, was built by BAE until 2002 and is in service in Iraq.
“We will clearly have to consider what this means for the size and shape of the Land Systems business in the near future,” BAE’s Sweeney said. The company said it can’t rule out U.K. plant closures and job cuts.
Skills to ‘Bash Metal’
“We will retain the skills base to bash metal into tanks, but the question is, what key capabilities will be retained,” said Bernard Jenkin, a Conservative party lawmaker who sits on Parliament’s defense committee. “I would think the next- generation battle tank will be a multinational endeavor.”
The Ministry of Defence didn’t immediately respond to voice- mail messages by Bloomberg seeking comment.
Land Systems UK, which employs 2,000 people at 10 main plants, was a frontrunner to win a contract to build a version of General Dynamics Corp.’s Piranha V, which had been selected to fulfill the utility-vehicle role in the Ministry of Defence’s Future Rapid Effects System program.
Following last week’s decision to withdraw the Piranha from its provisional preferred bidder status, the defense ministry also postponed the purchase of two aircraft carriers and scaled back a helicopter order. The ministry said it will refocus the FRES program on Scout tracked vehicles. While BAE is bidding to build the Scout, the equipment won’t enter service until 2013 at the earliest.
200 Job Cuts
Land Systems said last month it would cut as many as 200 jobs as earlier delays to Britain’s purchase of fighting vehicles left the unit reliant on a handful of models.
Production work has dwindled to a handful of soon-to-be- completed models, including the Pinzgauer all-terrain truck and Terrier general support engineer vehicle, plus an unspecified project for a Middle Eastern client.
In the absence of new orders, that will leave only upgrade and integration work on models such as the AS90 self-propelled howitzer, FV430 armored personnel carrier, Titan bridge-laying vehicle and Panther command-and-liaison vehicle, plus a possible new turret for the Warrior tracked vehicle.
BAE spokesman Sweeney said that with the Piranha order canceled and the bulk of value in modern military vehicles coming from mission systems and subsystems such as electronics, weapons and armor, the company will inevitably shift focus away from new production if orders aren’t forthcoming.
Systems Integration
“We are already seeing an increased emphasis on systems integration as military vehicles become more complex and this is likely to continue,” he said.
“It is of course important that the Ministry of Defence now moves swiftly to outline the future and the next steps in a timely manner, so that industry can manage and retain its skills and the soldiers can get the best vehicle when they need it,” General Dynamics spokesman Tom Griffin said in an e-mailed statement today.
General Dynamics will have an opportunity to compete in any future Utility Vehicle upgrade, the Ministry of Defence said in a statement last week. The company employs about 1,700 people in the U.K. and is the Bowman prime contractor for integrating the current British Army fleet with the tactical communications systems.
To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net
Last Updated: December 15, 2008 13:19 EST
