U-turn by BAE as warship yards go up for sale

BAE Systems has put its warship and submarine building yards up for sale in a move which would dramatically reduce its involvement in UK defence programmes and potentially help open the way for a transatlantic merger.

The defence and aerospace group is expected to confirm today that it has received approaches for its two warship building yards on the Clyde and the submarine building facility at Barrow-in-Furness from VT Group and the US contractor General Dynamics.

VT, the warship building and support services group formerly known as Vosper Thornycroft, is understood to be interested only in the two Clydeside yards - Scotstoun and Govan - whereas General Dynamics has set its sights on all three yards.

A BAE spokesman confirmed yesterday: "We have had approaches and we will look at them. Shareholder value will be our main priority. We will have to see what price people are prepared to put on the table."

The three yards have a turnover of about £800m and together made a small profit of under £10m last year. The two Clydeside yards employ 2,500 and are building six Type 45 destroyers and two new aircraft carriers for the Ministry of Defence worth a combined £6bn.

A BAE spokesman said the approaches for its shipbuilding business had been unsolicited but other sources said that BAE had invited offers after letting it be known it was prepared to sell the yards.

A sale of the yards would represent a huge U-turn by BAE. In January, it said it was hoping to increase the workforce on Clydeside by 1,200 by winning further Type 45 orders from the Ministry of Defence. Then at the company's preliminary results announcement in February, the chief executive, Mike Turner, said BAE's number one priority was to achieve acceptable levels of profitability on its MoD programmes.

For this reason, some industry observers suspect BAE's decision to put the yards up for sale might be a tactical move designed to force better terms out of the MoD on the aircraft carrier contract. Although the programme was initially costed at £2.9bn, the price has since risen to about £4bn and BAE is refusing to sign a final agreement with the MoD until it is satisfied that the contract will not result in substantial losses.

For VT, a takeover of the Clydeside yards would increase its exposure to shipbuilding significantly at a time when it has been re-inventing itself predominantly as a support services company. It is already building the bow sections for the Type 45s being constructed on the Clyde and hopes to win a 20 per cent work share on the carrier contract.

General Dynamics held abortive merger talks with BAE last year, since when it has made an agreed bid for the tank and fighting vehicles manufacturer Alvis.

Should BAE dispose of its warship yards, it could re-open the way for a merger with Boeing of the US, whose new chief executive Harry Stonecipher recently ruled out an alliance as long as BAE built submarines and destroyers.