UK Shipbuilding Sector Restructuring

BAE Systems has reached agreement in principle with HM Government on measures to enable the implementation of a restructuring of its UK naval ships business.

The agreement will result in:

• Restructuring of the contract for the Queen Elizabeth Class Aircraft Carrier programme.
• Provision of additional shipbuilding work prior to the start of the Type 26 Global Combat Ships programme
• Rationalisation of the UK naval ship business to match future capacity requirements.

In 2009, BAE Systems entered into a Terms of Business Agreement (ToBA) with the Ministry of Defence that provided an overarching framework for significant naval shipbuilding efficiency improvements in exchange for commitments to fund rationalisation and sustainment of capability in the sector. The agreements announced yesterday, together with an anticipated contract for the design and manufacture of the Type 26 Global Combat Ships programme, will progressively replace that ToBA.

Queen Elizabeth Class Aircraft Carrier

BAE Systems, with the other participants in the Aircraft Carrier Alliance, has agreed changes to the Queen Elizabeth Class Aircraft Carrier contract. Under the revised terms, the contract will be amended to accommodate programme changes and activities previously excluded from the contract.

Under the new Target Cost contract the industrial participants’ fee will move to a 50:50 risk share arrangement providing greater cost performance incentives. The maximum risk to the industrial participants will continue to be limited to the loss of their profit opportunity.

The revised contract reflects the increased maturity of the programme, with structural assembly of the first of class vessel now substantially complete.

Interim shipbuilding workload

A significant reduction in workload will follow the peak of activity on the Aircraft Carrier programme, the six Type 45 destroyers and two export contracts. The anticipated Type 26 programme will, in future years, address some of that workload reduction. In the interim period, a proposed contract for the manufacture of three Offshore Patrol Vessels, announced yesterday, will provide additional capability for the Royal Navy and sustain key shipbuilding skills.

Restructuring of the Naval Shipbuilding business

Following detailed discussions about how best to sustain the long-term capability to deliver complex warships, BAE Systems has agreed with the UK Ministry of Defence that Glasgow would be the most effective location for the manufacture of the future Type 26 ships. Consequently, and subject to consultation with trade union representatives, the Company proposes to consolidate its shipbuilding operations in Glasgow with investments in facilities to create a world-class capability, positioning it to deliver an affordable Type 26 programme for the Royal Navy.

Under these proposals, shipbuilding operations at Portsmouth will cease in the second half of 2014. Subject to consultation, Lower Block 05 and Upper Blocks 07 and 14 of the second Queen Elizabeth Class Aircraft Carrier will be allocated to Glasgow.

The Company remains committed to continued investment in the Portsmouth area as the centre of its Maritime Services and high-end naval equipment and combat systems business.

Consultation will commence on a total employee reduction of 1,775 that is expected to result from these restructuring proposals, including 940 in Portsmouth in 2014 and 835 across Filton, Glasgow and Rosyth, progressively through to 2016. The cost of the restructuring will be borne by the Ministry of Defence.

Unite, the country’s largest union, will fight to retain as many of the 1,775 jobs under threat, following the announcement (Wednesday 6 November) about the future of the shipyards at Portsmouth, and Govan and Scotstoun on the Clyde.

Unite national officer for shipbuilding Ian Waddell said: “This is a very worrying time for the workforces and their families as the work on the two carriers comes to a conclusion. Unite will be working very hard to retain the maximum number of jobs at both Portsmouth and in Scotland. It is a huge blow to Britain’s manufacturing and industrial base, with many highly skilled workers faced with losing their jobs. We will have to examine the BAE business case in detail to see how we can secure a future for the workforces at both Portsmouth and in Scotland. We believe that, if this is approached in a constructive and innovative way, it can be achieved.”

“The seeds for this situation were sown in the 1980’s when the Thatcher government used European structural funds to close shipyards, rather than funding investment that would have allowed Britain to compete in the global marketplace for shipbuilding orders against the likes of South Korea,” said Waddell.

David Hulse, GMB national officer and chair of the Confederation of Shipbuilding and Engineering Union’s Shipbuilding National Committee, commented on job losses: “GMB is genuinely concerned about the future of the UK shipbuilding industry as the skills, if lost, will never be replaced. There is no doubt that this is a devastating day for the UK shipbuilding industry and the company will have to justify to us the job losses planned. Following today’s announcement from BAE Systems we are able to confirm that no shipyard will be closing even though there are substantial job losses in the pipeline.”

Union reps will be meeting in Farnborough on Monday and Tuesday next week to discuss the full implications of yesterday’s announcement.

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Source: , November 7, 2013