Friday, 28 February 2014

Setting Portsmouth (and the Royal Navy) Free of the Dead Hand of BAe

Many in the party hoped the issue of the Portsmouth shipyard closing would go away but I haven't forgotten it and nobody else should either. Maintain your rage! It doesn't help that our party while claiming to be a "party of government" and with pretensions to lead rather than just be a junior player does not have a defence policy (let alone a foreign policy).

To refresh those that have already swept it under the doormat of their memory, BAE announced last year that it was cutting 1,775 jobs nationally, including 940 at Portsmouth where it would no longer build new ships, and 835 split across Glasgow, Rosyth and Filton (which is outside Bristol).

Been pondering the fait accompli nature of the response by almost everyone. The action is extremely short-termist and presumes that just because Chinese gunboats are not on the horizon now that they won't be in the future. Dismantling a skillset is different from mothballing a facility. Shipbuilding is a very skilled activity and once its gone its gone. Not everyone can be made into Rosie the Riveter overnight and it is not as simple as riveting anyway.

That leads us to ponder where the fault lies. Clearly the government's shipbuilding campaign is torpid to say the least but it would not take much in the way of contracts to keep Portsmouth ticking over. Two ships under construction (and they don't even need to be particularly high-tech) would achieve the goal. We might remind everyone of the supply vessels that were farmed out to Korean shipyards to build. 

Where does the problem lie? Probably where it usually lies in the unholy alliance between defence contractors and the mandarins of the DoD. In this case the culprit is the ├╝ber-defence contractor, BAe, a creature that should never have been allowed to be created. Let's get inside the head of the bureaucrats (I used to be a rather low-level one). The usual political battle-cry in defence contracting is cost. The best way to get lower costs is a wide tendering process. However if you don't really want to give the contract to some tiddly little firm (not that tiddly little firms are even if the running) then the best way to ensure the contract goes to whom you want to receive it is to shrink the field to as few players as possible. Even better if you can get it down to one. Thus we can see why the mandarins favour the shrinkage of the defence contracting industry in the UK, with its plethora of costly must-have hardware, to be reduced to a subset of one. No-one can criticise you for giving an over-priced contract to the local player when the local player is the sole player. 

In other industries, of course, a universe of one would be regarded as anti-competitive and stomped on from anti-trust grounds (excuse me for using US-speak) at the point that the reduction in the field was first mooted. However defence contracting seems to have had a forcefield that has allowed this "rationalisation" to take place with the effect that not only does the public purse pay more through uncompetitive (field of one) tenders but the corporate entity to a certain degree gets to call the shots. When BAe decides to shut a vital shipbuilding facility it is really usurping defence policy from the DoD (not that we agree with the DoD even existing for those who have not seen our views on reviving the Admiralty).

So where has the Godzilla that tramped on UK naval shipbuilding come from?BAe was formed in 1999 by the £7.7 billion merger of Marconi Electronic Systems (MES) – the defence electronics and naval shipbuilding subsidiary of the General Electric Company plc – and British Aerospace – an aircraft, munitions and naval systems manufacturer.

BAE Systems is the successor to various aircraft, shipbuilding, armoured vehicle, armaments and defence electronics companies, including The Marconi Company, the first commercial company devoted to the development and use of radio; A.V. Roe and Company, one of the world's first aircraft companies; de Havilland, manufacturer of the world's first commercial jet airliner; British Aircraft Corporation, co-manufacturer of the Concorde supersonic transport; Supermarine, manufacturer of the Spitfire; Yarrow Shipbuilders, builders of the Royal Navy's first destroyers; and Vickers Shipbuilding and Engineering, builders of the Royal Navy's first submarines. Since its formation it has made a number of acquisitions, most notably of United Defense and Armor Holdings of the United States, and sold its shares in Airbus, Astrium, AMS and Atlas Elektronik.

More specifically as it pertains to Portsmouth the origins of the problem there were related to the many corporate twists and turns at VT Group plc. That company the defence and services company, formerly known as Vosper Thornycroft. The company had diversified from shipbuilding into various engineering and support services, becoming involved in many areas of provision through five main operating groups: VT Communications, VT Education and Skills, VT Services Inc and VT Support Services. VT Group finally exited the Shipbuilding industry in October 2009, after selling its 45% share of the Shipbuilding Joint Venture company BVT Surface Fleet to BAE Systems. 

The company was formed by the merger of two shipbuilding companies Vosper Limited of Portsmouth and J I Thornycroft of Woolston, Southampton in 1966 at which time the Company became listed on the London Stock Exchange as Vosper Thornycroft. Vosper Ltd built small boats and J I Thornycroft had a long history of building destroyers and similar sized craft. The company was nationalised by the Labour Government in 1977, becoming a division of British Shipbuilders. It became a commercial company again after a management buyout in 1985.

Vosper Thornycroft flourished even during lean times for warship building, mainly through successful sales efforts in exports and diversification outside of the core shipbuilding business into training and support. In 1998, Vosper Thornycroft acquired the specialist military boatbuilder Halmatic, based in Portchester.

From its formation in 1966, the company was based at the former Thornycroft shipbuilding yard at Woolston in Southampton but in 2003 relocated its shipbuilding operations to new facilities in the famous HMNB Portsmouth Naval Dockyard under the name VT Shipbuilding. In 2008, VT Shipbuilding was merged with BAE Systems' Glasgow-based Surface Fleet Solutions subsidiary to form BVT Surface Fleet. The VT Halmatic boatyard site in Portchester was also sold off to Trafalgar Wharf, with Halmatic also moving into Portsmouth Naval Base.

On 28 January 2009 VT Group announced its intention to sell its share of BVT Surface Fleet to BAE Systems. And that in a nutshell is how we arrived at BAe getting to "play God" with the UK's naval policy.

Its not even as if BAe has been such a great shipbuilder. One need go no further than the exceedingly mediocre performance of the HMS Dauntless (the Lego-like vessel pictured above), with its repeated technical SNAFUs to work out that bigger does not necessarily mean better, as BAe is not immune from delivering lemons. The sister ship, HMS Daring, has had problems as well.. now we just need another of these billion pound each ships to come down with a technical failure and BAe will have hit three lemons in the fruit machine. All of us (and the Royal Navy) are the losers. Whichever way it plays, BAe wins with its sycophants embedded in the DoD.  

What would I propose here? To put it bluntly... I would suggest forcing BAe to divest all its naval shipbuilding activities, ideally into at least two competing entities. The one in Portsmouth could be partially capitalised using the money that BAe wants the government to pony up to pay for the redundancies as it downsizes its activities. An outrage if ever there was one. 

Before anyone cries foul that we are trying to force BAe to divest assets it wants to keep, we might remind everyone that in May 2004, it was reported that the company was considering selling its shipbuilding divisions, BAE Systems Naval Ships and BAE Systems Submarines. It was understood that General Dynamics wished to acquire the submarine building facilities at Barrow-in-Furness, while VT Group was said to be interested in the remaining yards on the Clyde. Ironically it turned around with BAE Systems getting the upper hand, merging its Surface Fleet arm with the shipbuilding operations of VT Group to form BVT Surface Fleet, an aim "central to the British Government's Defence Industrial Strategy" according the Wikipedia article on the company. That gives us a bit of a chuckle (or it would if it wasn't so tragically opposite to what is really transpiring i.e. the dismantling of the UK's naval shipbuilding capability).

Clearly there are discrete business units that can be created out of this behemoth. The mistake has been in the UK government's current and past thinking that feeding BAe a constant stream of contracts, and rolling over whenever they wanted to perpetrate another consolidation,created a national champion to match the US players. In reality in the defence sphere one does not have super-sized national champions, one just has to have domestic capability. That is what is being foregone by allowing BAe to effectively decide naval policy in its boardroom.  

1 comment:

  1. Very interesting. It's really not a subject I've thought much about. But judging by our defence policy debate at the last conference, it's not something many others in the party have thought about either...