Future for UK naval shipbuilding decided at last!

06 Nov 13. Speculation is most often a dangerous thing and one that is fraught with risk particularly if you happen to get it wrong or maybe latch on to just one part of a wider story. Worse is that speculation can also be irresponsible and hugely damaging for those that it is most likely to affect. For that reason alone following on from various stories yesterday talking only of job cuts and potential plant closures within BAE Systems (BAES) naval shipbuilding operations in Glasgow and Portsmouth I made a conscious decision to await the formal announcement expected from BAES and the Coalition Government together with the others that this huge and very positive change in naval shipbuilding policy might affect before commenting.

That a deal of this substance require the loss of some jobs was hardly in doubt. Shipbuilding might just have got leaner and fitter but it also just got a little smaller. The result is not only that the UK should now be able to sustain a strong position in navy shipbuilding in the years ahead, but also that this deal should be seen as another set of strong positives for the proposed Type 26 Global Combat Ship development.

Now that all parties including the Prime Minister, the Secretary of State for Defence, BAES, the Aircraft Carrier Alliance – including Babcock International and Thales – have signed up to what in my view should be seen as a truly excellent and workable blueprint for the future of UK military shipbuilding industry, I can make some additional comment which I hope will be helpful.

Firstly let me say that all that have worked so hard both in government and industry over the past 15 months to achieve the agreement that has been announced on the future of naval shipbuilding today, and through what I imagine to have been difficult and very tough negotiations, should be pleased that common sense has at last prevailed. All sides have won in this and while the loss of jobs is always regrettable they are an inevitable part of adapting to requirement change. The bottom line is that the UK naval shipbuilding industry has not only been made fit for purpose but also sustainable.

Brilliant in theory, concept and to a point in practice as well that the various separate TOBA (Terms of Business Agreement) looked for a time in a world that has been rapidly looking to downsize defence capability the BAES TOBA has looked increasingly unworkable particularly from the point of view of Government. When it was done back in 2009 the TOBA had been based on an attempt to match affordability with balancing and spacing out of procurement requirement. But with a fast decreasing number of commissioned Royal Navy capital ships envisaged it became harder to imagine how the Government could keep its side of the bargain in providing a consistency and a balanced number of new orders for new surface ships. Thirty years ago the Government would take just short of four ships a year – today we take on average about 0.7% of a ship per year.

With what the Government, BAES and the Aircraft Carrier Alliance have signed up to, now we have at least achieved reassurance and commitment from Government. Leaving the carriers aside, for BAES this will be hugely important in regard of building the planned Type 23 replacement – the Type 26 Global Combat Ship – but also that to fill the gap the Government plans to procure three Offshore Patrol Vessels (OPV’s) for the Royal Navy. This appears a most satisfactory outcome to what for some time has been regarded as an unsustainable problem of retaining capability that would not in future be required.

I am not going to get into the Scottish political argument and the independence debate, other than to say that problem created by the TOBA preceded the notion of a vote on Scottish independence occurring. Scotland has won out in my view because it is the centre of excellence of military shipbuilding capability. No matter what occurs in the future, investing in jobs in Scotland remains is no different than investing in jobs in the UK. In any case that Portsmouth will no longer manufacturer ships but that it has also been given the commitment that it can continue to further grow its real engineering, design and service related skills should not be lost in this debate. No one likes to hear of big job losses but when this is a process of adapting to required change the thought that Portsmouth can now move to become a rather different centre of excellence could make the loss of over 900 jobs just slightly more palatable that the one more commonly painted. With insufficient demand no company can artificially retain jobs no matter how obvious the damage this does to retention of skills.

Another great virtue of what has just been achieved from this agreement with government is that potentially lumpy procurement just found itself having been better evened out. To be sure, with the Type 45 Programme finished and all ships delivered to the Royal Navy the Queen Elizabeth carrier programme will continue to dominate the scene as the first ship gets ever closer to completion in a couple of years time and the second ship comes together over the next few years. Filling the overall shipbuilding gap with the planned three OPV’s is a brilliant move on the face of it because it fills an important gap in Royal Navy capability. These are excellent ships and are already proven in service with several export customer navies. I hope of course that the Government is as good as its word here and that OPV’s are not seen as potential substitutes for some of the planned Type 26 Global Combat Ships that will eventually be acquired for the Royal Navy.

That the existing contracts covering the two Queen Elizabeth class carriers have now been restructured to include an increased level and expectation of cost is welcomed, as is the better balance achieved between government as customer and the Carrier Alliance as supplier in terms of covering future risk. We have been told that following detailed discussions on 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 Global Combat ship. Consequently, the company says that, subject to consultation with trade union representatives, it is proposing to consolidate shipbuilding operations in Glasgow with investments in facilities to create a world-class capability. The intention is that by positioning Glasgow as the location to build the Type 26 ships will allow for delivery of an affordable Type 26 programme for the Royal Navy when this is eventually signed off.

The 2009 TOBA agreement which I wrote on separately in mid 2010 as UK Defence in the fourth volume of defence papers in which I attempted to set the record straight will I understand gradually be superseded by the agreement signed with the Coalition Government today. It is right that it should be because since the arrangement was entered into, while BAE Systems has achieved considerable cost savings for government in the subsequent years (meeting its part of the bargain it was given) the smaller requirement for surface ships as the Royal Navy kept being slimmed in size, making it always impossible for the Government to meet its part of the TOBA bargain aimed at guaranteeing levels of future shipbuilding work.

For the record the confidential contractual Terms of Business Agreement (TOBA) which has been referred to, and with which today’s agreement will gradually replace, was in effect a 15 year long term agreement between BAE Systems and the Ministry of Defence signed in July 2009. From the outset the idea was to redefine the MoD and industry relationship so both supplier and customer would in terms of maritime equipment supply work together as partners. BAE Systems committing to drive down costs and the TOBA can be praised for being revolutionary in that it laid down sound foundations for a fully committed ‘Key Industrial Capability’ requirement that would be required to deliver future sovereign capability. For BAE Systems this provided long term commitment to defence maritime that it had for so long desired. For the government and MoD the TOBA created a then seemingly realistic potential to deliver considerable cost saving on maritime procurement and through life support but in reality one that could not be sustainable.

Howard Wheeldon, FRAeS
Wheeldon Strategic Advisory Ltd.
M: 07710 779785


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