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Thursday, 30 January, 2003, 13:50 GMT
Britishness wins in naval ship deal
An artist's impression of the Thales design
It is a Thales design but BAE is the lead contractor

It was the British company that secured something of a triumph in the end, winning the lead role in the lucrative contract to build two new aircraft carriers for the Royal Navy.

These days BAE Systems has dropped the word British from its name - it does more business in the US than in the UK and more than half its shares are foreign-owned.

BAE worker assembling wings
BAE builds wings for Airbus and Eurofighter
Perhaps it was easier to recognise friends and enemies when the UK's leading defence contractor was a nationalised business called British Aerospace.

Now it describes itself as a "global systems company with an international reach on all continents".

But in the weeks leading up to the announcement of the 2.9bn contract winner it was still being painted as the British champion fighting a foreign rival for the chance to help defend the UK.

'A French business'

Jobs were the key issue. The suggestion from BAE supporters was that only if that company won the contract would tens of thousands of jobs be saved.

Astute class submarine
The Astute class subs have been delayed

In fact, the bid from French firm Thales was equally good for jobs because it was committed to building its ships in UK shipyards.

Like BAE, Thales is a global electronics company with a new name. It used to be called Thomson-CSF.

It took over the British firm Racal in 2000, making it the second-biggest player in the UK's defence industry.

But the French government owns 32% of the firm, it operates a joint-company with the state-run French military shipbuilder DCN and is still seen in the UK as an entirely French business.

BAE project delays
Stingray torpedo
Storm Shadow missile
Nimrod aircraft
Astute submarines
Type 45 destroyers

In the end the UK Government might have thought it too politically damaging to award the main aircraft carrier contract to the French.

Its solution was to award the deal to an alliance of the two rivals led by BAE but with Thales as the key supplier of ship design.

But that does not mean that it is entirely content with BAE getting the work.

Spiralling costs

There has been a continuing dispute between the Ministry of Defence and BAE about whether or not foreign companies should be allowed to tender for defence contracts.

Stingray torpedo
The cost of the Stingray torpedo has soared

The argument flared again this month when Defence Secretary Geoff Hoon told American journalists in London that BAE was no longer British because the majority of its shares were held overseas.

What has spurred the MoD to look to foreign companies is the delays and rising costs on contracts already agreed with the company.

In December BAE was forced to announce that two key MoD projects - for the Astute submarine and Nimrod aircraft - would be delayed by several years and cost hundreds of millions of pounds more than expected.

Storm Shadow missile
The Storm Shadow missile is behind schedule

The company said it might have to meet the extra costs, and that sent its shares falling to their lowest level for nine years.

BAE wants the government to meet the extra cost, but the politicians are resisting committing any more tax-payers' money.

Job losses

The last chief executive left suddenly last March, apparently because of poor relations with the Ministry of Defence.

This month the company seemed to be telling the government and shareholders that it was tightening its grip on the business by announcing some major restructuring and 1,000 job cuts.

Artist's impression of the T45 destroyer
There are delays for the Type 45 destroyer

Most job losses were at its shipyards in Barrow-in-Furness and on the Clyde. BAE said it was not able to find enough work to keep its staff busy.

The award of the new aircraft carriers contract will give the company the boost it wanted.

But for shareholders and the MoD there must be a nagging doubt that the ships might not be delivered on time in 2012 and 2015 and could well cost much more than the tender price.

And there are question marks over whether the alliance between BAE and Thales will make the project more or less efficient.

See also:

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