The U.K. government Tuesday announced the results of a strategic
defense and security review, initiated earlier this year to cut
spending to address a gaping budget deficit. It cut or changed
several major defense projects as the Conservative-Liberal Democrat
coalition made rebalancing public finances a priority.
The following is a summary of the major U.K. defense projects
affected and the main companies involved in each project.
The U.K. government will continue with plans to build two new
aircraft carriers, although the first carrier will be delayed by
several years and the second will be held in extended readiness, or
mothballed to save money.
Main companies affected: BAE Systems PLC (BA.LN) and France's
Thales SA (HO.FR) are building the new carriers. Babcock
International Group PLC (BAB.LN) also has a major part.
The Royal Navy's current flagship aircraft carrier, HMS Ark
Royal will be decommissioned four years early.
Main companies affected: Babcock is responsible for maintaining
HMS Ark Royal.
The Harrier aircraft will be retired from service in the Royal
Air Force, but the Tornado fleet will be maintained as it is better
able to serve continuing operations in Afghanistan.
Main companies affected: BAE Systems maintains the Harrier and
Tornado fleets and the loss of the Harrier will have an impact.
However, the impact would have been worse if the larger Tornado
fleet had been scrapped.
Orders for nine Nimrod MRA4 reconnaissance aircraft, due to
start entering service as a replacement for the Nimrod MR2 from
this year, will be scrapped. .
Main companies affected: The aircraft are built by BAE Systems,
and Rolls-Royce Group PLC (RR.LN) was to provide the new engines
for the MRA4, as it does for the predecessor aircraft.
The U.K.'s order for the Joint Strike Fighter has been cut to
about 40 aircraft from about 140, although there still is an option
to buy more later, according to people familiar with the matter.
The delay of the new carriers means the U.K. can also order some
carrier versions of the JSF, which are cheaper.
Main companies affected: Lockheed Martin Corp. (LMT) builds the
JSF. Northrop Grumman Corp. (NOC) and BAE Systems are partners.
Rolls-Royce and United Technologies Corp.'s (UTX) Pratt &
Whitney are the engine partners.
The Royal Navy will go ahead with building seven Astute class
submarines, a program that had been in doubt.
Main companies affected: BAE Systems is building the new
submarines.
The building of a new defense training base has been scrapped
because the project is unaffordable and can't be completed on time.
The U.K. government will instead look at other proposals for
rationalizing U.K. defense training.
Main companies affected: QinetiQ Group PLC (QQ.LN) and French
company Sodexo SA (SW.FR) jointly led the consortium that was
preferred bidder for the first part of the training review program.
QinetiQ said it has incurred costs of GBP37 million on the project
and would now write these off as an exceptional item.
Other key points of the review:
The U.K. will continue to meet the NATO target of spending 2% of
GDP on defense throughout the next four years.
Ministry of Defence civilian numbers to be cut by 25,000. The
MoD will also cut overheads, dispose of unnecessary assets, cut its
estate and renegotiate contracts with industry. The changes will
save GBP4.7 billion over the next four years.
Army numbers to be cut by 7,000 to 95,500, the Royal Navy by
5,000 to 30,000 and the Royal Air Force by 5,000 to 33,000 by
2015.
The Army will pull out of Germany, with half the existing
personnel back by 2015 and the remainder by 2020.
Tank and heavy artillery numbers will be cut by 40%.
Twelve new heavy-lift Chinook helicopters will be introduced to
the Army.
The production of six Type 45 destroyers will be completed. A
new program to develop less expensive, more flexible frigates will
be started. The total number of frigates and destroyers will reduce
to 19 from 23 by 2020.
The RAF will get new A400M and A330 aircraft produced by Airbus,
as well as its existing fleet of Boeing Co. (BA) C17 aircraft.
The government will invest over GBP500 million over the next
four years on cyber security.
The government will retain its nuclear deterrent but plans to
save around GBP1.2 billion on the program and defer another GBP2
billion of spending from the next 10 years. It'll extend the life
of the Vanguard class of nuclear submarine, reduce the number of
operational tubes on the carriers, reduce the number of warheads on
each operational submarine and reduce its stockpile of operational
warheads.
WHAT THEY SAID:
"We have been fully aware of the challenges facing the new
government in addressing the public spending deficit and throughout
the SDSR consultation period we have cooperated with the Ministry
of Defence to identify areas in which efficiencies could be
delivered and key industrial capabilities are maintained. Today's
announcement gives us the basis on which to adapt our plans." - BAE
Systems
"Whatever impacts occur in either the U.S. or U.K. budget, we
really find the earliest impact would be starting with the 2012
budget," - Lockheed Chief Financial Officer Bruce Tanner
-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284;
steve.mcgrath@dowjones.com
(Nathan Hodge contributed to this article.)
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