BAE Shouldn’t Get to Build U.K.’s New Frigate, Review Says

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November 29, 2016

File photo: BAE Systems

By Benjamin Katz

(Bloomberg) — BAE Systems Plc’s Scottish dockyards should be excluded from the lead role on a new class of Royal Navy frigate in order to encourage competition and pare costs while maintaining Britain’s naval capabilities, according to a state-backed review of U.K. shipbuilding capacity.

Europe’s biggest defense company should retain responsibility for the Type 26 frigate but not its successor, the Type 31, John Parker, who led the study, said in a letter to Defence Secretary Michael Fallon. He added that there is “no precedent for building two first-of-class Royal Navy frigates in one location.”

Provided that work is shared between U.K. yards and regions, including commercial manufacturers, BAE should still be able to compete for combat systems, design and support contracts, the report said. A modular design like that of two new aircraft carriers, with sections built around Britain and assembled at a lead dockyard, would help deliver the right balance, it said.

Parker, chairman of miner Anglo American Plc and a board member at Airbus Group SE, was appointed after a spending review last year capped an order for Type 26 vessels at eight, canceling five, and called for a more affordable model to be built instead. The report recommends that the Type 31 be built to favor export customers and that the ship be designated the “e” to reflect that.

The new frigate should also enter service as early as possible in the 2020s to fill Royal Navy capability gaps, and the Ministry of Defence should meanwhile look at using commercial vessels to meet low-threat tasks such as mine-sweeping, Parker said.

‘Prominent Role’

BAE’s surface-vessel naval capabilities are focused on the River Clyde in Glasgow, Scotland, while Babcock International Group Plc has a major yard at Rosyth near Edinburgh and a smaller site at Appledore in Devon, southwest England. Among commercial yards, the Cammell Laird site near Liverpool recently built the polar research vessel Sir David Attenborough and should also be taken into account, the study said.

BAE said in a statement that it’s confident of playing a “prominent role in the delivery of future U.K. warships” and has submitted two design proposals for the Type 31. The Type 26 order and a deal for five offshore-patrol vessels will safeguard the Clyde dockyards into the 2030s, it added.

Adoption of the Parker plan could still offer “significant work” on the Type 31 for BAE, as well as a more definitive budgeting process, Sandy Morris, an analyst at Jefferies International in London, said in a note. At the same time there’s a risk that the Type 26 program could be held up, since a final contract hasn’t yet been agreed.

Shares of BAE fell as much as 1.4 percent and were trading 0.3 percent lower at 601.50 pence as of 4 p.m. in London.

Fallon said he welcomed Parker’s findings, while describing his recommendations as “ambitious.” The MoD plans to publish a full response and implementation plan next spring.

© 2016 Bloomberg L.P

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