Britain’s defence industry is likely to consolidate further as BAE Systems and Carlyle, the US private equity group, are poised to bid for a crucial component of the UK’s nuclear submarine industry.
In recent weeks, BAE and Carlyle have begun to prepare a bid to purchase the Devonport naval yard in Plymouth, south-west England, where the Royal Navy’s submarines are refuelled and upgraded.
If the bid succeeds, the pair would be the leading contender to benefit from the proposed £25bn plan to build a new submarine fleet.
BAE Systems would not confirm on Sunday that it was in talks to acquire the Devonport shipyard, but said: “Lord Drayson [the defence procurement minister] has called for consolidation in the maritime sector, and we have said we will do all we can to assist the MOD in that consolidation.”
Specifically, the Ministry of Defence wants to address the issue of excess capacity in naval contracting, by combining under one operation the “front end” design and building of submarines with “through life” support and maintenance.
Carlyle declined to comment on the bid.
BAE is Britain’s largest defence contractor. It produces Astute-class submarines at Barrow-in-Furness, where the UK’s nuclear powered Vanguard-class submarines were built.
Control of the facility at Devonport would bring the “front-end” operations of Barrow-in-Furness under the same control as Devonport’s “through life” services.
Devonport is owned by Balfour Beatty, Weir Group and KBR, which was recently spun off by Halliburton. While no precise figure has been placed on its value, it is believed it would sell for about £200m.
The drive for integration across the MoD is progressing in other areas of defence contracting.
In December, BAE won a £947m contract to integrate multiple pre-existing smaller contracts for the support and maintenance of Tornado aircraft.
The MoD said it would save taxpayers £510m over the first 10 years of the contract. There is no estimate for the potential savings to be had from integration in the submarine industry, but they are likely to be significant.