The joint venture uniting naval yards owned by BAE Systems and VT Group hopes to expand beyond its
Despite the historic parallel, BVT has little in common with the Callaghan creation. British Shipbuilders employed 86,000 people. BVT has just over 7,000. The nationalised group built naval and commercial vessels. BVT is, for the moment, concentrating on a base workload provided by the Ministry of Defence, most of which will come in the form of a single, £4 billion contract to build two new aircraft carriers.
“It is a completely different animal to 30 years ago,” said Parker, who in the intervening years has acquired one of the most impressive CVs in British business. As well as chairing National Grid and Mondi, he is on the boards of Carnival and EADS, and is also senior non-executive director at the Court of the Bank of England.
“This is a historic moment in British shipbuilding, bringing together the yards on the Clyde with those on the south coast,” he said.
The Royal Navy carrier programme was one of the principal forces in driving the amalgamation. BAE and VT had for years fought over a dwindling number of MoD contracts. The government wanted the carriers to be built by an alliance of UK shipbuilders, so bringing about a rationalisation that would lead to big savings.
Former defence procurement minister Lord Drayson made dockyard reform a key part of his Defence Industrial Strategy document, published in 2005, which promised a new partnership with industry.
Parker was sounded out to see if he would be prepared to come in as chairman. BAE and VT wanted confirmation of the carrier contract, and the larger, 15-year plan of work from the MoD, before the merger went ahead. The carrier deal became mired in tortuous negotiations over an estimated £2 billion budget shortfall.
While there were constant rumours that the order would be cancelled, the contract was finally confirmed at the end of last month. “The prime minister stuck to his guns and went ahead,” said Parker.
BVT encompasses BAE’s yards on the Clyde, VT’s shipbuilding and support operations at Southampton, and facilities in Bristol.
Its immediate task will be to get cracking on the carriers, as they are due in service in 2014 and 2016, not long for the construction and commissioning of two 65,000 tonne vessels that will be the most powerful ever to sail under the White Ensign.
The management, led by chief executive Alan Johnston, will have other tasks, too, Parker said. “The 15-year agreement gives us a unique opportunity for the industry to consolidate and drive through greater efficiency. The MoD wants lower unit costs and we want a greater certainty in the long-term workload so we can plan investment.”
Parker knows that mergers can be tricky. “You have to work at it. When we brought National Grid together with Lattice [the gas-network business was merged with the Grid in 2002] we worked very hard as a board to make sure it was successful. I banned the words ‘them and us’.
“If you get it right as a board, that creates the right signals for management to go out and do their job, to drive for efficiency and sensible rationalisation of the business and to plan and execute these big projects successfully.”
If BVT can get shipshape, export markets loom. The group has hit the ground running, signing a collaborative agreement with Abu Dhabi last week.
“The whole world is a target, not only for building vessels, but in support services,” said Parker. “There is an enormous opportunity there.”
There is also the intriguing prospect of BVT swallowing up the only part of UK naval shipbuilding it does not now encompass — submarines.
The MoD’s first thinking on rationalisation of the industry envisaged creating a single entity that would build and maintain not only surface ships but submarines as well.
The latter vessels remain outside BVT, however. BAE owns the submarine construction yard at Barrow-in-Furness, while Babcock International (a company Parker once chaired) runs the Devonport and Faslane submarine bases.
Parker does not rule out submarines eventually coming into the fold.
“Babcock would have to come to the table to make that possible. But if the industrial logic is there, and it’s good for shareholders, then I think it’s quite possible to see that as an outcome,” he said.
