BAE Systems cannot build aircraft carriers to budget: report

LONDON (AFP) Jul 14, 2003
Defence company BAE Systems has warned the British government that it cannot build two new aircraft carriers to budget based on the current designs, the Financial Times reported on Monday.

Britain's biggest defence contractor has told the Ministry of Defence that it would cost up to four billion pounds (5.8 billion euros, 6.5 billion dollars) to construct the ships, compared with an estimate of 2.8 billion pounds made in January, the paper said.

The report, which cited unnamed defence ministry officials, said the government might have to accept a sharp reduction in the size of the aircraft carriers, which were due to be the biggest and most powerful ever built for the Royal Navy.

BAE won the role of lead contractor in the deal in January after a fierce battle with French rival Thales, whose designs were selected for the ships.

The navy has been told there are no extra funds available. So to meet the original budget, planners have been asked to consider designing smaller and less sophisticated ships, the paper said.

One defence ministry official told the FT: "The choice is bleak. We either find more money or we build smaller carriers."

Both BAE and the defence ministry sought to play down the report, noting that a final decision on the cost of the project is not due until early 2004.

"We are in the assessment phase of the contract, which is designed to optimise the balance between performance, the time and costs, and be sure that we deliver the most cost-effective capability on time," said a defence ministry spokesman.

"Various options are being investigating as a routine task of this process but nothing will be fixed before the major investment decision to be made next year.

Whatever is reported now is speculating ahead of that arrangement," he added.

Relations between the government and BAE have soured recently after cost overruns and delays on two major projects by the former state-owned defence group for the British armed forces.

The decision by the government to award the bulk of the contract to BAE but use Thales's designs thus fuelled a debate here about whether British companies should be given preference for major defence contracts.

In an unprecedented move, the defence ministry also took a formal interest in the BAE/Thales alliance, including its share of cost and overrun risk.

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