BAE SYSTEMS ANNOUNCES JOB LOSSES IN ITS SEA SYSTEMS BUSINESSES

With regret, BAE SYSTEMS announces 700 job losses in Barrow-in-Furness, 265 in its shipyards on the Clyde, and 50 from its Underwater Systems operation at Waterlooville, Hampshire. Additionally, the company announces the loss of up to 30 posts at Farnborough, Hampshire, arising from a review of the Astute management organisation. All of these will be taking effect progressively over the next several months. In accordance with normal company practice, BAE SYSTEMS will be entering into consultations with employees and Trade Union representatives.

Additionally, BAE SYSTEMS announces that it intends for Barrow, supported by Farnborough, to continue to develop as a world class Submarine Centre of Excellence within the company, for current new and future submarine programmes. As well, the company now plans to consolidate its work on the Type 45 Destroyer build programme into the BAE SYSTEMS shipyards on the Clyde. This proposal is currently under consideration by the UK MoD.

The principal reason for the shipbuilding job losses is the very significant drop in workload the shipyards are experiencing, with no prospect of an increase on a scale large enough to compensate within at least the next four years, despite the considerable efforts of the company to find fill-in work. A similar, but less severe, situation exists in BAE SYSTEMS Underwater Systems following delays in award of various contracts.

In 2002, BAE SYSTEMS undertook a series of actions, in consultation with the UK Ministry of Defence, to address the fundamental issues facing its Sea Sector business.

Since this process began there have been some notable positive results:
· Two Auxiliary Oiler vessels delivered to the UK Royal Fleet Auxiliary. Both ships are performing well.
· A programme established with the UK MoD to ensure the entry into service of the Landing Platform Dock ships Albion and Bulwark – progressing well, with the first of class now successfully through its initial Sea Trials.
· Six Landing Craft Utility vessels delivered - currently undergoing trials with the Royal Marines – and the remainder very close to completion.
· With Swan Hunter, construction of the Landing Ship Dock Auxiliary (Bay Class) vessels has commenced
· A highly successful build programme of Offshore Patrol Vessels for an export customer is nearing completion.
· The 200th Spearfish torpedo has been delivered to the Royal Navy.

In order to continue to succeed, BAE SYSTEMS Sea Systems must resolve two entirely separate areas that require continuing attention: the Astute and Type 45 Programmes, and the issue of workforce size caused by unacceptably lengthy gaps in workload.

For the avoidance of doubt, today’s announcement has no connection with the company’s ongoing discussions with the Ministry of Defence on the Astute and Nimrod contracts, nor with the company’s bid for the Future Aircraft Carrier prime contract.

Workload issues
In July 2002 the company halted the redundancy programme that had been in progress on the Clyde since July 2001. At this point there were still approximately 250 posts at risk on the Clyde.

Much of this retained resource was directed at the delayed Auxiliary Oiler programme as efforts were concentrated on delivering the vessels as quickly as possible. Having delivered the Auxiliary Oilers and with the Landing Platform Dock and Landing Craft Utility programmes at an advanced stage, BAE SYSTEMS Sea Systems is now experiencing a shortfall in workload of considerable length and depth. For some time, the company has made strenuous efforts to bring short-term work into the yards; however, these have, to date, been unsuccessful. Any production work on future programmes, such as CVF, is several years away and the Astute and Type 45 programmes will not sustain the available resources over coming years.

The company will continue to actively seek work in both UK and export markets to help mitigate the current situation, but with no new orders in immediate prospect it can no longer defer taking today’s action. Various actions have already been taken to try to address the workload gap issue:
- full use made of mobility and flexibility agreements
- the release of short-term contract/agency workers completed where appropriate
- employees helped to re-train into alternative skills/trades
- employees re-deployed where possible

However, with no relief in reasonable sight, a period of consultation must now begin with the workforce and Trade Unions, who have been kept informed of the workload position over the past months. Volunteers for redundancy will be sought, in addition to the continuation of the mitigating actions outlined above. The company will also work closely with local organisations and interest groups within the affected communities to mitigate the extent of the impact on employees made redundant and their families. With the long-term future of the business in mind, recruitment of apprentices will be maintained.

Structuring Astute and Type 45 Destroyer programmes:
The two current major sea programmes – Astute submarine and Type 45 Destroyer – must be structured to ensure commitments to both time and cost are met.

The build strategy for the first three Astute submarines is to ensure they enter service within the revised timescales being discussed with the UK MoD. Barrow is to continue to be both the company’s and the Nation’s Centre of Excellence for submarine building, for Astute and also for subsequent generations of submarines. This should secure the long-term future of Barrow and improve the company’s ability to support the Royal Navy’s ongoing Nuclear Submarine requirements. The critical path of Astute Batch 1 submarine design-and-build has been extensively examined - in very close consultation with the MoD - and is being aligned with the facilities and resources available at Barrow.

In view of the changes which have been necessary on the Astute programme, and to ensure the success of both Type 45 and Astute, the company has concluded that it must consolidate work on the Type 45 Destroyer build programme into the BAE SYSTEMS yards on the Clyde. This proposal is currently being considered by the UK MoD, who have been kept informed of consideration of the options for Type 45 build over recent months. This move will ensure that the Astute and Type 45 programmes receive the appropriate intense focus.

Both will benefit from having the build programme co-located with the principal design activity through the design teams in Barrow and on the Clyde, respectively, the latter being staffed jointly by BAE SYSTEMS and Vosper Thornycroft Marine. The Type 45 changes will have no impact on Vosper Thornycroft’s work.

Final resolution of these programme movement matters is expected with MOD shortly; however, irrespective of where the Type 45 Destroyer programme is completed, major production work is still too far in the future to have any impact on our workload gap.

On these actions, Brian Phillipson, Group Managing Director Sea Systems said, “I am deeply saddened by the announcements we are having to make today. I am in no doubt as to the significance of both the Astute and Type 45 programmes, both to our business, our customers, and to the UK. It is vital that we establish an improved focus on Astute Design and Build, working closely with the UK MoD; and I am confident we can do this within our Barrow yard, supported by our Astute team in Farnborough. The consolidation of the Type 45 Destroyer build programme to the Clyde will help these sites to focus all their efforts onto Astute and thereby de-risk that programme; and will similarly help to de-risk Type 45 and further ensure the success of this excellent programme.

“We have worked very hard to find appropriate additional work to bring into our yards, and it is with deep regret that we are having to take these actions. Notwithstanding this announcement, we will continue to pursue any opportunity we can in our desire to minimise the impact of this difficult process.

“I recognise the deep concern that this announcement will cause our employees, their families and the local communities. We are determined to handle this restructuring sensitively and professionally; and we are equally determined to ensure a long term future for the Group and its operations on all our sites following these changes.”