Making waves for future of shipyards

VIC Emery, the head of Glasgow's naval shipyards, spreads his hands out and tries to control the exasperation in his voice. "What we need is a recognition of the contribution we make to the economy in Scotland as well as the rest of the UK," he says.

This is not a plea from the chief of a dying industry. If anything, business is booming. BAE Systems' Scotstoun and Govan yards, which Emery runs, have taken on 300 craftsmen and engineers this year, and in the past month have won work from a rival shipyard on the Tyne and orders for two new frigates from the Malaysian navy.

Emery has enough orders to keep his 3,300 workers going for the next three years or so. But he is concerned that the longer-term prospects for those employees may be damaged if the Scottish Executive and Scottish Enterprise do not give shipbuilding and engineering in general a higher priority.

Pronouncements about Glasgow's future from the local authority, Scottish Enterprise and the Chamber of Commerce talk up the bid for the UK's planned supercasino, retailing and upmarket new flats and offices on the Clyde waterfront. Shipbuilding, once the city's key industry, rarely gets a mention.

But anyone looking out of the window of one of the expensive new flats would get a fine view of half a dozen or so ships of varying sizes at different stages of production.

Inside vessels such as HMS Daring, the destroyer which was launched earlier this year and is now being fitted out at the Scotstoun yard, miles and miles of cabling and the latest control and display equipment show that these vessels are as up to date as any office in the nearby Financial Services District.

Emery is concerned that policymakers have based their priorities on an outdated view of what shipbuilding actually involves: "We are not an old-fashioned steel-bashing industry. We do very hi-tech work here. The electronics you see here is more advanced than anywhere, except on a space shuttle or a nuclear submarine."

As well as building ships and employing thousands of people who might find it hard to get along in a call centre or bank, BAE is one of Scotland's biggest providers of apprenticeships. The company took on 70 young recruits to its scheme this year, bringing the total up to 310, as part of an effort to get the average age of its employees down and bring new blood into the industry.

Emery, described by some as the UK's most experienced warship builder, joined what was then GEC's shipyard at Scotstoun six years ago. BAE bought the yard from GEC in 2000, and added Govan from Kvaerner, the Norwegian engineering group, a year later.

He has spent much of the past few years getting the two yards to operate as one, stripping out duplication and developing centres of excellence in each, such as an advanced steelworking plant at Govan.

That strategy appears to be paying off now, as BAE has won more than its fair share of work from the Royal Navy at home and has landed a number of overseas contracts.

The most recent was a letter of intent from the Malaysian government to buy two frigates worth an estimated £600m, a deal which Emery has been pursuing for six years. BAE will do all the design, most of the procurement, the combat systems and some manufacturing, although the ships' final assembly will take place in Malaysia.

Rather than settling back, however, Emery has a further six potential deals which he is battling to win. Last Thursday he braved the queues at Glasgow Airport to fly to Canada and pitch for more work from the federal government there.

But exports cannot be the mainstay of the yard. "It's not easy to win work overseas," says Emery. "If you look at the requirement for ships, and take away those countries where we can't sell ships, such as the USA, Russia and China, there is a small market. And all the European yards are hungry."

This is a high-risk industry. Perhaps the most potent reminder of this is the naval patrol ship moored forlornly alongside HMS Daring at Govan. Bursting with the latest hi-tech guns and controls, and finished with signs in English and Malaysian, it was one of three built in a £600m contract for the Sultan of Brunei.

The Sultan complained that the ships were not up to scratch and refused to pay the final instalment. Some allege that Brunei's naval ratings were not up to the job of running the hi-tech ships, while others suggest that the stand-off is an attempt by the Sultan to get a few million knocked off the final price. BAE declines to comment on the dispute, which has been before the Court of International Arbitration for more than a year.

The UK market can be cut-throat too. BAE benefited recently when it landed the contract to finish the Royal Navy auxiliary ship Lyme Bay, which had been subject to huge cost over-runs at the Swan Hunter yard on Tyneside. The move effectively killed the historic Wallsend yard, which has been mothballed and is likely to be sold for housing by its Dutch owner Jaap Kroese.

Without the investment that was pumped into Glasgow by BAE it is not inconceivable that it could have been Scotstoun or Govan, not Swan's, that was ready to be turned over to the housing developers.

Emery is reluctant to crow about this particular victory. But he is clear about why he believes BAE won: "We are geared up to build that sort of ship. We have a skilled workforce who are well motivated. In order to get the best out of a workforce you need to give them some ownership and motivate them."

The Swan Hunter move was a dramatic illustration of something the defence industry has known for some time: the government is becoming more demanding.

Former defence secretary John Reid laid down the ground rules with his Defence Industrial Strategy (DIS), which was launched at the end of last year and called for a partnership, rather than adversarial, relationship between the Ministry of Defence and industry.

That may sound cosy, but what it means in practice is that manufacturers are expected to be responsible for their products for decades, rather than simply handing them over when they are complete. This should mean longer-lasting ships and aircraft, which will be more expensive to produce.

The strategy gave BAE special status as the UK's most important defence contractor, but is also expected to open up design and other contracts to smaller rivals.

Some at BAE Systems believe the push to reduce costs could mean manufacturing moving offshore in a way which has not been seen before in a relatively sheltered industry.

But Emery is upbeat about the strategy. He says: "It represents a huge opportunity for industry and the Ministry of Defence to establish a good basis for our industry going forward. At the end of the day we should not forget that this is about giving our armed forces the best kit for the lowest price."

Emery's boss, BAE chief executive Mike Turner, said the new strategy had given the group a reason to stay in the UK. For years, BAE has been building up its presence in the US, the world's biggest defence market, and selling non-core assets such as the avionics division which employs 2,000 engineers in Edinburgh as well as attempting to offload its 20% stake in Airbus.

So far, however, nobody has suggested the shipyards would be sold. They may be unloved or ignored by the policymakers, but BAE seems reluctant to give them up.

The new fleet

COMPARED with their predecessors, today's naval ships on the Clyde are curiously featureless, grey and boxy - designed to be less visible to enemy radar and easier to maintain than their predecessors. Inside, accommodation is much more comfortable than in the past, while false walls hide miles of cables. BAE's current workload includes:

Type 45 destroyers

Three complete ships (HMS Daring, Dauntless and Diamond) at varying stages of production. Daring was launched this year and is going through its final fitting, while Dauntless is due to be launched in January 2007. BAE will also build the 'platforms', or empty shells, for three more Type 45s and is negotiating for further work on these three.

Landing Ship Dock (Auxiliary)

Two of these transport ships have just been built, Mounts Bay and Cardigan Bay, with work on Lyme Bay due to start soon.

Aircraft Carrier

Contract for design work on the future carrier. The carrier is too big for the Clyde, but Scotstoun and Govan could win some manufacturing work.

Frigates

Letter of intention from the Malaysian government to design and part-build two frigates.