Walk if you dare, Hoon to tell BAE over carriers

Geoff Hoon will this week defy Britain's largest defence company, BAE Systems, by hiring the controversial US construction group Halliburton to oversee the management of two aircraft carriers.

Geoff Hoon will this week defy Britain's largest defence company, BAE Systems, by hiring the controversial US construction group Halliburton to oversee the management of two aircraft carriers.

The Secretary of State for Defence will reveal in a written answer to Parliament that the Halliburton subsidiary Kellogg Brown & Root (KBR) will be handed a leading role on the £3bn project.

Talks between the Ministry of Defence and BAE are continuing this weekend, but an insider said that a decision to appoint KBR had already been made. However, the MoD has agreed to water down KBR's role in an attempt to placate BAE.

The news will still anger BAE, which for the past few weeks has argued that KBR's appointment would destabilise the project. BAE has warned that if KBR were appointed, it might pull out of the plan to build the two 60,000-ton ships.

It is not the first time that BAE has issued this warning. It made similar comments last spring when the MoD first discussed stripping BAE of its role as the lead contractor on the project. In the summer, when ministers ruled that ships would be built using an "alliance" of companies including France's Thales, BAE decided to stay on board.

A well-placed source said that the MoD was tired of BAE crying wolf and pointed out that if it did pull out of the carriers project then it would face the wrath of its shareholders.

"What would you say if you were a BAE shareholder and it turned its back on the largest shipbuilding project for decades?" said the source.

The KBR appointment will be controversial. It is reported that Dick Olver, BAE's chairman, had warned Mr Hoon that the way he was handling the carriers project could lead to a "train wreck". It has also been suggested the row could result in job losses at BAE's shipyards at Govan and Scotstoun on the Clyde and Barrow-in-Furness ahead of the general election.

Last week the Conservative Party waded into the debate, saying the appointment of KBR would leave BAE a "bit player" in the project.

An MoD spokesman confirmed: "We stand by the alliance as the best way to go forward on the carriers."

A BAE spokeswoman said: "Discussions are ongoing and very constructive. We have made no threats to the MoD. We are not in the blackmail business - we are a defence business. But when we have concerns about the alliance, then we will voice them."

Asked whether BAE had told the MoD that it might pull out of the project if KBR were brought on board, the spokes-woman said: "I am not prepared to comment on that."

The row over the aircraft carrier project is delaying talks on the future of Britain's shipbuilding industry. The MoD is encouraging British shipbuilders, including BAE, VT Group and Babcock International, to consider merging their operations. But these talks have been put on hold while the row over the carriers is settled.

Instead, the MoD is pressing ahead with proposals to merge Britain's submarine industry. The preferred structure is a public-private partnership (PPP), which would hold the submarine assets of BAE, Babcock, DML and Rolls-Royce.

The MoD spends £1.35bn a year supporting UK submarines, and it is understood that ministers are keen to see that figure reduced. The PPP would handle the modernisation of the Royal Navy's submarines from the Swiftsure and Trafalgar vessels to the nuclear-powered Astute. The proposals were outlined to a group of senior executives from the defence industry during a meeting of a specially formed Submarine Strategy Forum three weeks ago. But some participants - particularly Rolls-Royce - were unimpressed.

Rolls-Royce refused to comment on its position. But one attendee said: "It would be like a working for a Stalinist state - working for Big Brother."