SIGNS that the Government intends to develop its first national naval shipbuilding strategy could lead to a reprieve for BAE Systems’ shipyards on the Clyde and at Barrow-in-Furness.

BAE Systems had been proposing to sell the yards, whose principal customer is the Royal Navy, but Mike Turner, chief executive of BAE Systems, hinted yesterday that there could be a future for the yards.

Mr Turner said that no final decision on the future of the yards had been taken but that he hoped to resolve it before November, when the company’s annual strategic review is completed.

The Government is holding a warship summit with leading defence and shipbuilding companies next month to determine how a strategy to ensure the sustainability of the industry in Britain can be achieved.

Shipbuilders and marine engineers, including BAE Systems, Thales, VT Group, Swan Hunter and Rolls-Royce, will attend the summit at the Defence Procurement Agency, which commissions equipment for the Armed Forces.

The industry is concerned that a glut of large defence programmes may be followed by a drought that could jeopardise the UK’s shipbuilding capability.

“Naval systems is not generating a significant profit for shareholders. We have to look at the areas that are not delivering value,” Mr Turner said. “But the good news is that the Ministry of Defence wants to see a naval strategy in place for the UK.”

BAE’s shipyards are not expected to move into profit until 2008 at the earliest despite an annual turnover of up to £750 million.

There was also no news on the continuing negotiations over a second batch of Eurofighters. BAE Systems is building 232 aircraft for the Ministry of Defence in three tranches. However, negotiations between the UK, Germany, Spain and Italy have been taking place all summer.

BAE yesterday announced operating profits for the first half of the year up £21 million to £486 million on £6.1 billion of revenues.

However, a £688 million writedown in the avionics business pushed the group to a bottom-line loss of £295 million. The writedown related to goodwill in connection with Marconi acquisitions in 1999.

BAE Systems shares were up 1¾p at 213½p.

The calm after the storm

THE sometimes strained relationship between the Ministry of Defence and the UK’s biggest aerospace and defence group appears to have taken a turn for the better.

Under the guidance of a new chairman, Dick Olver, who has joined from BP, BAE appears to be taking a more conciliatory line with its largest customer.

Mike Turner, chief executive, has not been shy of taking an aggressive stance towards the MoD but yesterday he described BAE’s relationship with the MoD as “robust and realistic”.

This is a far cry from a recent parliamentary hearing in which Mr Turner suggested BAE would be better off if it did no business in the UK.

It would seem that Mr Olver, a former oil man, has poured some of the black stuff on the troubled waters between customer and supplier.