British soldiers may be forced to use German or French bullets in future, as BAE Systems could shut down its Royal Ordnance munitions factories, The Times has learnt.

The Ministry of Defence (MoD) is renegotiating its ammunition contract with BAE and has started to sound out European suppliers as an alternative.

Sources close to Royal Ordnance say that BAE, which bought the Royal Ordnance factories in 1987, is demanding a new longer and more lucrative contract to cover the investment needed to modernise its factories.

However, the MoD is concerned that it will be paying more for British bullets, explosives and artillery shells than it would do if it bought them on the open market. The MoD, which spent £280 million on munitions last year, is trying to determine whether national security would be threatened by not having a domestic bullet-making capability. As many components used in BAE’s munitions products are imported already, officials believe that making a switch to other suppliers may be less politically sensitive now.

Royal Ordnance, which traces its history back to the founding in 1560 of the Royal Gunpowder Factory at Waltham Abbey, has been in decline since BAE bought it, with the number of factories cut from 16 to five. Another two face closure. BAE has even scrapped the name Royal Ordnance, calling the division BAE Land Systems (Munitions and Ordnance).

It is rumoured to be loss-making and the impending end to BAE’s supply contract with the MoD next year has forced the company to assess the division’s future.

Mike Turner, chief executive of BAE, told The Times this year: “It has been a difficult part of the business for our shareholders.”

Defence sources familiar with BAE’s strategy said that if the company can get a better deal from the MoD, Royal Ordnance will survive. If not, BAE’s management is planning to close it down.

A BAE spokesman said that BAE Land & Armaments, which encompasses Royal Ordnance, was returning to profit but would not comment on the munitions division’s financial status.

He said: “We are in discussion with the MoD with regard to the future of ammunition supply for UK Armed Forces.

Saying that we are planning to shut down the division is nothing but speculation.”

A spokesman for the MoD said: “Long-term security of supply for general munitions is vital and we are putting in place arrangements to achieve this. BAE has submitted [its] proposals and we are working with [it] on a solution that delivers security of supply and value for money to the taxpayer.”

£280m
— amount the Ministry of Defence spent on munitions last year

11
— number of Royal Ordnance factories closed since BAE took over in 1987

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