THE Ministry of Defence has granted the shipbuilding joint venture between BAE Systems and VT Group an unprecedented guarantee to maintain jobs and technical capabilities for the next 15 years.

The terms of business agreement was negotiated as part of a deal under which two carriers will be built for the Royal Navy, and BAE and VT will merge their shipbuilding operations to create a “national champion”.

“The carriers are a big contract, but the really important thing was the terms of business agreement,” said one senior defence industry source involved in the talks. “That gave the two parties the confidence – and incentive – to go ahead with the joint venture because they knew they would have the support of the MoD in maintaining industrial capability.”

British naval shipyards traditionally suffer booms and busts in orders, with yards competing fiercely for government orders.

Under the arrangement the MoD has agreed to support the new alliance with sufficient orders – one ship a year is envisaged – to maintain Britain’s naval shipbuilding capability.

If orders don’t come, the MoD will underwrite the costs of keeping certain technical capabilities alive – and retaining an undisclosed number of jobs. “The agreement is quite complex – it is related to certain technical outputs, but behind that there are also jobs,” said the source.

In return, the joint venture has committed to targets on cost savings and streamlining the industry. Efficiencies above those targets will be split between the joint venture and government.

The joint venture, which will have assets of about £1 billion, will combine BAE’s shipbuilding operations on the Clyde and VT’s south coast yards. It will be chaired by Sir John Parker, with the chief executive tipped to be BAE executive Guy Griffiths.

At 65,000 tonnes, the carriers, the Queen Elizabeth and the Prince of Wales, will be the largest ships to sail in the Royal Navy. They are scheduled to enter service in 2014 and 2016.

They will be built in blocks around the UK, with the hulls assembled at Rosyth in Scotland. Defence industry executives are preparing a lobbying campaign against a government plan to abolish the Defence Export Services Organisation. A report published this weekend on the Jane’s Defence website said leading industrialists were seeking a meeting with Gordon Brown on the review of the organisation, which was announced without fanfare last week.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax