TWO of Britain’s largest defence contractors are about to forge a national shipbuilding champion by merging their dockyard businesses.

BAE Systems and VT Group are expected this week to create a joint venture with about £1 billion worth of assets and a guarantee of the lion’s share of work on the Royal Navy’s two new aircraft carriers.

The Ministry of Defence is expected to give the green light for the £3.8 billion carrier programme on the back of the merger deal.

The joint venture will bring together BAE’s shipbuilding yards on the Clyde with VT Group’s operations at Ports-mouth. It will be by far the largest shipbuilding company in Britain and may eventually expand to incorporate other assets, such as Babcock International’s operations at Rosyth.

The joint venture is expected to be 55% owned by BAE but the partners will have equal voting rights.

Analysts believe that VT may later sell out, quitting defence contracting to concentrate on support services. Sir John Parker, chairman of National Grid, has been tipped as chairman of the new group, though it was unclear last night whether he would take the job.

Guy Griffiths, a BAE executive, is understood to be a candidate for the chief executive role, as is Peter McIntosh, a former head of VT’s shipbuilding operations.

The Ministry of Defence has encouraged rationalisation of British dockyards as part of the Defence Industrial Strategy, a spending plan set out by defence procurement minister Lord Drayson.

Defence officials have made approval for the carrier programme conditional on the BAE/VT merger.

Two ships, the Queen Eliza-beth and the Prince of Wales, will be built, with the new shipbuilding organisation given incentives to keep construction costs down.

The new organisation will be encouraged to collaborate with French dockyards, which are working on plans for a new carrier for the French navy.

The BAE/VT deal is separate from the shake-up in the submarine building industry, centred on an auction for Devon-port Management, the key submarine support base.

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