BAE looks beyond shipbuilding loss to plot UK growth A little later than planned, last week the "cessation of manufacturing" became a reality for Portsmouth. BAE announced on Wednesday that 800 years of shipbuilding, including the Mary Rose in 1509 and the First World War Dreadnoughts, would come to a halt. The defence giant said it would be cutting 1,775 jobs across the UK - 940 at Portsmouth and 835 across its sites at Filton near Bristol and Glasgow and Rosyth in Scotland. The rationalisation was necessary, BAE said, as the building of two 65,000-tonne aircraft carriers for the Royal Navy would not be followed by any orders of similar magnitude. Politicians muttered darkly that closing Portsmouth while saving BAE's two sites at Govan and Scotstoun on the River Clyde was a stitch-up to prevent red faces at the Scottish independence referendum. A British business pulling out of Scotland in favour of southern England wouldn't do a huge amount for the Unionist cause, critics claimed. Gerald Vernon-Jackson, the leader of Portsmouth council, spoke for many when he said that the announcement was "clearly a political decision by ministers" despite denials from the Defence Secretary, Philip Hammond. Mr Hammond did, though, hint that should Scotland choose to split from the UK then all bets would be off as to where Navy shipbuilding would be headquartered. He pointed out that Britain had "never outside the two world wars built complex warships outside the UK." David Cameron appeared to echo him, when he pronounced: "If there was an independent Scotland we would not have any warships at all." The MP for Portsmouth North, Penny Mordaunt, said she would be writing to Ian King, the chief executive of BAE Systems to ask what contingency plans the business was making if Scotland did decide to go it alone. This weekend, King drew a line under the issue, saying that no influence was brought to bear. "No, we weren't pressurised," he told The Telegraph. We had an obligation under the terms of the agreement we signed with the Government in 2009 to make a recommendation as to what the best location is for the building of the Type 26 [frigates, which will be built on the Clyde]. And that was based on capabilities, structural ability and pedigree. We made a recommendation that the Clyde was the best location for it given their experience of complex warships in the past. So, only one option was put to the Government? "Yes," King said. We don't take any of these decisions lightly when we have to address capacity issues. We will consult with our people to make sure we can mitigate as many job [losses] as we can during this process. The reason for the delay between Whitehead's interview last year and the announcement last week was the work that needed to be done on "rebasing" the cost of the carrier work. Last week, as part of the announcement about Portsmouth, the Ministry of Defence said that the cost of the carriers would increase by £800m, taking the total cost to £6.2bn. Asked directly about Mordaunt's question on independence, King insisted that the politics of the issue was nothing to do with BAE, but nevertheless the Government had said a final decision on location would not be agreed until after the 2014 referendum. "The Secretary of State made it clear that the final decision on the Type 26 construction will not be until the fourth quarter next year," King said. Naval contracts are actually a relatively small part of BAE's business, with its service operations in Portsmouth supporting naval operations alongside radar and torpedo capability. King said that the city was still the Navy's headquarters and that with the arrival of the carriers and the Type 26s the most vessels would be based there. Some 3,000 people are employed there by BAE, and despite the job losses announced, 3,000 people are still likely to work in Portsmouth as BAE expands other divisions. "It is wrong to characterise Portsmouth as just manufacturing," King said. It is clear other opportunities exist for BAE in the UK, linked in the main to the "nuclear successor" programme for Vanguard Trident submarines and the development of the Eurofighter Typhoon and the US F-35 Joint Strike Fighter. Other areas of growth include the Detica cyber security division, which deals equally with governments and corporations. In a research report in September, analysts at Espirito Santo Investment Bank said that BAE had "further upside" and it was moving from a story of "stabilisation" to one of "growth." "We believe that the Trident programme now looks likely to proceed, as does the successful ramp-up of the F-35 in the next few years," they said. Incremental Typhoon exports are also looking increasingly realistic, although not certain. More jobs are likely to come, with BAE planning to add 500 extra jobs to the submarine operations, taking the figure to 6,500 by the end of 2014. Next year BAE will be recruiting 500 graduates and 500 apprentices, up from 750 this year. In the military air division - which would gain from the possibility of orders from the United Arab Emirates, Qatar and Bahrain employment is already guaranteed until the first quarter of 2018 and many are confident that the numbers will increase into the 2020s. "BAE Systems is vibrant in the UK," King said. We have some very large programmes. If you look at the areas such as submarines, the air sector, we are growing. The inevitability of the fact is that when you came off the big bulge of manufacturing of the carrier it is something that we've had to address and people have known about for some time. We have manufacturing on Typhoon going out to first quarter 2018. That is against existing contracts in our order book. You can imagine that these new contracts - and we produce these aircraft at about 30 a year - would extend that well into the next decade. BAE is particularly keen to promote its Detica business, as the division has equal exposure to government and civilian contracts. A criticism of BAE is that, unlike Boeing, which has a huge civilian aircraft division, the UK defence business is too beholden to governments and their volatile defence budgets. Ever since the financial crisis one issue weighing on BAE's share price has been the threat of a collapse in US defence spending as President Barack Obama grapples with a ballooning deficit. King says that critics of BAE's defence footprint have not taken long enough to look at the business and its civilian exposure. Indeed, analysts point out that BAE has done better than expected in America. "The US shutdown has not yet materially affected the group's financial performance," said a note from UBS. Civilian development is certainly in King's sights. "We have two big portions [of the business] today that are already commercial," he said. One is that we have $600m (£375m) per year in civil avionics - we do flight controls and engine controls for Boeing and GE, for example. In the first six months of the year our business in that area grew by 10pc. We are investing organically in that business. Our cyber business, which is about £400m [per year in revenues] today grew double digits over the first six months and is 50/50 government and civil. The civil is growing very rapidly. The criticism that we in BAE Systems are not addressing these civil markets is wrong. We have 2,500 people in the Detica business, our cyber security and intelligence business. We're recruiting into that business. There are still plenty of headwinds, problems that come with the territory of running a global defence business. With the abandoned tie-up with European civil aviation giant EADS now just a distant memory, BAE has had to develop by incremental steps. There has been no big bang. Investors are now waiting for the latest news from Saudi Arabia where BAE's multi-billion pound Typhoon deal is still being negotiated. Shareholders will want to see final details of the Salam contract, which now looks like it may not be settled until 2014. "BAE remains relatively inexpensive," an analyst note from Investec said this weekend. While [it continues] to offer an attractive yield. However, as we near the end of 2013, we are increasingly concerned that the Salam pricing agreement slips through yet another year end (which would have a major impact on EPS [earnings per share] and cash) and that there is a lack of near-term positive catalysts. Others are hoping that the Dubai airshow at the end of this week will see the confirmation of progress in other deals in the Middle East. "Our intellectual property in the UK is vibrant," King said. The intellectual property in military air is the thing that is driving the export of the Typhoon, it is driving the commitment to unmanned technology, it is a very vibrant area for us, the UK Government and the UK economy. There will be budget cuts in the US, we have been pretty clear about that. We are planning to stay ahead of the game by reducing costs. Investors are not actually overly concerned about where BAE sites its naval manufacturing in the UK. They want to know about the global business. And there, King believes he has a lot of positive news. Portsmouth shipyard: a brief history 286BC First recorded mention of Portsmouth as a naval station after Rome sent a captain named Carausius to suppress piracy 897 Alfred the Great's fleet triumphs over Danes in the Solent and Portsmouth becomes the home of the navy 1545 Mary Rose sails from Portsmouth to fight French fleet but sinks when she heels in the wind and water rushes in through her open gun ports - 437 years later she is raised 1812 Charles Dickens is born on February 7 in Mile End Terrace, Portsmouth 1982 Argentina invades the Falkland Islands, and a Royal Navy task force sails from Portsmouth for the South Atlantic to retake the islands