Ministers would be right to have a sinking feeling over Harland & Wolff

In 1587 Sir Francis Drake MP attacked Spanish ships in Cadiz, a daring feat that became known as “singeing the King of Spain’s beard”. A bearded modern-day MP, the business secretary Jonathan Reynolds, should probably keep a fire extinguisher close at hand: his facial hair might be about to get a good scorching from a Spanish company with a big base in, naturally enough, Cadiz.
This reverse Drakery comes about thanks to the financial problems at Harland & Wolff, the Belfast shipyard that is reckoned to have built about 1,700 ships but will forever be associated with just one: the ill-fated liner Titanic. H&W has struggled since it was reprivatised in 1989, hardly surprising given that international shipbuilding is a ferociously competitive business dominated by giant yards, some state-backed, in China, South Korea, Italy and Japan.
There was a new dawn five years ago when an Aim-listed company, Infrastrata, bought H&W out of administration with big plans to bring back shipbuilding and chase work in related markets. The icing on the cake came in January last year when it was named as the main subcontractor in a £1.6 billion deal to build three new supply ships for the Royal Navy. The main player in Team Resolute, as the winning consortium was called, was in fact Navantia, a Spanish shipbuilder with yards in Cadiz. Anger that Royal Navy ships might be built in Spanish yards was assuaged by the promise that much of the work would go to Belfast, and to Appledore, the Devon shipyard that H&W had also bought as part of its grand plan.
That plan is now looking a little far-fetched. H&W is about to run out of money, with the listed parent company having appointed the restructuring firm Teneo to find buyers for the dockyards and the rest of the operations. Bids were due this week.
That leaves Reynolds, and his smooth-shaven colleague John Healey, the defence secretary, with something of a headache. H&W’s biggest asset is its position in Team Resolute. The contract with Navantia envisages it taking on £800 million of work on the new supply ships. H&W is meant to build sections of the hulls at Belfast and Appledore (with others being built in Spain) and then stitch the sections together into completed ships in Belfast.
So what happens now? It is not known if any of the bidders will want to buy both the Belfast and Appledore sites, or even if they will want to keep them running as shipyards. It is also not clear whether Navantia will want to continue the existing deal with the new owner. Some defence experts wonder if it might be easier for Navantia, and maybe even cheaper for the Ministry of Defence, to move all the work to Spain.
This would provoke some embarrassing headlines about Royal Navy ships being built abroad — Nelson turning in his grave etc. It is also not clear whether Navantia is allowed to do it. The convention is that “warships” cannot be built abroad, but there has always been some debate about whether the supply ships fall into this protected category. In September 2020 Ben Wallace, as defence secretary, made a statement to parliament about the programme in which he described the vessels as warships. That would mean that they have to be built here. But will Healey and Reynolds consider themselves bound by what a previous administration said? And even if they were to insist on most of the work coming to UK yards, there is no guarantee that H&W’s new owners will play ball. That might mean an expensive rejig of the existing contract or, even more expensive and time-consuming, a retendering of the deal.
There is, by the way, evidence that Whitehall already has some strong misgivings about providing support for H&W. The company’s financial plan was built on the assumption that it would receive a state guarantee for a £200 million loan that would tide it over until the money started to flow in from support ships and other contracts. After lengthy negotiations, the company finally admitted in July that the government had turned it down. If ministers and officials were completely committed to having the supply ships built here, you might assume that they would have backed up their original choice of contractor with some financial support.
All this leaves Reynolds with a headache. The best he can hope for is that a UK shipbuilder with deep pockets — most likely Babcock International, which runs the naval yards at Devonport and Rosyth — agrees to come in as a white knight. That would, at least in the short term, save Harland & Wolff and valuable jobs in Belfast and Devon. The business secretary then has to hope that Navantia keeps the original deal intact and the work on the supply ships stays in the UK.
This could all be the most wishful of thinking. Babcock missed out to Team Resolute in the original bidding and might have little inclination to give a rival a helping hand. It also has yards of its own to keep busy, with no obvious motivation for it to take on more.
Time is not on Reynolds’s or Healey’s side. The new support ships are urgently needed for the Royal Navy to make best use of its new aircraft carriers, HMS Queen Elizabeth and Prince of Wales. The only support ship still afloat, RFA Fort Victoria, built (by H&W) in 1990, is undergoing a lengthy refit. If a far-flung conflict were to blow up, the lack of logistics support could prove embarrassing.
Whoever ends up owning H&W, Reynolds will have to find a way to smooth the path with Navantia. It is hard to see how that can be managed without someone’s beard becoming a little crispy.
PS. Problems are piling up on Reynolds’s desk. A couple of hundred yards from H&W’s head office in Belfast sits Spirit AeroSystems, arguably an even more important employer in the Northern Ireland economy. It faces an uncertain future after being bought by Boeing and having more than half its workload then sold on to Airbus. And having dealt with Tata Steel (by accepting what was already on offer), Reynolds must face the problems at the UK’s other big steelmaker, the Chinese-owned British Steel. Its most recent results, out last week, showed a loss of £370 million. Finding a way to persuade it to keep investing in the UK will be tough.
Dominic O’Connell is business presenter for Times Radio