Hutton May Delay Aircraft Carrier Project

Hutton could postpone the delivery of the carriers by as much as two years in a cost-cutting move to reduce budget.

Defence Secretary John Hutton will make a statement around mid-day on the 4 billion pound construction of two Royal Navy aircraft carriers on Thursday, amid speculation the programme will be delayed by up to two years.

The warships are due to be built by BVT Surface Fleet shipbuilding, a joint venture between British defence companies VT Group Plc and BAE Systems Plc, and to enter service in 2014 and 2016.

Work on the first of the two ships is due to begin mid-2009, with the project at its peak expected to create or sustain 10,000 jobs.

The carriers will be built at Portsmouth, Govan and Rosyth in Scotland and Barrow-in-Furness in the northwest.

The Financial Times reported last week that Hutton could postpone the delivery of the carriers by as much as two years in a cost-cutting move to reduce an estimated 2 billion pound overspend on this year's defence budget.

Military spending is under strain from the cost of operating on two fronts in Iraq and Afghanistan, while government tax revenues are seen diving in the economic downturn.

A Ministry of Defence spokesman declined to comment on the carrier project but confirmed that military chiefs had been scrutinising equipment programmes to find potential savings and reprioritise spending.

"The aims of the examination were to adapt to the rising cost of defence equipment and to provide more support for current operations," the spokesman said.

An industry source said the original delivery dates had already been regarded as optimistic after ministers spent a year longer than expected to give the go-ahead ahead for the project in May.

A spokesman for BAE Systems said the firm was prepared for whatever Hutton said in his statement.

"Our business case is based on robust and realistic assumptions which take into account the budget challenges facing the Ministry of Defence," the spokesman said.

BVT was set up earlier this year to build the two carriers, which would be the Royal Navy's largest ever ships.

The 65,000-tonne carriers, due to be called Queen Elizabeth and Prince of Wales, are expected to each carry 36 F-35 Joint Strike Fighter combat jets built by a consortium led by U.S. aerospace group Lockheed Martin.

BAE Systems shares were down 2.6 percent at 337 pence in early trade, VT Group was slightly lower at 526 pence.