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07 Feb 05. KBR, in the UK, has been appointed by the UK MoD to be the preferred Physical Integrator for the Future Aircraft Carrier Programme (CVF), under which two new aircraft carriers are required to be delivered to the MoD with target in-service dates of 2012 and 2015. KBR will join the existing CVF Alliance between the MoD, BAE Systems and Thales UK, and will work with all potential UK shipyard manufacturing facilities and Alliance participants to formulate and deliver a cost-effective strategy for the manufacturing element of the ship build programme. KBR is a subsidiary of Halliburton (NYSE: HAL).

“KBR is proud to have been selected for this important project,” said Andy Lane, chief operating officer, Halliburton. “This award underscores KBR’s long-term commitment to the UK defence industry and acknowledges our position as a leading UK defence contractor.”

Tony Pryor, Vice-President for KBR’s Maritime business said: “This award combines KBR’s unique experience in the offshore oil and gas industry, naval ship building and commissioning, and alliance contracting. We have committed to this project a world class team from KBR which has successfully delivered many UK-based offshore oil and gas construction projects on schedule, as well as refitting and commissioning warships to time and budget. We look forward to working with all members of the Alliance to deliver a successful outcome for this important programme.”

The new aircraft carriers will be the most powerful and complex warships ever built in the UK. As preferred Physical Integrator, KBR will be responsible for developing and proposing the optimum build strategy for approval by the Alliance participants, creating and maintaining the programme Master Schedule and providing support to the MoD on drawing up and negotiating the Alliance contracts.

Comment: This release tells half the story given the wording of ‘preferred Physical Integrator’ which suggest that unless the company comes up with the required savings necessary to make the Treasury accept this huge contract that, they will be consigned to the same bin as AMEC, a name surprisingly absent from the CVF contract since the MoD announced its possible appointment win with the same fanfare last year. However given the fact that KBR is on the block from its Halliburton parent, any change of ownership could affect the final outcome, profitability and structure to this contract? We expect the final announcement to be made after the expected announcement of an election on May 5th 2005 to save any face and defence cuts after Mr. Blair is returned to power, albeit with a reduced majority, and the possibility that the work won’t go to Rosyth in the Chancellor’s constituency, but to KBR’s yard at Nigg Bay (We will be suggesting the latter later on this week).

In view of this imminent Election announcement, sources suggest that we should look further than the CVF announcement, post-election, to such key projects as Future Lynx, which sources suggest could be placed as a sole-source contract with the Finmeccanica Westland subsidiary as a NAPNOC, non-competitive contract worth some £3bn. BATTLESPACE sources suggest that rivals such as EADS’s Eurocopter subsidiary have offered a rival NH90 bid reputed to be worth some 30% less than the Westland bid to HMG with a sweetener of increased NH90 work (which would otherwise have gone to Rumania) and increased Airbus workshare; but have been shut out, incurring the wrath of the DPA and Treasury. Has the mystique of Westland won the day again in spite of the fact that all profit, this time, will go to Italy and the Parliamentary seat is held strongly by the Liberal Democrats?

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