Alvis pays Rolls £16m for Challenger tanks

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The long-awaited consolidation of Britain's armoured vehicles industry was completed yesterday after Rolls-Royce sold its Challenger tank business to the rival defence company Alvis.

Alvis is paying just £16.2m for Vickers Defence Systems – the equivalent of a tenth of its sales last year and less than half its pre-tax profits.

The takeover will create a group with 1,300 employees, a £750m order book and a virtual UK monopoly over the production of land fighting vehicles. Alvis bought its only other competitor GKN Defence, the maker of the Warrior armoured personnel carrier, four years ago.

The deal will also result in job losses among the 1,000 UK staff based at the two main production plants in Newcastle and Telford. But Alvis, which has set aside £7.5m to pay for the integration of the two businesses, said there was no intention of closing either plant in the "foreseeable future".

Vickers Defence Systems, which also owns a South African armoured vehicle manufacturer OMC and a maker of military bridges, made profits of £37m last year on sales of £160m.

However, analysts expect turnover this year to fall to about £50m after completion of a £1.6bn Challenger tank order from the Ministry of Defence.

Nick Prest, the chairman of Alvis, said the combined group would be better placed to win future Ministry of Defence work, including a £2bn-£3bn order for 1,000 lightweight armoured troop carriers to replace the Scorpion and other vehicles.

He said he was also hopeful of landing export orders from the Middle East for more Piranha armoured vehicles as well as upgrade work on the Challenger 2, which was heavily criticised this week in a report from the National Audit Office into the Saif Sareea II military exercise in Oman.