Swan Hunter in Mayday to MoD

The shipbuilder is in the mire again. But a bailout may not be possible this time, writes Clayton Hirst

The future of Swan Hunter is hanging in the balance after it emerged that the iconic Tyneside shipbuilder asked the Government to bail it out of prob- lems with its biggest contract.

The future of Swan Hunter is hanging in the balance after it emerged that the iconic Tyneside shipbuilder asked the Government to bail it out of prob- lems with its biggest contract.

Jaap Kroese, Sawn Hunter's chairman, who rescued the company from collapse in 1995, made the plea in private meeting with Ministry of Defence officials a few weeks ago. The request came after problems surfaced on a project to build two 16,000-ton ships for the Royal Navy.

Swan Hunter, which employs around 1,500 people, agreed to build the two ships for £140m. Because this was on a fixed-price contract, the MoD would be accused of propping it up with taxpayers' money if it agreed to make extra payments to the shipyard.

Neither Swan Hunter nor the MoD would reveal the size of the claim, which relates to a project known as Landing Ship Dock Auxiliary. However, a senior defence industry source said it was between £30m and £35m. Because it hasn't got any other major shipbuilding work until 2008, the claim is thought to be critical to the company's survival.

Norman Brownell, Swan Hunter's commercial director, said: "There have been some difficulties with the job. We have had discussions with the MoD about possible extra claims for what is happening with the job. When we make a claim then sometimes it is our fault; sometimes it is the fault of others. You must not forget that this vessel is the first of its type. There will always be teething problems."

Asked if the problems could threaten the shipyard's existence, he said: "For any company losing a lot of money, the future is at risk."

A spokesman for the MoD said: "Swan Hunter has told the MoD that it is experiencing technical difficulties with the construction of the ships. As a result, we are reviewing the project milestones."

A source close to the talks said that Mr Kroese had told officials that he had personally invested millions of pounds into the company and was therefore looking for some sort of bailout.

The MoD now faces a dilemma. It will want to avoid being seen to hand out millions to keep the shipyard operating, as this would enrage other British shipbuilders and may fall foul of European state aid rules. But the Swan Hunter yard has already been earmarked to build a section of two new aircraft carriers in 2008, so the MoD has an interest in preserving the company's future.

The decision could be a political one. The shipyard is in the Labour Party's heartland. In January, Deputy Prime Minister John Prescott hosted one of the Government's so-called "big conversations" at Swan Hunter's Tyneside base. Mr Kroese is also a Labour Party donor. In Swan Hunter's last set of accounts filed at Companies House, it was revealed that the Dutchman gave £1,000 in 2002.

Mr Kroese also warned earlier this month that the Swan Hunter yard was threatened by the MoD's decision to delay a project to build a hospital ship. This would have kept the yard busy until 2008.

Mr Kroese rescued the ship- builder in 1995, acquiring the business for around £5m just weeks before it was to be closed. The Dutchman, who made his money in oil rigs, initially received a frosty reception from the locals. But when it became clear that he intended to make a go of Swan Hunter and when he moved into a property overlooking the yard, he quickly won supporters.

Swan Hunter's history reaches back to the 1860s but the company gained prominence in the early 1900s for building the Mauretania. For 22 years, the ship held the Blue Riband for the fastest Atlantic crossing.

The company grew in size after the Second World War, as various other Tyneside shipyards were merged with it. The company was nationalised in 1977 under Labour. However, as it faced growing competition from rivals in South Korea and Japan, Swan Hunter was privatised again by the Thatcher government in a management buyout.

This marked the beginning of its long decline, which was exacerbated when it lost several Royal Navy contracts. It eventually went into receivership in 1993 and many of its specialist shipworkers left the country to find work with foreign companies. Mr Kroese's arrival in 1995 saw some of the workers returning to their old company.

Today, the future of Swan Hunter rests with the MoD.