Vickers links with Giat in tank venture

THE RESTRUCTURING of Europe's fighting vehicles industry took a further step forward yesterday after Vickers, makers of the Challenger 2 tank, announced plans to form a joint venture company with the state- owned French tank manufacturer Giat.

The alliance will cover sales and marketing, future product design and programme management but there are no plans for the time being to include the two companies' manufacturing facilities.

Nor does the agreement prevent either Vickers or Giat linking up with other manufacturers of land vehicles in their respective countries.

The Vickers-Giat deal follows an earlier merger between the land vehicles businesses of GKN and Alvis. Since then there has been speculation about whether Vickers would join the GKN-Alvis alliance or seek a partner in Europe or the United States. A memorandum of intent signed yesterday paves the way for Vickers and Giat to form a joint venture company. But they will continue to operate separately in countries where the Challenger 2 is competing with the Giat's Lerclerc main battle tank for orders.

The two companies are vying for an order from Greece worth up to pounds 1.5bn for 250 tanks. There are also competitions taking place to supply South Africa and Qatar with tanks, orders worth pounds 350m and pounds 250m respectively.

Jacques Loppion, chief executive of Giat Industries, said the agreement would accelerate the consolidation process taking place in Europe. There are 20 manufacturers of land defence vehicles whereas most analysts believe the market can only support five or six in the longer term.

The agreement is the second major deal pulled off by Baron Paul Buysse, the new chief executive of Vickers.

Last month he announced the pounds 300m acquisition of Ulstein, a Norwegian marine propulsion company. Baron Buysse said the Giat deal would unlock significant benefits for the two parties.

Giat lost Ffr2.85bn in 1997 on sales of Ffr6.7bn francs after putting aside large provisions to pay for the rationalisation of its manufacturing facilities in France.

In the last three years it has shed 1,600 jobs. Mr Joppion, the first private sector executive to run Giat, was brought in to steer it towards partial privatisation. However, Giat is still not expected to break even until 2002.

Vickers is also rationalising its manufacturing capacity with the closure of the Leeds tank factory with the loss of 600 jobs.