Babcock seals deal worth £2bn to maintain UK military equipment

The British Army’s vehicles and light weapons will be maintained and stored by Babcock International after the engineering support business signed a decade-long contract with the Ministry of Defence.

The FTSE 100 company said it would pay £140m for the Defence Support Group's (DSG) land business, a Government Trading Fund owned by MoD and which currently looks after the Armed Forces’ equipment.

Babcock estimates that providing maintenance, overhaul, repair and storage for vehicles such as Warrior armoured personnel carriers and Challenger tanks will generate revenues of about £2bn over the 10 years the contract is set to run. There is an option for the contract to be extended by five years.

The acquisition is expected to complete at the end of March with Babcock starting work to maintain equipment in April.

Babcock already provides extensive engineering support to the British military, including contracts to support the Navy and train soldiers.

The sale is part of a continuing drive by the British military to outsource work to reduce running costs so it can focus its shrinking resources on the front line, a strategy announced in the 2010 Strategic Defence and Security Review.

Philip Dunne, minister for defence equipment, support and technology, said: “Signing this deal with Babcock will put the DSG on a sustainable long-term footing and will transform the equipment maintenance and repair support that the Army relies on both at home and overseas.

“Babcock will provide market-leading engineering and fleet management expertise to optimise vehicle availability to the Army at better value for the taxpayer.”

_{A British Army Warrior armoured fighting vehicle, which will in future be maintained by Babcock}

The DSG’s 2,800 staff at workshops across the country currently work on military equipment ranging from small arms and aircraft parts to large armoured vehicles.

Under the deal with Babcock, about 2,000 DSG staff will transfer from Babcock, according to the MoD, where they will work on the British Army's land fleet of vehicles and light weapons.

The price Babcock is paying is less than some in the market had expected, with earlier predictions that Babcock could pay about £300m for DSG. However, the deal agreed on Wednesday is covers less equipment than was expected when outsourcing DSG's work was first mooted.

The deal is a boost for Babcock, making up for the next generation government estates contracts it lost to rival Carillion.

Shares in Babcock fell 1.5pc in early trading.