Britain Siding With Home Team in Battle Over Tank

In a setback for the American arms manufacturer General Dynamics, the government said Tuesday that it will give Britain’s Vickers Defense Systems an unusual 21-month contract to continue developing its Challenger 2 as the country’s next generation main battle tank.

The politically sensitive decision, made in secret deliberations Monday night by the Cabinet’s Defense and Overseas Policy Committee, came despite General Dynamics’ last-minute offer of a $300-million price cut to swing the vote to its rival M-1 tank.

The action involves a potential $2.5 billion worth of business and, according to Vickers, the future of the British tank industry. Vickers and General Dynamics have engaged in a fierce, sometimes public, competition for the contract.

Defense Minister George Younger told the House of Commons on Tuesday that the task of selecting a new tank was “complicated” by the fact that the contenders were not “at the same stage of development.” He pledged the equivalent of about $160 million in public funds to help Vickers complete work on Challenger 2 and set a deadline of Sept. 30, 1990, for the British tank to prove itself superior.

The decision effectively puts General Dynamics on hold during the test period, although a spokesman for the St. Louis-based firm said it expects to continue negotiating with the government so that a firm contract “could be in place” should Vickers fail to meet development targets.

Will ‘Keep Options Open’

“Intermediate milestones have been established within the demonstration phase at which the (Vickers) company will have to demonstrate satisfactory progress,” Younger told Parliament on Tuesday. “This staged approach will enable us to keep our options open for the future if this proves necessary.”

A majority of senior British army officers reportedly favored the General Dynamics entry, which is already proven, over the Vickers tank, which is to be fitted with still-untested electronic and fire-control systems. Vickers’ current Challenger 1 model has fared badly in well-publicized North Atlantic Treaty Organization firing competitions against the M-1, which is also known as the Abrams, and against West Germany’s Leopard 2 tank.

Britain has been burned before on defense procurement decisions--notably two years ago, when it had to abandon the ill-fated Nimrod spy-in-the-sky aircraft project in favor of the American Airborne Warning and Control System, or AWACS, after sinking the equivalent of $1.5 billion into the domestic entry.

Still, more than 100 Conservative parliamentarians signed a motion last month urging that the tank contract be given to Vickers after company Chairman David Plastow warned that to do otherwise would jeopardize about 10,000 British jobs. That includes about 1,400 workers at two Vickers factories and more than 8,000 others employed by hundreds of domestic subcontracting firms.

Rumors of the government decision were enough to trigger celebrations Monday night in Leeds, where Vickers’ main tank plant is located.

‘A Cracking Present’

“It looks like the Prime Minister (Margaret Thatcher) has a cracking Christmas present for us all,” a smiling shop floor foreman, Alan Dell, told a correspondent for the Daily Mail.

Plastow praised the government decision as “good news for Vickers, . . . good news for its employees, and good news for the British army and the British economy.”

The government contract involves less than 600 tanks to be supplied to Britain’s front-line tank forces in West Germany starting in 1994. But, according to Trade and Industry Minister David Young, who is said to have championed the compromise decision, much more is ultimately at stake.

He sees export potential of more than $20 billion, with such customers as Saudi Arabia, Jordan, Pakistan, and Morocco all reportedly interested in buying new tanks.

“You cannot sell tanks if your own government does not buy your tanks,” he said in November in a radio interview with the British Broadcasting Corp.

Subcontracts Promised

A General Dynamics spokesman here said the government’s decision came despite what he termed “an unprecedented effort on the part of the United States government and General Dynamics” to accommodate British concerns. He said the company had previously guaranteed to place subcontracts and other orders in Britain equal to the full value of the tank contract if it won.

In addition to a co-production contract with Vickers, he said it offered a “lucrative marketing agreement” whereby the British firm would have taken the lead in selling and manufacturing the M-1 for certain “traditional” British overseas markets.

General Dynamics had revised its proposal “just in the last 48 hours” to reflect “a substantial reduction” in price, the spokesman said.