Ministers To Fire Starting Gun On MoD Auction

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The Ministry of Defence (MoD) is poised to fire the starting gun on plans to sell its military equipment maintenance arm two years after the Government first signalled plans to privatise it.

I have learned that the MoD is in the process of selecting an investment bank to oversee an auction of the Defence Support Group (DSG), a move that could raise hundreds of millions of pounds for the Treasury. The Shareholder Executive, which manages state-owned assets, is also expected to have a say in the appointment.

The appointment of bankers, which could come before the end of the year, is likely to attract the interest of major defence groups such as BAE Systems (LSE: BA.L - news) , Babcock and General Dynamics, all of whom have previously expressed an interest in acquiring it.

The DSG is responsible for repairs and upgrades to a wide range of equipment used by the Armed Forces, including aircraft, armoured vehicles and tanks. It is already run along commercial lines and its management includes executives with extensive private sector experience.

A privatisation of the unit would be closely watched because of the sensitivity of the services it provides, and could potentially involve the first major deal between BAE and the Government since the collapse of the company's planned merger with EADS (Euronext: EAD.NX - news) , the European defence and aerospace group, last month.

The sale of the DSG forms part of broader plans by Philip Hammond, the Defence Secretary, to slash billions of pounds from the defence budget.

In a statement, an MoD spokeswoman said: "In the 2010 Strategic Defence and Security Review we announced plans to sell DSG. This is still ongoing, and the MoD has not yet appointed anyone to run the sale process."

Last year, Peter Luff, a defence minister, said that MoD officials had met with BAE and Babcock to discuss the proposed sale of the DSG.

People close to the situation said the appointment of bankers could be delayed into next year but added that ministers were keen to pursue a formal sale process during the course of next year.

The Coalition Government has offloaded a string of publicly-owned assets since the 2010 general election, including the Tote and, more recently, Admiralty Arch in Central London.