IT was a grand dream to create 800 jobs building some of the biggest and most luxurious yachts on the planet here in Hampshire.

Today that dream looks all but sunk.

Superyacht builder Palmer Johnson is to shut its Hythe yard with the loss of 110 jobs and now a major question mark hangs over its plans in Southampton that was due to create hundreds more on the former VT site in Woolston.

Stunned staff of the US firm learned their jobs were to be axed at a meeting yesterday after building just one boat since starting operations on the former military base in 2008.

They had just put the finishing touches to the 51m yacht, the longest ever built by Palmer Johnson but just half the length of the vessels it planned to make at a purpose built facility on the Woolston site.

Those ambitious plans are now in disarray with Palmer Johnson admitting they are under review and city bosses saying they are prepared to consider “other options”.

At the very least the boatyard, which was originally intended to open in 2009, will be delayed for as much as two years as Palmer Johnson waits for the millionaires to start buying its boats again.

The company said it had had problems raising finance from UK banks for the project and added that the Government’s plans to shut the regional development agency SEEDA had further complicated negotiations over the site’s future.

It’s a major blow to regeneration hopes for Woolston, which centred on Palmer Johnson creating up to 800 jobs with a purpose-built boat yard there.

However, work on the 1,600 homes that will share the finished site on the banks of the river Itchen has just got under way.

A spokesman for Palmer Johnson said the future of their piece of the Woolston project was still to be decided.

“That now has to be reviewed.

Essentially the marketplace for luxury yachts has contracted significantly during the financial slowdown and it’s a question of at what point there will be an upturn,” he said.

“We are in negotiations with SEEDA over when we build the site. In 18 months to two years time, if things go well, Palmer Johnson could be on site building yachts. No decision has been taken at this time.

“It is purely a matter of capacity. At the moment there is too much capacity and not enough demand.

“Palmer Johnson invested a great deal in the UK and really wanted it to be successful and therefore as long as the circumstances are right there is no reason why they won’t build here.”

He praised the skills of Hampshire workers.

“It is a devastating day for employees and for management who looked at every option to keep the operation going. The people who worked on the boat and the supply chain and the contractors have all done a great job. None of this is of their making.

“There are two separate companies, Palmer Johnson Yachts and Palmer Johnson Engineering, and both are being wound down.We don’t want people or suppliers to feel that this is happening abruptly. That is not the case. We need to give employees as much notice as possible.”

Despite trumpeting the arrival of Palmer Johnson as a victory for the agency when it first announced it had lured the company to Hampshire, SEEDA yesterday declined to comment on the latest announcement saying it could not discuss individual companies.

Council leader Royston Smith said: “We’ve been on site with the residential side and everything was starting to have a good optimistic feel so this is something of a blow.

“We have to be looking at what other options there are. There comes a point when you have to say we need people to get into work. We need to get people trained and skilled up. Palmer Johnson is still our first choice but we can’t wait forever.”

Jimmy Chestnutt, chief executive of Hampshire Chamber, said: “This is very sad, disappointing news particularly as there is a highly skilled labour force available in the area. Hampshire Chamber and the British Marine Federation will work with the city council to mitigate the impact of the jobs loss.

“We hope that this decision does not mean Palmer Johnson will pull out of Woolston which has been designed with purpose-built facilities for them.”