BAE carrier deal 'at risk'

The first Astute class submarine is due in late 2006

BAE Systems' bid to win a £2.9bn contract to build two aircraft carriers for the Royal Navy could be hit by a row over delays and cost overruns on other government projects, according to a press report.

The company fears that the government, irked at the delays, could award the aircraft carrier contract to another bidder, the Financial Times reported.

BAE's chief rival for the contract is the French-owned defence giant Thales Group.

According to the FT, a public statement from BAE warning about possible delays to submarine and aircraft projects, issued late on Wednesday, was put out at the government's request.

"The government is clearly playing hard-ball," the FT quoted an unnamed BAE executive as saying.

"Yesterday (Wednesday) gave them the best opportunity they have had yet to get out of awarding us the carrier contract."

Shares slide

The warning reduced BAE's market value by a fifth on Thursday.

Its shares closed 21% lower at 104 pence, having slumped to a nine-year low of 93 pence at one point during the day.

The affair has prompted some investors to call for the resignation of BAE's senior management, the Financial Times reported.

The projects affected by cost overruns and delays involve Astute class submarines and Nimrod anti-submarine aircraft.

The problems are believed to stem from unforeseen technical problems.

On Wednesday, BAE said it was discussing ways of modifying the contracts, but warned that it could give "no assurances" as to the outcome.

However, defence experts doubt that the contracts can be cancelled outright.

BAE shares were up a penny at 105p in early trade on Friday, while Thales shares were unchanged at £18.