The joint venture will form the first European-wide armoured vehicle business.

The tie-up comes amid moves towards the consolidate of Europe's defence industry which is trying to face up to intense US competition.

Both Vickers and Giat have been forced to cuts jobs in recent months following cuts in European defence budgets.

Step forward

Giat managing director Jacques Loppion said the agreement marked "a significant step forward in the consolidation of the European land defence industry."

However Vickers' Challenger tank and Giat's Leclerc tank, which have struggled to compete on international markets, are not included in the deal.

Vickers is in the process of a far-reaching restructuring, which has involved shutting a tank factory in Leeds with the loss of more than a thousand jobs, and selling off its luxury Rolls-Royce car business and Cosworth engine operation.

State owned Giat Industries is heavily in debt and has already announced plans to cut its workforce to 6,700 from the current 10,350.