BAE plays down MoD row rumours

BAE Systems will need to work with other contractors such as Thales

BAE Systems has played down reports that it could pull out of a £3bn ($5.3bn) contract to build two aircraft carriers for the Royal Navy.

Britain's biggest defence company is currently in negotiations with the Ministry of Defence over the final details of the contract.

A row broke out over who will be lead contractor in an alliance between BAE and Thales, the French defence company.

An MoD final decision on the companies involved is expected in a fortnight.

Speculation

The Independent on Sunday reported that BAE is threatening to pull out of the contract unless the MoD backs them as primary contractor.

Reports in the Sunday Times said the MoD will dump BAE as the prime contractor on the naval project and its purchasing arm the Defence Procurement Agency will take charge.

The agency will then appoint a project management specialist tipped to be Amec, the British construction group.

Bechtel and Halliburton, the US contractors, are also in the frame, the newspaper said.

A BAE spokesman told the BBC that reports it could pull out of the project altogether are speculation and wished to make no further comment.

Signal

There was another twist in the saga last week when reports emerged that BAE Systems may be planning to sell its naval division.

Some analysts interpreted this as a snub to the MoD, which would not want a sale to go ahead while BAE was involved in the aircraft carrier project.

BAE Systems said all possibilities were being considered for the future of its ship and submarine-building arm.

Further developments have occurred in a separate dispute regarding cost overruns on the Eurofighter pan-European combat aircraft project.

BAE Systems has clarified in a statement that "it is not required to make a provision against the Eurofighter programme".

This follows newspaper reports that it wanted extra costs rolled into the second tranche and in which the MoD had refused to co-operate.