The document, drawn up by a committee advising Michael Heseltine, President of the Board of Trade, effectively calls for the creation of a British equivalent of the US National Aeronautics and Space Administration.
Should Mr Heseltine accept the report's findings it would signal a stark and fundamental departure from the non-interventionist approach of the 1980s and offer the first clear case of his determination to intervene on behalf of a strategic industry.
The document says increased government backing for the sector is vital if British aerospace companies are to keep pace with their rivals in the US, Japan and elsewhere in Europe.
Specifically, the report says the Government must sponsor a national strategy to identify new aerospace technologies and then help finance research and development and training programmes.
This could involve direct subsidies, tax incentives and increased funding for European Community initiatives.
The highly sensitive report, marked 'Commercial in Confidence, UK Eyes Only', was drawn up by the Department of Trade and Industry's aviation committee and delivered to Mr Heseltine last autumn.
Its existence only emerged yesterday in evidence from British Aerospace to the Commons trade and industry select committee.
Dick Evans, BAe's chief executive, told MPs: 'We would like to see a national strategy. This is not an issue of picking winners and losers. My simple message to the DTI is: Will you please sit down and start talking to us about a strategy for this industry?'
The French and Germans had national strategies for their aerospace industries, financed by government, Mr Evans said. What Britain needed was a similar plan, sponsored by the DTI and backed by the Ministry of Defence and the Department of Employment, dedicated to determining priorities and funding necessary research.
At present the Government's aerospace research budget is only pounds 26m and is set to decline further between now and the end of the decade. With the industry lacking sufficient profits to fund fully its own research there was a serious danger of a technological gap opening up, Mr Evans warned.
BAe's own forecasts suggested it would be very difficult for the aerospace industry to sustain the level of investment necessary to maintain Britain's position in an industry in which it was 'genuinely a world leader', said Mr Evans.
The DTI aviation committee is chaired by Professor John Stollery, of the Cranfield Institute, and its membership is drawn from leading aerospace companies such as BAe and Rolls-Royce and research bodies.
Its report, titled the National Strategic Technology Acquisition Plan, was discussed with the industry minister, Tim Sainsbury, in November.
The aerospace industry is still awaiting a response from Mr Heseltine. But Bob McKinlay, chairman of BAe's Airbus division, said: 'We hope and believe the plan will be endorsed and adopted.'
Among priority areas for funding identified in the report are airframe, engine and equipment technologies and reseach into wing design, helicopter rotary wing technology and high performance materials.
Separately, BAe is preparing to approach the DTI for launch aid to help fund a new generation of regional jets, to be built in partnership with Taiwan, and for an enhanced version of its Advanced Turbo Prop aircraft.
The report to Mr Heseltine deals mainly with the civil aircraft sector. However, because this part of the aerospace industry is highly dependent on technologies developed initially for military application, the Ministry of Defence is arguing for a much stronger involement in the proposed strategic plan.
This is thought to have provoked internal Whitehall wrangling. The Treasury is also understood to have reservations about the level of funding implied by the document.
The Belfast aerospace company Shorts is to shed 665 jobs. The St Patrick's Day blow had been expected because of the downturn in the aircraft industry worldwide.
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