It could mean further embarrassment for GEC, which was behind the Nimrod early warning system abandoned by the MoD in favour of the American Awacs in 1987 at a cost of £1bn to the taxpayer.
The Phoenix surveillance aircraft, which has so far cost £227m of taxpayers' money, is about six years behind schedule. It was due to enter service at the end of this year.
An MoD official confirmed yesterday that the ministry was having doubts about the project's costs. "We have put the Phoenix under review. There have been delays and problems with the software," he said.
Total project costs have more than doubled since the Phoenix contract was awarded to GEC's Marconi Avionics division 10 years ago. Only last autumn the MoD was saying that the Phoenix was the best available option as a surveillance aircraft, but now it may buy something off the shelf. Israel has been using an advanced unmanned aircraft for several years.
The Phoenix was designed to target and spy on battlefield artillery, but problems are thought to have developed with the sophisticated sensors and cameras.
Apart from the Nimrod fiasco, GEC, which is in competition with British Aerospace to take over the submarine maker VSEL, has also faced further difficulties over the development of the Spearfish torpedo for the Royal Navy.
The weapon, to replace the ageing Tigerfish torpedo, had chronic reliability problems, although these have now been ironed out and last year the MoD awarded GEC a £630m contract for the missile. Cost over-runs on Spearfish and other defence projects wereheavily criticised by the National Audit Office.
GEC declined to comment.