Army shuns BAE but Australia signs deal

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BAE Systems has missed out on an enormous Ministry of Defence contract to supply armoured vehicles to the British Army, but at least partially offset the damage with a similar, but smaller, deal with the Australian armed forces.

The UK defence giant has lost out to a consortium led by France's Thales and the US company Boeing, who will oversee the multibillion-pound project to supply thousands of new medium-weight armoured vehicles to the British Army. The entire FRES – or Future Rapid Effect System – contract could be worth more than £50bn over the next 40 years, which somewhat takes the shine off the £650m Australian deal BAE has won.

The decision to name the Thales-led consortium as preferred bidder came as a shock as analysts had expected at least two groups to be named in the role as FRES "systems of systems integrator". Groups led by the likes of Qinetiq, Lockheed Martin and Italy's Finmeccanica also lost out on the deal. BAE also missed out on the contract to supply utility vehicles for the FRES programme, but is still gunning for a slice of the project as the integrator of the systems used within the UK's armoured vehicles.

It will take some comfort after winning the first slice of the Project Overlander project in Australia. The Australian army has decided to overhaul its fleet of military vehicles to reduce the risk to its personnel from suicide bombers, landmines and other explosive devices, and will replace its fleet of 9,000 lorries and utility vehicles by 2015.

BAE must feel confident it can win a sizeable chunk of the project after being named preferred bidder to supply 3,000 new medium and heavy lorries to the Australian army.

The UK company will thrash out final details with the Australian government over the next few months. The deal is expected to be worth more than £650m (A$1.5bn) over a six-year period with deliveries of the vehicles due to start in 2009.