Hopes of saving hundreds of threatened jobs at BAE Systems collapsed today when US defence giant General Dynamics won a lucrative contract to build a new light tank for the British Army.
The US firm beat its UK rival for the multibillion-pound order, although it has pledged to build most of the new vehicle in the UK, saying it will safeguard thousands of jobs here.
BAE Systems had said that 500 previously-announced job losses in its vehicles business might be saved if it won the contract.
Bob Murphy, president of BAE Systems' Land and Armaments operating group, said: "BAE Systems notes the decision by the UK MoD to award preferred bidder status to General Dynamics UK for the demonstration phase of the Future Rapid Effect System (FRES) Specialist Vehicles programme.
"While disappointing, today's announcement does not impact the previously stated outlook for the land and armaments business.
"The company will continue to support the UK Ministry of Defence in the land sector through, for example, the long-term partnering agreement with them on ammunition supply and on the sustainment and upgrade of the existing armoured vehicle fleet.
"We remain committed to our global land strategy and are focusing on a number of long-term, sustainable programmes in our world markets."
The decision will mainly hit a BAE Systems factory in Newcastle upon Tyne, where around 400 jobs would have been created or sustained if the British firm had won the contract.
The Ministry of Defence said the first tranche of the programme should deliver around 600 vehicles to the front line, with the possibility of further purchases in the future.
The order includes development of Scout, the principal reconnaissance vehicle that will replace the Scimitar vehicle currently deployed in Afghanistan.
The MoD said the Specialist Vehicle fleet will provide improved protection against a wide range of threats and bring "significant benefits" to the Army, including greater firepower, longer range sensors and sighting systems and a higher level of reliability.
Under the announcement, around 70% of the work will take place in the UK, ensuring the creation or sustainment of over 10,000 British jobs within the armoured vehicle sector.
Defence Secretary Bob Ainsworth said: "I am pleased to announce the successful outcome of the Specialist Vehicle competition. This represents a very important milestone towards replacing the ageing CVR-T and is one of the highest equipment priorities for the Army.
"In addition, the development of the Common Base Platform will enable the delivery of further vehicles to meet requirements informed by the outcome of the Strategic Defence Review.
"We are determined to provide the armed forces with the capabilities they require, and the Specialist Vehicle decision follows the announcement of our commitment to order an initial batch of 200 Light Protected Patrol Vehicles that we will get to Afghanistan as quickly as possible."
Chief of Defence Materiel General Sir Kevin O'Donoghue said: "Today's announcement marks an important step in the Specialist Vehicle Programme. The Scout is one of the Army's highest equipment priorities and will be the cornerstone of its reconnaissance capability. To have reached this point in a complex programme so soon after the assessment phase began in summer 2008 reflects highly on the defence equipment and support staff involved."
Further announcements about defence contracts with UK industry for new and additional capabilities for the armed forces will be made over the coming days.
Shadow defence secretary Liam Fox said: "It is quite wrong for the Government to sign multibillion-pound contracts, unless they are urgent operational requirements for Afghanistan, just weeks before a general election and ahead of a strategic defence review which all parties are committed to.
"Whatever the merits of the programme, it does not make sense to commit to it so close to a review which will look at every aspect of Britain's defence and national security.
"Labour is now like a bankrupt shopaholic on one last spending binge before jail, spending taxpayers' money which they hope not to be responsible for."