David Cameron expressed “disappointment” today that a French firm had beaten BAE Systems to become preferred bidder for a major fighter plane contract with India.
But the Prime Minister insisted a final decision had not been taken, and he would do "everything" to help the defence giant win the business.
Despite unions voicing fears, Mr Cameron also said no job losses were expected as a result of the development.
BAE has been hoping to partly assemble 126 Eurofighter Typhoon jets at Warton and Samlesbury in Lancashire for the Indian air force.
India's government has signalled that French firm Dassault put in a lower bid for its Rafale jets, although no formal statement has been made.
Sources at BAE said it was "far from a done deal" and no contract has been awarded to Dassault.
Asked about the issue at Prime Minister's Questions, Mr Cameron said Typhoon was a "superb aircraft, far better than Rafale".
"Of course, I will do everything I can - as I have already - to encourage the Indians to look at Typhoon, because I think it is such a good aircraft," he told MPs.
"The decision is obviously disappointing but it is about who the Indians have assessed as making the lowest bid and therefore asked to enter into further negotiations.
"They have not yet awarded the contract."
He added: "We do not expect any job losses stemming from this decision and it does not rule out Typhoon for India."
A BAE spokesman said: "We note that Eurofighter Typhoon has not been assessed as the lowest-priced compliant bidder by the Indian ministry of defence at this stage of the tendering process for supply of its new medium multi-role combat aircraft.
"Our partner, Cassidian, submitted an attractive and competitive proposal to supply Eurofighter Typhoon, the world's most modern medium multi-role combat aircraft available today.
"We believe Eurofighter Typhoon offers the best military, industrial and economic solution for India.
"We will continue to support the Indian customer and its evaluation process and work with our European partner companies and their respective governments to seek to understand the basis of the announcement."
Unite warned that the selection of a French fighter aircraft for the multibillion-pound contract could have serious implications for BAE Systems and the UK aerospace industry.
National officer Ian Waddell said: "We are seeking confirmation from BAE Systems that Rafale has been selected as their preferred fighter by India.
"The Typhoon is a superb aircraft which supports thousands of highly-skilled jobs in the UK, both at BAE Systems and in the supply chain.
"We are concerned about the serious implications this decision may have and want urgent talks with the company about future plans for the workforce.
"There are other export orders to be won and it is critical that the company maintains its commitment to Typhoon despite this setback."
The CSEU, an umbrella body for manufacturing unions, is meeting the MoD's Procurement Minister, Peter Luff, next week and the unions will raise this issue as a priority.
Unite said it will continue to concentrate its efforts to deal with the 3,000 potential redundancies at BAE Systems at Brough, Samlesbury and Warton which were announced late last year.
Mr Cameron's official spokesman told reporters: "Clearly, this is not a done deal, the contract has not been awarded, but it is not good news that the French bid has been chosen as preferred bidder.
"We are taking stock to see if there is anything we can do and we are in contact with our High Commission in India to get their assessment."
The spokesman was asked whether it was right for the UK to continue to provide development aid of £280 million a year to a country which has the resources to spend billions on fighter jets.
He said: "India is still home to one-third of the world's people who live on less than 80p a day.
"We have recently reviewed our aid commitments, and in the case of India we have focused them on the three poorest states."