MoD to split aircraft carrier contract

The Ministry of Defence will this week split the contract between BAE Systems and Thales of France to clinch the £9bn deal to build Britain's two new aircraft carriers. But crucially, the British company is thought to have been selected for the prestige role of prime contractor.

The MOD is preparing to announce on Thursday its decision in one of the most ferociously fought government contract battles in recent years. The work is not due to be completed until 2015. BAE's relationship with the MOD has been strained recently by the fact that it has exceeded its budget by as much as £1bn on contracts to manufacture the Astute submarine and Nimrod maritime patrol aircraft for the Government.

The MOD forced BAE to make a stock market announcement detailing the cost over-runs last month, causing its share price to plummet. But BAE has gone on a charm offensive with government ministers in recent weeks after it became clear that the MOD was seriously considering awarding the primary role to Thales.

The MOD stressed it has still not made the final decision on the new aircraft carriers contract. It is likely that even if one company is awarded the main role, both companies will be involved in building the two 50,000-tonne carriers through subcontracting arrangements because of the size of the job and the level of expertise which is needed.

The MOD is thought to still have doubts about BAE's management. Weekend reports suggested its officials have indicated they are not happy with Mike Turner, BAE's chief executive, and Sir Richard Evans, its chairman.

BAE would not comment on the speculation that the department has approached some of the company's shareholders to discuss its management.