MoD's £6bn sweetener for BAE

BAE in line for new sweetener as the Government lobbies India over controversial arms deal

The Government's attempts to smooth the way for a £1bn arms deal with India could lead to it offering the British defence group BAE Systems a contract six times that size.

Over the past few months ministers have mounted an intense campaign to persuade the Indian government to sign a controversial deal for 60 BAE Hawk jets.

The Foreign Secretary Jack Straw, the Deputy Prime Minister John Prescott and the Defence Secretary Geoff Hoon have taken it in turns to bat for the British defence interests. Ministers want to safeguard jobs at BAE's factory at Brough, one of the biggest employers in East Yorkshire. But the Indian government is torn between buying Hawks or the cheaper Russian MiG-AT trainer jet.

The Independent on Sunday has learnt that Indian officials are keen to sign with BAE, but are worried that the Hawk may become obsolete, and have asked the British Government to guarantee the jet's future.

Defence industry sources revealed that, as a result, ministers are considering awarding a separate contract to BAE to supply new Hawk trainer jets to the Royal Air Force, Army and Navy.

Because the aircraft would be in operation for at least 20 years, ministers hope that it would persuade the Indian government to sign the £1bn contract for the Hawk jets.

Such a move would be highly contentious. Not only would it raise fresh questions over why the Government is lobbying so hard for the deal when there is a danger of the India-Pakistan dispute over Kashmir boiling over, but rival defence firms may also cry foul.

The Ministry of Defence originally planned to replace its fleet of military trainer aircraft in a record-breaking £20bn private finance initiative deal. Internal MoD documents reveal that its present batch of Hawk jets "will be unable to maintain its present task beyond 2006".

The contract would have required the winning consortium to supply a new fleet of trainer aircraft to the armed forces and also run the pilot-training programme and flight facilities.

Under the new plans being discussed, BAE would automatically be awarded the contract for the training aircraft, in a deal worth around £6bn. A slimmed-down PFI competition would then be held to find a partner to provide the training facilities on a long-term contract

But the move would cut out rival defence firms that may have been interested in supplying trainer aircraft.

One senior defence industry source said: "BAE must feel that luck is on its side, with not one but two contracts virtually in the bag."