Spy planes to lift off in UK

Thales, the French defence company, will announce on Wednesday that it is creating a new British-based company to manufacture unmanned spy planes for the Royal Air Force.

The Ministry of Defence (MoD) plans to spend £800m on a fleet of the planes, nicknamed "drones", later this year. Thales is competing against America's Northrop Grumman for the contract, known as Watchkeeper.

Thales believes that building the drones in Britain will give it the edge over its American rival.

Sir Roger Wheeler, a non-executive director of Thales UK and Britain's former Chief of the Defence Staff, will announce that the new company will be owned by Thales and its eight partners in the running for the Watchkeeper contract. These include IT services company LogicaCMG, defence research group QinetiQ, and US aerospace giant Boeing.

Sir Roger is expected to argue that if Thales is awarded the Watchkeeper contract then the new company will be in a position to win drone orders worth at least £1.5m from other countries.

The MoD is under pressure from the Treasury to reduce its budget dramatically. While new orders for tanks, aeroplanes and battleships could be slimmed down, the MoD believes that drones will play an important part in future warfare.

The drones will be used to relay images to battlefield control stations and help guide missiles to their targets.

Thales' plan to set up a joint venture company in Britain is designed to appeal to the Department of Trade and Industry (DTI), which has a say in the MoD's spending decisions.

The DTI's "Defence Industrial Policy" document says that priority will be given to projects that safeguard or promote British jobs in the defence industry.

If Thales wins the Watchkeeper contract then the drones' maiden flights will be conducted in Cardigan Bay, Wales. The area is the only place in Britain that has a special licence for drone flights. The Welsh Development Agency, which owns a large site in Cardigan Bay, will promote the site this summer to defence companies wishing to test their unmanned planes.