UK aerospace workers celebrate Obama's reappointment of Gates

Hopes raised that contracts for US military will not stall as Bush's Defense Secretary keeps his job

US president-elect Barack Obama's decision to retain Defense Secretary Robert Gates has raised hopes in Washington and London that a $40bn (£26bn) air refuelling contract will be ready by 2011.

Aerospace giants Northrop-Grumman and EADS were awarded the US tanker contract earlier this year, but rival Boeing challenged the appointment arguing that the selection procedure contained fundamental errors.

A likely rerun of the competition has led to fears that the contract will not be re-let for up to four years, a blow to 13,000 UK workers who would manufacture many of the craft for EADS subsidiary Airbus. It is estimated that the contract will be worth about £3bn to the British economy. At present, US refuelling craft more than half a century old continue to struggle with 21st-century military demands.

However, sources on Capitol Hill said that Mr Gates' reappointment for at least the first year of the Obama administration – a mild surprise given his hawkish reputation under George W Bush – has raised hopes that the re-tendering will speed up.

"Secretary Gates made a decision in September that he wouldn't be able to resolve [the retendering] issue until after the election," said a Washington insider. "The expectation in the air force is that it could be re-let by March 2010, but I would say no earlier than second-quarter 2010 and more likely late that year or early 2011."

The source said that the delay will be relatively short as Secretary Gates is almost certain to "by and large" stick with the original tender documents because he is "personally invested" in the architecture of the original procedure. A different defense secretary would have been more likely to draw up a new raft of tender documents, taking the Airbus-Boeing competition to at least late 2012.

An aerospace source warned that new defence staff at lower levels will take up to six months to settle into their roles, meaning that the tender process might not be reassessed fully until next August. However, the source agreed that while the air force's March 2010 target was optimistic, the turn of 2011 was achievable.

EADS is also in line to win US military contracts worth £50m through subsidiary Paradigm by the end of this year. Paradigm managing director Malcolm Peto said that the US was using the company's Skynet 5 satellite communications tech-nology, which was developed in the UK through a £3bn private finance initiative project with the Ministry of Defence. Mr Peto said that Paradigm was in line to win four contracts, which would see the US military use spare capacity in its UK technology infrastructure.

Another EADS division, Astrium, announced earlier this month that it was in talks with Nasa to provide communications and navigation support for a permanent US moon base.