US defence giants set to be snubbed in MoD missile deal

Lord Drayson, the defence procurement minister, is set to announce a long-term partnership on its missile programme with a group of defence companies. The deal will exclude some of the world's biggest arms makers.

According to industry sources, the Ministry of Defence is putting the final touches to an agreement with a group that includes MBDA, the France-based missile company that is part-owned by BAE Systems and is the Government's number one missile supplier. Also on board is another French company, Thales.

American weapons giants Raytheon and Lockheed Martin, as well as BAE Systems, will be left out of the accord, which could cover the design, sale, maintenance and operation of so-called "complex weapons".

Sources stressed, however, that details of the deal could change before Lord Drayson's speech on Wednesday at the Farnborough International Airshow. In the talk, he will give an update on the industry's progress in implementing recommendations laid out in last year's Defence Industrial Strategy report, in which the Government laid out a radical new approach to weapons buying. "Complex weapons", or missiles, form one of the sectors addressed.

Among the core principles of the DIS is keeping the intellectual property, and a viable manufacturing base for vital military equipment, within the UK.

"Given the significance of some types of complex weapons, in many cases we require absolute confidence in the performance and safety aspects of our weapon systems," the report reads. "This can only be guaranteed if the UK has access to, and a comprehensive understanding of, the entire system and its design and controlling software."

Such reasoning could have contributed to leaving out Raytheon, which sells Amram missiles and PGB bombs to the UK, and Lockheed. Both have their development efforts centred in the US. An MoD spokes-man declined to comment.

The DIS also recommends restructuring the UK defence industry to deal with its cyclical nature and overcapacity. Lord Drayson has been leaning on the sector to face that reality or risk being left behind by rivals.

The missile agreement would be a boon for MBDA, which is also owned by Finmeccanica of Italy and the Franco-German EADS. It is Europe's only company dedicated to missiles - a market that has a glut of suppliers and waning demand. Major General Alan Sharman, director of the Defence Manufacturers Association, said: "[MBDA's] order book is not enough to sustain it unless the MoD places some additional business with it."