UK Aircraft Carrier Deal In Sight

The carriers are to be called Queen Elizabeth and Prince of Wales and are due to enter service in 2014 and 2016.

Britain could seal a 4 billion pound ($7.8 billion) deal to build two aircraft carriers by February, a source close to the deal said on Friday, after reports that the project could be significantly delayed.

The Ministry of Defence is expected to sign the contract shortly after Britain's BAE Systems Plc and VT Group Plc finalise their shipbuilding joint venture, which could happen as early as next month, the source said.

The Financial Times newspaper reported on Friday that the MoD was considering delaying the contract as it struggles to meet Treasury demands for budget cuts.

Scenarios under discussion range from pushing expenditure on the programme to later years to delaying the programme by up to 18 months, the FT quoted people close to the talks as saying.

The report saw VT shares fall 7.4 percent to a four-week low at 655.5 pence. BAE shares were down 0.4 percent at 491.75 pence. The shipbuilding joint venture, under which VT has an option to sell its stake to BAE, is key to VT's attempts to be entirely focused on support services.

Responding to the report, VT said: "Discussions are at a very advanced stage between VT and BAE Systems Plc on the formation of the proposed shipbuilding and naval support joint venture on terms in line with those previously announced."

Last July, Britain gave the go-ahead for plans to build two aircraft carriers, triggering the deal to merge operations at Britain's two largest shipbuilders, BAE and VT.

The carriers are to be called Queen Elizabeth and Prince of Wales and are due to enter service in 2014 and 2016, the ministry announced at the time. That is later than the 2012 and 2014 targets cited in original plans, which date back to 1998.

The 65,000-tonne carriers, which will be the largest ships ever to sail with the Royal Navy, are expected to each carry 36 F-35 Joint Strike Fighter combat jets, being built by Lockheed Martin Corp, as well as four early warning aircraft.