Thales, the French defence company, will create a new British-based company to manufacture unmanned spy planes for the Royal Air Force.

The group's operation in Crawley is involved in a bid for the Ministry of Defence's (MoD) £800 million Watchkeeper contract to build a fleet of reconnaissance aircraft, called drones.

Thales estimates the project would create 2,500 jobs in the UK.

However, the group must first overcome competition from America's Northrop Grumman which is also bidding for the contract.

Sir Roger Wheeler, non-executive director of Thales UK, said the new company would be owned by Thales and its partners bidding for the Watchkeeper contract.

If Thales wins the contract the new company could receive drone orders worth at least £1.5 million from other countries.

John Howe, vice-chairman of Thales UK said: "The Thales Watchkeeper team is offering the solution with superior capability, the highest number of high quality UK jobs and technology transfer.

"It will remain in the UK and in the control of the MoD. We believe our bid is best for the armed forces, for UK jobs and exports."

The MoD believes drones will play an important role in future conflicts. The unarmed planes can cruise at heights of between 5,000ft and 10,000ft and would be used to assess battlefield situations. They could also be used to clear minefields.

Most of the design work has been carried out at Thales Airborne Systems' base on the Manor Royal industrial estate in Crawley.

Thales chiefs have been urging potential suppliers across the South-East to get involved in the project.

WatchKeeper is due to enter service with the armed forces in 2006. The MoD's decision on the contract is expected at the end of the year.

Thursday May 13, 2004