A DAMAGING row between the government and Hampshire's BAE Systems over £3 billion plans to build two carriers for the Royal Navy has been settled.

The agreement is a major boost for the Hampshire economy, securing hundreds of skilled jobs in the county that are reliant on the massive project going ahead.

The future of the carriers looked to be in chaos after BAE threatened to pull out over a decision to grant an arm of US service firm, Halliburton, the role of project manager.

Its role of 'physical integrator' on the project, which was confirmed yesterday, means the massive venture will be overseen by Kellogg Brown & Root, a subsidiary of the US giant.

BAE had feared that KBR would exercise too much authority but weekend talks with MoD officials on giving the Farnborough-based firm a greater say in the design and manufacture of the ships, paved the way for the deal announced yesterday evening.

More importantly, the announcement looks to be a sign of the thawing of frosty relations between BAE, Britain's biggest defence company, and Whitehall.

An industry source said: "It looks as though peace has broken out."

As the owner of two of the yards where hull modules could be built, BAE pulling out could have seriously delayed the programme and cost jobs.

The deal doesn't just affect the thousands of BAE staff in the county, but also those of Hampshire shipbuilders VT, which is set to be another key contractor.

Hedge End-based VT will build sections of the giant carriers in its hi-tech Portsmouth facility, to be shipped to Scotland for assembly.

The dispute also disrupted radical talks between the UK's major shipyard owners over a possible merger of operations, which are now free to proceed.