AEROSPACE workers in the south were today celebrating or drowning their sorrows over a £13 billion contract to supply refuelling aircraft to the RAF.

The Ministry of Defence announced that the sole bidder is the European consortium AirTanker.

AirTanker is led by Franco-German defence giant EADS, parent of planemaker Airbus.

The move is a blow for the firms behind a rival bid - UK defence contractor BAE Systems, which employs thousands of workers across south Hampshire, and its US partner Boeing.

BAE was last week blamed for contributing to a £3 billion overspend in the UK's annual defence budget.

But ministers denied the company, which has its headquarters in Farnborough and employs aerospace specialists in Southampton and Portsmouth, would be punished for past mistakes, including cost overruns on major contracts.

More than 70 people for the losing TTSC consortium bid had been working full-time in Basingstoke on the project, led by Keith Archer-Jones.

Smiths Aerospace, based at Hamble, near Southampton, would have supplied the refuelling system.

A TTSC spokesman said: "We felt we submitted a very good bid, and obviously we are very disappointed we were not selected."

But the MoD said the European consortium offered better value for money and talks will now take place on a private finance contract, which will see the government leasing back the planes from the winning consortium.

One local company to benefit from the Future Strategic Tanker Aircraft Programme (FSTA) is VT Group, the Hampshire support services and shipbuilding company.

VT, based at Hedge End, near Southampton, is a member of the AirTanker delivery team.

The company will provide facilities integration, management, training, technical services and general support.

Chief executive Paul Lester said: "VT's involvement in the FSTA programme builds on our developing position as a leading service provider to the MoD in the aviation sector."

The company - which has an order book of about £2.5 billion - says it's also in final talks to buy a stake in the AirTanker consortium.

The decision is good news for Cobham, based in Wimborne, Dorset. Between 15 and 20 new tanker aircraft are planned - creating and underpinning 3,600 UK jobs.

Cobham, which employs 1,520 workers in Dorset, is set to supply the tankers' air refuelling systems.

Work would be carried out at Bournemouth Airport and Wimborne. But according to the government, the 27-year PFI contract - a UK record - will not be awarded to AirTanker, the winning consortium, until outstanding issues have been resolved.

Under a PFI contract, industry would own and maintain the aircraft as well as providing training, infrastructure and some personnel. The RAF would undertake military operations.

Defence Secretary Geoff Hoon said a PFI contract would enable the contractor to use the planes in peacetime to generate cash.

Mr Hoon said the MoD would now take forward "single bidder negotiations" with AirTanker "over the coming months" to resolve a number of outstanding issues.

"A final decision on whether or not to proceed with a PFI contract will not be taken until these have been satisfactorily concluded,"

he said.

AirTanker - comprising Cobham, Rolls-Royce, EADS and Thales - proposes using Airbus A330-200 jets for the new tankers.

TTSC - BAE, Boeing, Serco and Spectrum Capital - had planned to use secondhand Boeing 767s.

Derek Simpson, general secretary of Amicus, welcomed the announcement as "excellent news" for the UK aerospace industry.

"The government has made the right decision, which safeguards thousands of UK aerospace jobs."