Britain has suffered a major industrial setback after the Indian government chose French manufacturer Dassault as its preferred partner for an $11bn (£7bn) contract to supply fighter jets.
The Dassault Rafale has been named as the lowest-priced compliant bidder ahead of the Eurofighter Typhoon and the company has entered exclusive talks with India to provide 126 aircraft.
Trade union Unite warned the selection of the Rafale could have "serious implications" for BAE Systems and the UK aerospace industry. It is estimated that 40,000 UK jobs are supported by the project.
The Typhoon is made by Britain's BAE, European giant EADS, and Italy's Finmeccanica. The UK accounts for 37.5pc of production with the aircraft assembled at BAE's aerospace facilities in Lancashire and suppliers including GKN, Ultra Electronics and Rolls-Royce.
Last year, BAE cut 3,000 jobs in the UK, partly because it had won fewer export orders for the Typhoon than planned.
"We are concerned about the serious implications this decision may have and want urgent talks with the company about future plans for the workforce," Ian Waddell, national officer for aerospace and shipbuilding at Unite, said.
The deal with France is a blow to David Cameron, because the contract could lay the groundwork for a strategic partnership with India. Mr Cameron personally lobbied Indian prime minister Manmohan Singh last year while Britain's Air Chief Marshal Sir Stephen Dalton met his Indian counterpart in Calcutta.
The Typhoon had been widely considered the favourite to win the India contract, one of the biggest-ever overseas defence orders.
It is a more modern aircraft and has already been acquired by Saudi Arabia. However, Dassault is understood to have undercut the Typhoon partners on price by roughly $5m per aircraft.
"We were told the determining factor was cost and nothing should be read into to it as a reflection on the bilateral relationship," British High Commission sources said.
India wants the first 18 aircraft to be built overseas, before taking a greater control of production. Nicolas Sarkozy, the French president, said the deal will include "major transfers of technology guaranteed by the French state".
Mr Sarkozy, who claimed on Monday that Britain has "no industry, said India's selection of the Rafale "goes far beyond the company that makes them, far beyond aerospace – it is a vote of confidence in the entire French economy".
However, industry experts said the contract was yet to be signed and the Typhoon consortium still had a chance of winning the work.
James Hardy at IHS Jane's Defence Weekly, said: "Both Germany and the UK invested a lot of time in pushing the Typhoon so this will hurt. However, it is important to note that this is just the first step – Rafale has been selected as preferred bidder but any student of Indian procurement knows that this means nothing until the contract is physically signed." LOL