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UPDATE 3-UK wary as Eurofighter nations clinch deal

* Four European nations in 9 bln euro fighter deal

* Boost for BAE Systems, EADS, Finmeccanica, Rolls-Royce

* UK raises doubts over future Eurofighter orders

(Adds background, share performance)

By Tim Hepher

MUNICH, July 31 (Reuters) - Britain placed itself on a potential new collision course over European arms spending on Friday as it joined a 9.1 billion euro ($12.9 billion) four-nation deal to buy more Eurofighter Typhoon warplanes.

The contract for 112 planes between Britain, Germany, Italy and Spain and a European arms consortium includes a 1.4 billion euro engine deal and guarantees production until 2016.

It comes after Britain balked earlier this year at buying any more Typhoons for cost reasons. It agreed in May to buy just under half the jets allocated in a third and final production phase after intervention from German Chancellor Angela Merkel.

In a compromise, buyers agreed to split the third tranche of production, originally set at 236 planes including 88 for Britain, into two parts known as tranches 3A and 3B.

UK defence procurement minister Quentin Davies declined on Friday to issue any automatic pledge that it would buy the rest. “There is no further commitment,” Davies told Reuters in an interview after signing for 40 planes as part of tranche 3A.

“This is really tranche three. I don’t exclude the possibility that we will buy more aircraft in the future, but there is no present intent, nor any expectation from our partners nor any obligation,” he said.

“We have signed for the totality of our available spending, which is now committed.”

The production consortium’s top executive said the future of the 60 billion euro programme was a matter for all partners.

“All the nations, not only the UK, should discuss this because there is a clear commitment for a set number of aircraft,” Eurofighter GmbH Chief Executive Enzo Casolini said.

Shares in consortium member BAE Systems BAES.L initially rose before falling back around 2 percent.

The British company produces the Typhoon alongside Italian group Finmeccanica SIFI.MI and European aerospace group EADS EAD.PA. The engines are supplied by a group led by Rolls-Royce RR.L and Germany's MTU Aero Engines MTXGn.DE.

SPENDING PRESSURE

Critics say the Typhoon jet was conceived a quarter of a century ago to defeat what is now an obsolete Soviet threat.

Backers say it has been upgraded to meet modern threats.

“The fallacy of having the ability to operate on the ground without the threat of air action has been shown time and again,” Britain’s new air force chief, Sir Stephen Dalton, told Reuters.

Friday’s deal brings to 559 the number of Typhoons in service or under contract, including 72 sold by Britain to Saudi Arabia and 15 sold by Germany to Austria, Eurofighter said.

It claims to have a potential export market of at least 350 jets and to support 100,000 jobs directly or indirectly.

Analysts say one way of compromising over the final batch of orders would be to allow Britain to reallocate part of its own quota to future exports, effectively reducing its offtake.

In spite of spending pressures in Europe, worldwide competition for fighter sales is heating up as global security fears linger.

Eurofighter is among a bevy of fast-jets competing for a major contract in India, while Saudi Arabia is in talks to buy more Eurofighters, defence sources said last month [ID:nLI7689].

The dispute over remaining orders revolves around the status of an umbrella agreement for 620 aircraft a decade ago.

Each tranche of production calls for its own separate financial agreement but the parties cannot agree whether the original total number of planes must still be honoured.

Davies said the umbrella agreement was “not a commercial contract” but Casolini told a news conference it was “binding”.

Europe’s biggest defence-spending nation is under intense pressure to economise due to the financial crisis and there is a rarely witnessed level of debate over defence as the death toll rises in Afghanistan. UK Prime Minister Gordon Brown has ordered a defence review for 2010, likely to be an election year.

Britain last week relented on a threat to walk away from the delayed Airbus A400M military transporter project. (Editing by Marcel Michelson and Simon Jessop)

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