THE threat of massive East Lancashire job losses at BAE Systems has been averted after a fraud investigation was dropped.

The prolonged three-year probe centred on arms deals between BAE and the Saudi government over 20 years ago.

In recent weeks MPs had called for the investigation to be dropped, fearing it was jeopardising the proposed sale of 72 BAE Eurofighter Typhoon jets to the Saudi government.

They were worried that an estimated 10,000 skilled workers could lose their jobs if the Saudi Arabian government pulled out of the £6billion contract.

Considerable job losses were feared at BAE's Samlesbury and Warton plants in Lancashire.

But last night Attorney General Lord Goldsmith said the Serious Fraud Office was "discontinuing" the investigation.

Lord Goldsmith told the Lords he thought that a prosecution "could not be brought".

And Prime Minister Tony Blair had agreed that the investigation would cause "serious damage" to relations between the UK and Saudi Arabia, Lord Goldsmith said.

The Saudi government was said to be unhappy over the probe and the length of time it was taking.

And in recent weeks there was speculation that the French government was trying to step in and do an alternative deal with the Saudi government for the jets.

BAE had always denied any wrong doing over the arms deals that were investigated.

The statement by the Serious Fraud Office, concerning their investigation, read: "The Director of the Serious Fraud Office has decided to discontinue the investigation into the affairs of BAe Systems plc as far as they relate to the Al Yamamah defence contract.

"This decision has been taken following representations that have been made both to the Attorney General and the Director concerning the need to safeguard national and international security.

"It has been necessary to balance the need to maintain the rule of law against the wider public interest.

"No weight has been given to commercial interests or to the national economic interest."