DEFENCE giant BAE Systems today announced a massive loss of £616million after overspending on two key contracts.

The company has had to write off £750million from its accounts because of problems with the Nimrod maritime patrol plane and the Astute submarine programme.

The company has halted production of the Nimrod, which will lead to job losses at Woodford, near Manchester. The company has not ruled out redundancies at Warton, where 700 people work on the programme.

The £616million loss for 2002 compares with a £70million profit the previous year, but company bosses were surprisingly upbeat about the company's prospects.

Lancashire-born chairman Sir Richard Evans, who also announced his retirement in 2004, said: "The management team has moved swiftly to address serious issues in our UK programmes. The outlook for our business in the UK is now much improved and complements our strong and growing position in the US market."

Mike Turner, chief executive, added: "'The actions taken to address the challenges in the UK Programmes business and strength elsewhere in the company provide a strong foundation for future growth."

BAE Systems employs 8,000 people at its two Lancashire sites at Samlesbury and Warton, working mainly on military jets such as the Eurofighter Typhoon and the development of the Joint Strike Fighter.

Around 500 people at Samlesbury are employed in the aerostructures business, making components for civil planes such as the Airbus.

In a statement to the Stock Exchange, BAE blamed cost over-runs on the Nimrod and Astute programmes for its problems.

It said the Ministry of Defence had now recognised that these programmes had been impacted by factors that neither party could have envisaged.

"In retrospect, it is now clear that the original contracting and pricing arrangements built excessive risks into both programmes," said the company..

BAE said 2002 had also been a formative year for the Eurofighter Typhoon programme as it moved into production.

"Typhoon is a valuable programme for the company through both the aircraft systems integration and airframe manufacture activity in Air Systems and the very substantial electronic systems contributions of our Avionics business."