DEFENCE giant BAE Systems is to develop the next generation of stealth 'fighter drones' with a French firm, it has been announced.

During a summit in Paris, Prime Minister David Cameron and Nicolas Sarkozy announced plans to jointly build and use the unammned aerial vehicles.

The bilateral programme will be worked on by BAE employees at Samlesbury and Warton and France's Dassault-Aviation.

The two companies have been vying for a multibillion-pound contract to supply the Indian government with fighter jets. Last month the French firm was given preferred bidder status ahead of a consortium, including BAE.

The two companies have already established a dedicated team, named Telemos, to develop and deliver a MALE (Medium Altitude Long Endurance) UAS.

Mr Cameron said: "I don't think that there has been closer French-British co-operation at any time since the Second World War, not just in Libya but also on the vital issues of Syria, Iran, Somalia and defence co-operation.

"We are similar-sized powers, with similar-sized armed forces, with similar ambitions.

"It is partly about new capacity - the investment that we are going to make in a drone programme. It is also about making the most of our existing capacity, as we will be combining and using it together. It is also about operational capacity and ability to take action together.

"And it also covers the most sensitive defence areas of all, including of course the nuclear issue."

A BAE spokesman said: "BAE Systems and Dassault Aviation welcomes the commitment shown to the MALE UAV and Future Combat Air System demonstration programme announced by David Cameron and Nicolas Sarkozy at the Anglo-French Summit."

Last Thursday BAE reported a drop in annual sales after military spending in the US and UK was cut. Revenues fell 14 per cent to £19.2 billion in 2011.