The bid gives the privatisation programme a fillip and promises to provide Denel with better access to global markets and facilitate its ability to source skills and technology. Denel is facing shrinking markets in the domestic and international defence industry, which government is seeking to overcome through the partial privatisation exercise.

Richard Goode, restructuring section director at public enterprises, said yesterday the introduction of an equity partner would help Denel extend its manufacturing base in SA.

"BAE Systems was selected as the preferred strategic minority equity partner best able to contribute to those goals after a rigorous assessment of other potential global defence industry partners."

It was premature to speculate on the timing of a final decision on the bid, said Goode. Detailed talks with BAE Systems began only after the proposal was fully considered.

BAE Systems, a global systems, defence and aerospace company with annual sales of more than ££12,3bn, was formed in 1999 by the merger of British Aerospace and Marconi Electronic Systems.

The group said yesterday that it had been engaged in a detailed due diligence exercise since October.

BAE Systems executive director Stuart McIntyre said the bid confirmed its commitment to developing SA's high-technology capabilities.

"BAE Systems regards SA as an important strategic business partner. We are confident we can make major progress together on world markets."

Government is also negotiating with a second potential partner for Denel; Snecma/Turbomeca of France, which is expected to take a majority stake in Denel's airmotive division.

Public Enterprises Minister Jeff Radebe said this week that the talks were aimed at bringing in partners that could add to government's vision for Denel and the industry.