A row between BAE Systems and ministers over a multi-billion pound jet contract yesterday wiped out carefully laid plans to highlight cooperation between government and industry on the future of the aerospace sector. Almost 500 jobs at the BAE Systems plant in Brough, Humberside, could be under threat because the Treasury is trying to block a deal to supply the RAF with 30 Hawk training aircraft and put it out to foreign tender.

Sir Dick Evans, BAE chairman, made no attempt to hide his anger at a press briefing to launch the aerospace innovation and growth team report with trade minister Brian Wilson. "I don't think the British taxpayer is in the business of subsidising foreign companies to compete in our home markets and I will argue that case very vociferously till hell freezes over," he said.

Reopening what BAE had considered a done deal was the sort of action that led to the Nimrod debacle which lost the company millions of pounds, he argued.

He did not rule out the possibility of BAE competing in an open tender but said it was relatively unlikely. "We are not going to waste huge amounts of money bidding where there is not a level playing field."

Sources close to the group said any delay in awarding the deal would mean redundancy notices going out for 470 workers at Brough later this month.

BAE sources said the company had already spent £30m on the development of the new Hawk being offered to the RAF and an additional delay while a competitive tender was carried out would be "very expensive".

BAE officials claim that winning the domestic order is critical to prospects of selling the aircraft to overseas customers. They reckon it could win orders for up to 400 planes, equivalent to about 15 years' production at Brough, but only if it gets the British order.

Without export orders the future of the Brough plant, which employs 1,900 people, would be brought into question in the longer term. BAE executives stress that the Hawk is the only fixed-wing aeroplane which is designed, developed and built in Britain.

Sir Dick said he was not altogether surprised that the Treasury was questioning the structure of the Hawk deal, which was based on a private finance initiative.

"PFI is always going to be more expensive than traditional procurement. It may be handy for government to keep spending off the public balance sheet but the Treasury is right to wonder whether PFI offers value for money," he said after the briefing.

Mr Wilson, who was standing in for trade secretary Patricia Hewitt, sidestepped the dispute, saying no one should act on the basis of a single leak in the media.

The Financial Times reported yesterday that confidential advice from Gordon Brown's department undermined DTI support and concluded the BAE bid failed to meet the government's value-for-money criteria.

A formal decision on the training aircraft was expected before the end of this month but a ruling against the Hawk would open up opportunities for rival bids from Italy and South Korea.

With acknowledgements to Terry Macalister, Mark Milner and The Guardian, UK.