THE future was looking bleak for North-East shipbuilder Swan Hunter last night as it failed to land a major share of a £4bn contract to help build aircraft carriers for the Royal Navy.

As expected, rival shipbuilders VT and Babcock will join BAe Systems as "prime contractors" who will share 60 per cent of the work, Defence Secretary John Reid announced.

But defence experts yesterday estimated companies in the North-East, such as steel fabricators and offshore yards, could clinch up to £400m, or ten per cent, of the remaining work.

Yesterday's decision means the four main blocks of the carriers will be constructed at yards in Scotland, Cumbria and Southampton - but not on the Tyne or Tees.

Swan Hunter was, until yesterday, the fourth shortlisted company and the decision was crucial because its order book for shipbuilding will dry up after two Royal Fleet Auxiliary vessels are completed.

Yesterday, Dr Reid insisted Swan Hunter could still bid for the remaining 40 per cent of the work. But he made clear he would be letting down the taxpayer if he awarded contracts to some companies when others offered "the best value for money and an ability to deliver".

He said: "I can't make promises to anyone offering less value or less capability. It would not be fair to workers or to the taxpayers of Britain."

Swan Hunter has faced the embarrassment of an £84m MoD bail-out after delays and overspend on the building of two landing ships, Largs and Lyme Bay.

Last night, there were suggestions that Jaap Kroese, Swan Hunter's chairman, did not intend to bid for any of the remaining 40 per cent of the carrier work following yesterday's disappointment.

However, there was no official comment from the company, whose entire management team was locked in crisis talks with the MoD in London.

Kevan Jones, Labour MP for Durham North, said he did not believe Swan Hunter would be successful with any future bid until it had "sorted out its problems".

He said: "The Government cannot give it work if its ships are not delivered on time."

Dr Reid said some of the remaining fabrication and equipment work would not go to "traditional yards", but could be carried out by companies "inland".

He declined to set a new target for putting the first carrier in the water, after the MoD last month abandoned the long-standing date of 2012.

David Bowles, chief executive of Northern Defence Industries, which repesents the sector across the North-East and Yorkshire, said the Government's decision came as no surprise.

"I think this decision from the MoD has been emerging for some time," he said.

But George Cowcher, of the North-East Chamber of Commerce said he had still believed until yesterday Swan Hunter had a good chance of winning a share of the building work.

"This is very disappointing news for Swan Hunter," he said.

Mr Bowles, however, said Swans still had a chance to win a slice of the project.

And he believed the North could win a ten per cent share of the work, not only through offshore yards but inland, among steel fabricators and other specialist firms.