The company said it expected the value of the deal to rise to £500m through a series of further contracts over the next two years.

The work will be carried out by the company's development trials team in Warton, Lancashire, and engineering designers at Farnborough, Hampshire.

The deal follows a £70m contract in December 2002 to administer technical upgrades to existing Harrier aircraft flying with the Royal Navy and the RAF.

The upgrade will enable the aircraft - which is best known for its vertical take off and landing - to hit a wider range of targets with more power from longer range.

Kevin Taylor, managing director of BAE's military air solutions and support division, said: "This contract sets in place a robust Harrier upgrade programme and underlines the continuing importance of support and upgrade work for BAE Systems."