Slow-moving projects are deepening financial difficulties at defence contractor BAE Systems, and senior executives may soon be forced out, British newspapers have reported.

According to the Observer newspaper, BAE Systems - Britain's biggest defence firm by far - is set to announce that delays and overspending in two key contracts have cost it �800m.

The firm is in talks with the Ministry of Defence over changes to contracts to build the Nimrod surveillance planes and the Astute Class submarines, in the hope of limiting any potential losses.

The report is the latest in a series of shocks to hit the firm, most notably being forced to share a plum �2.8bn contract to build new aircraft carriers for the British navy.

The Sunday Times newspaper reported that the stresses over the past few months were likely to force sweeping changes in the BAE Systems boardroom, including the possible ousting of chairman Sir Dick Evans and chief executive Mike Turner.

Knives out

According to the Sunday Times, "turmoil" has broken out within the BAE board.

Some are calling for Mr Turner's head

Major shareholders are reportedly calling for the chairman's scalp, while pressure on Mr Turner is coming from non-executive directors.

The newspaper said it expected some sort of action by 20 February, when it presents its full-year 2002 results.

Resolution of boardroom battles would also help in its ongoing talks with the government, its main client and until recently a reliable ally.

Time for talks

Negotiations with the MoD are reportedly proceeding well, but the eventual cost to BAE is likely to be heavy.

The two problematic contracts, together worth �5bn, are not likely to be altered easily.

The net result will be smaller MoD orders, easier for BAE Systems to complete on time, but ultimately less lucrative.

Analysts are also concerned that the company has lost its credibility with the ministry, which is increasingly willing to funnel large orders to non-British companies.