* Spain eyes A400M jobs if UK falters on Airbus project
* Written proposal would see key equipment moved from UK
* Move highlights tension over jobs ahead of UK election
* Partners to finalise A400M bailout after heavy losses (Adds analyst quote, background, paragraphs 17-21)
By Tim Hepher
Spain is putting increasing pressure on the UK to surrender high-skilled production jobs if it fails to contribute its full share of a 3.5-billion-euro ($4.8 billion) aid package assembled by seven nations to rescue Europe's largest defence project.
In a written proposal, Spain has suggested relocating jobs, tools and machinery from Filton, near Bristol, to Spain if the UK weakens its commitment to the troop plane, the sources said.
Technical problems have pushed the heavy airlifter billions of euros over budget and delayed delivery by about four years.
The proposal was put forward as Britain wavered in recent weeks over its share of a top-up package of loans to Airbus parent EADS (EAD.PA), to be provided alongside international aid of 2 billion euros to combat cost overruns, the sources said.
Britain is expected to take part in a bailout which buyer nations agreed in principle last week, but it has yet to agree on what form the extra financial boost should take.
"The (Spanish) suggestion is as a result of the British not wanting to join in the same type of solution that other buyers have selected," a person familiar with the matter said.
The sources, who asked not to be identified, said Spain had aired options including shifting work on the plane's advanced composite wings to Spain if Britain blocked part of the deal.
Under the most sensitive option, Madrid would agree to pay for the cost of transferring the massive jigs, or cradles used to hold the wings in place during production, out of Britain.
Britain's Ministry of Defence (MoD) declined comment. An EADS spokesman said he was unaware of the proposal and declined further comment, as did a Spanish industry ministry spokesman.
A spokeswoman for Britain's Department of Business, Innovation and Skills, which oversees the aerospace industry, said: "Negotiations on the A400M are ongoing. We continue to work with colleagues in the MoD on the way forward."
Officials in the project will meet in Berlin on Friday.
The wrangle over jobs comes as Britain prepares for elections expected on May 6, with employment high on the list of voter concerns. The A400M wings plant employs 800 of 5,000 workers at Filton, which celebrates its centenary this year.
"I am advised (Spain) have put in a bid saying 'give it to us and we'll pick up the cost'," said a UK political source who had been briefed on discussions and asked not to be identified.
Asked about the bid, a senior European diplomat involved in A400M talks said he had "heard something in that direction."
Britain says it wants the A400M but not at any price. It has ordered 25 out of 180 bought by seven nations. Other buyers are Spain, France, Germany, Belgium, Luxembourg and Turkey.
Defence expert Howard Wheeldon, senior strategist at BGC Partners, called the manoeuvre "unprecedented" but said Britain had left the door open to intruders by neglecting its industry.
"Even if there is backtracking, the damage has been done and it lessens the chances of another (defence) partnership of this kind in Europe," said Wheeldon, a past critic of the A400M.
UK Business Secretary Peter Mandelson, a former European Union trade chief, announced a package of support for high-tech manufacturing including aviation last year and has spoken up for "industrial activism" -- while warning against protectionism.
Sensitivities over competition from European workers caused a strike at a French-owned refinery in Lincolnshire a year ago.
The new tussle emerged as President Nicolas Sarkozy unveiled a drive to halt a decline in French industry. [ID:nLDE6231HF]
INDUSTRIAL JIGSAW
Aviation experts say moving equipment on a large scale from Filton to Spain would only likely happen if Britain pulled out of the A400M completely -- something widely seen as unlikely.
But the seemingly audacious job grab highlights Spain's long-term ambitions to expand its high-tech aerospace industry as a magnet for investment. It is likely to face competition from Germany for any future re-allocation of composites work.
The A400M is the first Airbus plane with wings largely made from carbon fibre and has the largest composite wings designed for a military plane. Such technology is expected to be crucial for the next generation of civil jets in the next decade.
Aerospace is a strategic sector for the Spanish government as it looks for ways to curb the highest unemployment in the EU. Among proposals for jobs creation presented to parliament on March 1 is a bid to strengthen the supply chain over 2010-2014.
Spain and Britain helped found Airbus four decades ago along with France and Germany. Airbus is now fully owned by EADS, which is controlled by French, German and Spanish interests.
Airbus parts are made across Europe and assembled in one location, which in the case of the A400M is Seville, Spain.
Partners routinely haggle over their share of the industrial jigsaw in future projects. But the so-called "workshare" has never previously been reallocated once a project is underway. (Additional reporting by Julien Toyer and Tracy Rucinski; Editing by Jon Loades-Carter and Tim Dobbyn)
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