The Ministry of Defence has announced its preferred bidder for a £13 billion contract to supply air-to-air refuelling aircraft to the RAF.

A consortium called AirTanker which comprises Rolls Royce, EADS, Cobham and Thales was judged to be the "most likely to offer a value for money" on the private finance initiative deal.

The decision sees the rival consortium, TTSC which included BAE Systems and Boeing, lose out.

The MoD will now enter into detailed negotiations with AirTanker and a final decision on whether or not to proceed with a PFI contract will not be taken until these discussions have been successfully concluded.

A statement from the ministry indicated the talks would continue for "a number of months".

The Future Strategic Tanker Aircraft (FSTA) programme aims to replace the RAF's fleet of VC10 and TriStar air refuelling and air transport aircraft. The PFI contract is expected to run for 27 years.

Under the contract, AirTanker would own and maintain the aircraft and provide training services, while the RAF would be responsible for military operations.

Defence secretary Geoff Hoon said that value for money had led to the decision not to award the contract to BAE, often viewed as Britain's "national champion".

The decision followed media speculation that relations between the British contractor and the MoD had been strained by cost overruns and delays on other key contracts with which the company is involved.

"This announcement marks an important milestone on this major project," said Hoon.

"Our evaluation of the two PFI bids has been extremely thorough and has clearly identified that AirTanker's bid offers the best prospect of securing a value for money PFI service."

AirTanker chief executive Robin Southwell said he was "delighted" by the government's decision.

"This marks a key milestone in the FSTA programme. The decision by the Ministry of Defence is the result of a comprehensive assessment process that our bid is most likely to offer a robust, value for money PFI service," he said.

And company chairman Gordon Page added that he aimed to ensure that the programme "stays within budget and on track".

A spokesman for losing bidder TTSC said: "We felt that we submitted a very good bid and are obviously disappointed."