The joint venture, which is expected to be announced on Monday, will give BAe access to the lucrative South American market.

BAe and Saab beat off competition from French rivals Aerospatiale Matra and Dassault, according to the UK's Sunday Times newspaper.

No-one from BAe was available for comment on Sunday.

'Key partner

Ebraer announced on Friday that it was to release an important statement on an international deal on Monday.

Embraer's spokeswoman would not comment on the deal ahead of the announcement by the company's chief executive Mauricio Botelho, at 1230 GMT on Monday.

Mr Bothelo said last month that his company hoped to bring in a key strategic partner by the end of the year in order to boost the firm's defence-related business and expand its international interests.

The BAe-Saab alliance, along with the French group, were known to have been in talks with Embraer about taking a stake in the company.

Embraer is the world's fourth biggest commercial aircraft maker and Brazil's number two exporter.

The Aerospace industry has seen a surge in merger and partnership activity in recent weeks as European company's battle to compete with American giants such as Boeing.

Germany's DaimlerChrysler Aerospace (DASA) and France's Aerospatiale-Matra announced earlier this month that they were merging to form Europe's biggest air and defence group.

BAe has been invited to talk to the new alliance, but there has also been speculation that it would look to the other side of the Atlantic for alliances to help it compete with its European and US rivals.