LONDON (Reuters) - Aerospace firms led by Airbus (Paris: NL0000235190 - news) parent EADS won a $26 billion (13 billion pound) deal to replace Britain's ageing fleet of mid-air refuelling planes on Thursday, in possibly the world's largest government outsourcing contract.

The deal, worth 13 billion pounds over 27 years, involves leasing 14 converted Airbus passenger jets to the Royal Air Force -- marking the first time the Private Finance Initiative has been used for a top military programme.

"This is an innovative PFI programme which will provide the RAF with modern highly capable air-to-air refuelling and passenger transport capability," Defence Equipment and Support Minister Baroness Ann Taylor told a news conference.

The deal, which coincides with a state visit to Britain by French President Nicolas Sarkozy, will create up to 600 jobs in Britain and safeguard up to 3,000 others, she said.

It (Frankfurt: A0MLX5 - news) caps years of negotiations over the funding and was clinched in the midst of a global financial market crisis which saw plans for a bond to finance the plans collapse, forcing banks to cobble together a 2.2 billion pound replacement loan.

The converted Airbus A330 tanker aircraft, whose wing pods refuel twice as fast as a Formula One pit stop, will be owned by the AirTanker consortium, although they will fly in RAF colours.

They will come into service from 2011.

The AirTanker consortium led by Airbus parent EADS also includes Britain's Cobham (LSE: COB.L - news) , Rolls-Royce and VT Group (LSE: VTG.L - news) , as well as France's Thales (Paris: FR0000121329 - news) .

The head of EADS, Europe's biggest aerospace group, hailed the announcement as a victory over rival Boeing (NYSE: BA - news) , weeks after a dramatic win for EADS in a bid to supply the Pentagon with similar planes. Boeing is contesting the U.S. decision.

However EADS, reeling from a weak dollar which hands an edge to Boeing in the civil airliner market, suffered a blow on Thursday as talks to outsource some of its own airplane production facilities to a German aerospace firm collapsed.

The British purchase of European tankers comes on top of orders from Australia, the UAE and Saudi Arabia and most recently the U.S. Air Force, which selected Airbus over Boeing, sparking a row in Congress over security and jobs.

Each aircraft will allow four jet fighters to operate up to 5,200 km from base and will have a total fuel dispensing rate of about 5,000 litres per minute, or about 80 litres per second.

Air forces worldwide are racing to renew their aerial refuelling fleets as military planners adapt to more dispersed threats to their security further away from their home base.

The RAF planes will also be able to carry up to 300 troops and their equipment, combining refuelling and transport missions previously split between decades-old VC-10s and Tristars.

Five of the planes will even be available for chartering out to tour operators whenever they are not needed by the RAF.

"The maximum recall (time) is 30 days but in an emergency we would expect it to happen very quickly," Taylor said.

AirTanker Chief Executive Phil Blundell said there was "absolutely no chance" that the planes could be mistaken for military aircraft when transporting tourists.

FUNDING SNAG

Britain selected Airbus A330 passenger jets as far back as 2005, but talks over funding dragged on longer than expected.

"The bond market collapsed at the end of the last year...(so) we had to restructure the deal," Blundell said.

AirTanker said it had raised 2.5 billion pounds needed in the project's first phase through a mixture of senior debt, shareholder equity and subordinated debt.

Sources close to the deal said the package relied mainly on a loan of 2.2 billion pounds syndicated among seven banks.

Another 200 million pounds came from mezzanine financing, midway between debt and shares, and 100 million pounds from the industrial partners in return for an equity stake, they said.

Officials say the deal, put together by Deutsche Bank (Frankfurt: DB9999 - news) , is the world's biggest public-private partnership.

Taylor defended the use of the PFI policy, a scheme more often used to lease public services such as hospitals from the private sector, saying it was a good deal for taxpayers.

She declined to say whether Britain would use it for more high-profile projects amid pressure on defence budgets.

Critics of PFI, pioneered by the Conservatives in the 1990s, say private companies tend to cut corners to maximise profits, and that long-run costs to the taxpayer are greater than if the deals were kept within the public sector.

(Additional reporting by Mark Potter; Editing by Quentin Bryar/Elaine Hardcastle)