The German chancellor Angela Merkel has halted payments with the defence manufacturer Airbus following a deal which was agreed in 2003.
The A400M, Europe’s largest defence project, was ordered to give Europe an independent military transport capability under a deal struck by the Blair administration.
Seven NATO countries involved in the 20 billion euro (£16.9 billion) project are now on notice that the contract could collapse.
Mr Blair and Mrs Merkel were close allies until the former Labour leader stepped down
It has left what could be a world leading industry for the UK at the mercy of German political intervention
Berlin is said to be withholding payments because of delivery delays, with no progress expected until after German national elections in September.
A source told Reuters the Chancellor Angela Merkel is not supportive of the current status quo on the deal putting pressure on NATO allies as US president Donald Trump travels to Brussels in two weeks.
UK Military insiders say the news could have a devastating on British workers who are currently employed by Airbus.
The project was agreed in 2003 but Merkel has now stopped paying
An UK defence source told Express.co.uk: “The contract was decided when the Blair administration was convinced of the future in the EU.
“This was a huge error.
“It has left what could be a world leading industry for the UK at the mercy of German political intervention.
“Rather than being a boon for the UK Defence sector, the political game playing in Brussels and beyond is now affecting the industry.”
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Airbus UK is a wholly owned subsidiary of Airbus SAS which produces wings for the the company’s aircraft family.
When Airbus was incorporated as a joint-stock company in 2001, defence contractor BAE Systems transferred its UK facilities in return for a 20 per cent share of the new company.
These facilities became the now operational Airbus UK.
The project is no longer being funded after Merkel halted payments
Airbus UK has two main sites responsible for the design and manufacture of the high-technology wings for all Airbus models.
The multi talented teams also work on overall design and supply of the fuel system.
Britain is also responsible for design and supply of landing gear.
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The company employs around 13,000 people at two sites: Filton, where the engineering and design activity takes place along with some manufacturing, and Broughton where other major wing component manufacturing and all wing assembly takes place.
In 2015 the European Aerospace and Defence Company (EADS) took over the firm in its entirety.
Berlin has only committed to marginal increases to its NATO budget since 2014, keeping European defence spending between 1.2 and 1.3 per cent of GDP.
Mrs Merkel’s policy on spending has been called “embarrassingly low considering Europe’s share of global GDP is larger than the Americans”.
NATO Secretary General Jens Stoltenberg will fly to Washington this week to discuss NATO alliance issues with President Trump.
Both the United Kingdom and the United States of America have committed to their spending pledges.
However the United States spent 3.6 per cent of its GDP on defence last year, the highest ratio of any NATO member .
That is almost double the target of two per cent of GDP that NATO members all agreed to in 2006.
At the time six members reached the threshold; last year just five did.