A crucial deal that will secure the future of a North-East microchip factory is still on the cards despite the turmoil affecting the partner in the agreement, BAe Systems.

The aerospace firm announced yesterday that it was cutting 1,700 jobs from its regional jets business as a result of a downturn in the market.

Its avionics division is due to sign off a deal with Filtronic, based at Newton Aycliffe, County Durham, to use its wireless technology in defence related projects.

Bae Systems had been seen as a financial "white knight" charging to the rescue of the plant which has been haemorrhaging cash as a result of the downturn in demand for third generation mobile phones.

But the deal, first revealed in the summer and which will help secure about 100 jobs at the Aycliffe plant, is yet to be finalised.

Industry sources have suggested that BAe has been seeking to put its commercial aerospace activities in order before signing an agreement with Filtronic.

Earlier this month bosses at Filtronic revealed that one half of the deal with American based M/A-Com - which makes mobile phone handsets - was ready to be signed.

But the latest version of the agreement with BAe sent to its legal department had not yet received a response.

However, sources close to the negotiations indicated last night that the deal was still very much alive.

A Filtronic spokesman said: "It may be that they've had their eyes on the announcement of the job cuts and the Filtronic deal has not been at the top of their agenda."

Filtronic bought the plant from Japanese firm Fujitsu, which ceased production when the market for memory chips collapsed a couple of years ago.

At the time, the deal was seen as a masterstroke. Filtronic was ideally positioned to provide chips for the next generation of mobile phones. Aycliffe gave the company the production capacity it needed.

But deals in introducing the new technology and customer resistance to more expensive handsets meant the plant has been unable to capture the massive orders expected.

Earlier this year, Fujitsu revealed the factory was costing more than £1m a month to run. It is hoped the agreements, when finalised, could create an additional 30 jobs.

BAe's avionics arm creates products such as cockpit systems and displays for aircraft.

It plans to cut jobs at factories in Manchester and Prestwick, Scotland, blaming a severe market downturn as a result of the September 11 terrorist attacks on the US.