By Tim Kelly and Nobuhiro Kubo
TOKYO (Reuters) - Japan is asking Britain to buy its P-1 submarine-hunting jet in a deal that could top $1 billion, a major step in Prime Minister Shinzo Abe's push to arms exports after decades of self-imposed restrictions, people with knowledge of the proposal said.
Britain has not formally decided it will buy new maritime patrol planes, having canceled an order for nine built by BAE Systems in 2010 due to delays and cost over-runs, and the P-1, made by Kawasaki Heavy Industries, would face stiff competition from Boeing's P-8 Poseidon, the three sources told Reuters.
Japanese officials raised the issue of London buying the P-1 to replace the British-made Hawker Siddeley Nimrod, which was retired in 2011, when they met their UK counterparts to discuss defense-equipment cooperation at the Farnborough Air Show near London in July, the sources said.
After Abe eased curbs on military exports in April, his Defense Ministry has been looking to tap foreign markets for its cocooned weapons makers, including potential deals to sell subs to Australia and seaplanes to India. A P-1 sale to Britain would be Japan's first major military deal outside the Asia-Pacific region.
Abe wants Japan's defense suppliers to move into the global arms market through tie-ups that will help bring down procurement costs and strengthen the nation's military to counter China's growing military might.
Even if Britain doesn't buy, the P-1 could benefit from being treated as a genuine contender.
"If the UK gives it serious consideration, then the P-1 will garner attention internationally," one Japanese source said.
"It has potential customers beyond the UK, like New Zealand, Norway and Canada, with large maritime areas," said UK consultant Simon Chelton, a former BAE Systems Plc executive and defense attache at the British Embassy in Tokyo.
"We are considering a number of options in regard to defense equipment sales, but we don't comment on specific deals," said Japanese Defense Ministry's spokesman Hirofumi Takeda.
“We are not aware of the discussion so we can’t comment,” said Teppei Kobayashi, a spokesman for Kawasaki Heavy. "In general it is a matter of national policy, so if there is a decision that results in an order, we will follow that."
Britain's Ministry of Defense was not immediately able to comment.
Senior Japanese and UK officials will have a chance to discuss the idea on Monday at a strategic dialogue in London organized by independent British and Japanese think-tanks.
The P-1, designed to patrol Japan's territorial waters from the Pacific to the East China Sea, where Beijing claims small islands held by Tokyo, will be the country's principal sub hunter for decades to come.
Japan's navy plans to buy around 20, costing about 20 billion yen ($170 million) each, over the next five years, though cracks in the fuselage and wing and engine problems have delayed its entry into service.
No announcement from Britain of any replacement for the Nimrod, which tracked Soviet undersea activity during the Cold War, is expected before May's general election.
Its least risky option could be the Boeing P-8, already built and operated by the United States, the closest ally to both Britain and Japan, the sources said. Deployed by the U.S. Navy last year, the first squadron armed with torpedoes and anti-ship missiles operates from Okinawa in southwestern Japan near China.
Boeing officials in Tokyo were unavailable for comment.
In its most recent order in February, the U.S. Navy said it would buy 16 additional P-8s at a cost of $150 million each.
If Japan can offer a P-1 variant tailored for the British military that is competitive on price and capability, it could represent a viable alternative.
Jointly building a P-1 that taps into Britain's experience building the Nimrod would allow London to retain rights over radar and sensing technology it would lose by buying a U.S. aircraft regulated by the Pentagon, one source said.
Last year Japan and Britain agreed on a deal that will see Mitsubishi Electric Corp partner with European missile maker MBDA to develop a medium-range air-to-air missile for the F-35 stealth fighter, which both countries plan to deploy.
($1 = 118.6400 yen)
(Additional reporting by William James; Editing by Will Waterman)