BAE Systems has canceled plans to sell part of its U.S. commercial aerospace unit, deciding instead to keep the unit after reviewing the business' performance.

The British defense contractor, which hired JPMorgan Chase & Co and Wells Fargo to sell the business last September, said on Tuesday no sale had been agreed despite considerable expressions of interest and that it would no longer pursue the sale of the business.

Bankers and analysts said the unit, which makes aerospace parts including aircraft engine controls, could fetch $1.5 billion to $2 billion for BAE. [ID:nN11121174] [ID:nLDE68C09D]

BAE shares in London fell as much as 2 percent after the company confirmed the sale was off. The stock recovered some ground and was down 0.4 percent at 339.2 pence by 1450 GMT, valuing the company at around 11.6 billion pounds.

We've always said it was a strong business and we did say there was no guarantee we'd sell it, a BAE spokeswoman in London told Reuters. We have done a strategic review of the business and decided it will be in our best interests to hold on to it.

BAE's Platform Solutions unit, which employs 4,200 people worldwide, makes digital engine controls, which govern fuel flow and control aircraft engine technology and are used in a wide range of aircraft, including the Airbus A320 and the Boeing 737 -- the two biggest-selling passenger planes in history.

The BAE unit also includes a commercial avionics business, bought from Boeing Co in 2004, which makes aircraft components that help with navigation and surveillance, as well as a division that makes hybrid propulsion systems for buses and trucks.

It's hard to know if earnings at the business have improved because BAE don't break it out but the recovery in this area has been significant so BAE must be confident on the outlook for 2011, said Credit Agricole analyst Thomas Mesmin.

They have no need for cash and can finance any acquisitions they want to do themselves.

BAE Systems received three final bids, including one from General Electric Co , but determined that better earnings at the division made a sale unnecessary, a source close to the company told Reuters earlier on Tuesday.

People familiar with the matter told Reuters previously that GE, industrial company Eaton Corp and private equity firm Warburg Pincus submitted final bids for the BAE unit.

Representatives for GE, Eaton and Warburg were not immediately available for comment.

BAE sought at least 9 to 9.5 times the unit's earnings before interest, tax, depreciation and amortization (EBITDA) of slightly less than $190 million -- or $1.7 billion to $1.8 billion -- but bidders wanted to pay below the range, people familiar with the matter said previously.

The BAE unit is among several aerospace assets that have been pulled from auction processes over the past year partly because buyers and sellers failed to narrow differences over the prices.

Private equity firm the Carlyle Group canceled the auction for aviation company Arinc last year after no buyer was willing to meet Carlyle's asking price of between $1.3 billion to $1.5 billion, people familiar with the matter said. Goldman Sachs was adviser on the sale.

GE is a major customer of BAE's aircraft engine controls and the involvement of GE in the auction process made it difficult for its key competitors in the aircraft engine market to pursue the BAE assets, people familiar with the matter told Reuters previously.

(Editing by Maureen Bavdek, Robert MacMillan, Dave Zimmerman and Sophie Walker)

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