BAE Systems, Europe's largest defence firm, has narrowed the list of bidders for its German naval sensor unit, Atlas Elektronik, to three.

German steelmaker ThyssenKrupp and Airbus parent firm EADS, the German unit of French defence electronics firm Thales and US-based L3 Communications are set to go into a final round of bids, according to a German newspaper report.

Then sale of Atlas, which makes sensors that protect submarines and ships, is expected to be wrapped up before the end of the month.

It is seen as a key step in the consolidation of Europe's shipbuilding industry.