Rolls-Royce lost a lucrative contract to supply helicopter engines to the Spanish military because of a personal intervention by Spain's prime minister, José Luis Zapatero, following vigorous lobbying from US diplomats, according to a secret cable from the US embassy in Madrid.

Eduardo Aguirre, the departing US ambassador to Spain, recounts behind-the-scenes diplomatic machinations that helped General Electric snatch a deal away from Rolls-Royce to provide engines for a state-of-the-art fleet of helicopters bought by the Spanish armed forces, a contract estimated by industry experts to be worth more than £200m.

Details of how Britain's best-known engineering company lost out to the Americans will fuel concerns that the so-called UK-US special relationship does not always deliver results.

They come to light after other leaked cables reveal how American diplomats were amused by what they saw as Britain's "paranoid" fears. In the run-up to the May general election, Louis Susman, the US ambassador to London, recorded how Liam Fox, now defence secretary, attempted to win favour with the US by telling him that a Conservative government intended to follow a "much more pro-American profile in procurement".

In the cable relating to the helicopter engine contract, Aguirre portrays Spain's socialist leader as an opportunist, describing Zapatero, who took office following the Madrid train bombings in 2004, as "a wily politician with an uncanny ability – like a cat in a jungle – to sense opportunity or danger".

But Zapatero could be "amenable" to US interests, the ambassador wrote, describing the prime minister's intervention in a tussle in 2007 between Rolls-Royce and GE for a contract to supply and maintain engines for 45 twin-engine NH90 helicopters.

At the time, US companies were complaining that they were not given a fair run by the Spanish government for publicly funded contracts. When Aguirre raised this, Zapatero told the ambassador to "let him know if there was something important to the USG [US government] and he would take care of it".

The US began to "advocate" on behalf of GE for the supply of 90 engines, each worth as much as £1m, with additional fees for parts and maintenance. GE threatened to shut down certain operations in Spain unless it won. The Spanish military opted for Rolls-Royce – until it was overruled by the prime minister's office, according to the cable.

"Although there was considerable all-source evidence to suggest that the MOD [Spanish ministry of defence] decided to award the contract to Rolls-Royce, [the office of the president] overturned the decision and it was announced that GE had won the bid. The ambassador is convinced that Zapatero personally intervened in the case in favour of GE."

Neither Rolls-Royce nor GE would comment.

The NH90 range of helicopters is produced by a joint European venture comprising Eurocopter, AgustaWestland and Fokker. More than 400 have been sold. Nearly all have Rolls-Royce engines – apart from the batch sold to Spain, which are to be fitted with GE engines.

Although ostensibly determined on commercial terms, defence procurement contests are often open to accusations of political meddling. A Spanish government source flatly contradicted the US diplomatic cable, saying that GE's helicopter contract was "influenced neither by prime minister Zapatero nor his office".