By early 1961 it was becoming obvious to Hawker that the RAF was unlikely to order the P.1127 for front-line service in any quantity. The upgrading of GOR345 to include low supersonic capability clearly showed the way that Air Staff thinking was going, while the various drafts of NATO's GOR-2 requirement were also revealing a preference for supersonic speed. It was against this background that Ralph Hooper began to sketch out a stretched, supersonic aircraft based on the P.1127's design principles. One key difference was the addition of burners in the front nozzles, burning additional fuel to boost performance. This was known as Plenum Chamber Burning (PCB) and had been proposed by Bristol Siddeley for the BS.100 engine for the Dutch/US Fokker Republic Alliance. The new Hawker design, the P.1150, mirrored the 'optimum' aircraft for GOR345 that internal studies by the RAF had proposed. However, the impetus for Hawker's move into supersonic vectored thrust designs was to come from NATO. By mid-1961 GOR-2 had hardened into a requirement for a V/STOL, supersonic strike fighter with additional interception capabilities. This was labelled as NATO Basic Military Requirement 3 and it soon produced a welter of designs. Four were short listed - the Dassault Mirage III-V, Fokker-Republic D.24 Alliance, BAC 584 and Hawker's P.1154. The P.1154 was a P.1150 derivative with the BS.100 engine to give greater mission performance. Hawker submitted their proposal in January 1962. The results of the competition became known in May - the P.1154 had won the technical side of the competition while the Mirage III-V was seen to be better in terms of industrial work share; the two aircraft were therefore seen as joint winners.

Artist's impression of the P.1154 for the RAF overflying Dunsfold.	Display model of the P.1154 as configured early 1965.

As NATO had no funds to launch full development of either aircraft it was left up to member countries to proceed on their own. France duly developed the Mirage III-V, flying two prototypes in 1965/66. In Britain, the MoA saw that the P.1154 could replace not only the Hunter with the RAF, but also the Royal Navy's Sea Vixens. A joint requirement, OR356/AW406 was drawn up. However, Hawker were far from convinced that the disparate needs of the two Services, a single-seat ground attack aircraft and a two-seat air combat fighter, could be met. Nevertheless, they proceeded to submit project study proposals in August 1962 and again in spring 1963 for aircraft to meet the joint requirement; the two versions becoming increasingly different over the period. The situation was not helped by the company's heavy design commitment to the Kestrel, VAK191 competition and the Northrop study. Eventually Hawker were asked to submit a fully common, Bi-Service design that satisfied neither customer, and when this was rejected in October the P.1154 programme was in danger of full cancellation. Throughout, the boat had been rocked by Rolls-Royce attempts to oust the BS.100 in favour of a PCB, vectored thrust twin-Spey package, adding to the instability of the conflicting RAF/Royal Navy requirements.

The British government decided at the end of 1963 that the Royal Navy requirement would be best satisfied by adopting the American Phantom for naval service, with the P.1154 to be developed for RAF only use. Things now began to move more quickly, with the first batch of development aircraft laid down in Kingston's experimental shop during 1964, the first BS.100 engines being tested and items of avionic equipment ordered. At last the company was actually developing an operational V/STOL fighter, with the P.1127 being used as a firm base to build upon. However, this rosy picture was to disappear in February 1965 when the P.1154 was abruptly cancelled, with the first few aircraft under assembly and the final specification agreed with the RAF. This was a huge blow to the RAF and Hawker, with several years' work being thrown away. However, while the RAF decided that they would prefer to have Phantoms in place of the P.1154, the government elected to pursue a mixed programme of Spey-engined Phantoms and a version of the Kestrel to meet the RAF's needs. So it was that only a few days after the cancellation of the P.1154, Kingston received a project study contract for a developed version of the Kestrel to be used in front-line service