In this study, the flow around the pod unit is analysed and the performance characteristics of the propeller on the pod are investigated. The main objective of the present work is to further improve the original numerical method developed before for the prediction of performance of podded propellers and to further validate the earlier developed numerical model with a specific emphasis on the hydrodynamic interaction amongst the propulsor components. While in the earlier numerical method, the axial induced velocities by pod and strut parts were included into the calculations on the propeller disc plane, in the present method the tangential induced velocities on the propeller disc plane are included in the calculations as well. The flow domain around the podded propeller is mainly divided into three parts; the axisymmetric pod part, the strut part and the propeller part. While the pod and strut parts are modelled by a low-order boundary element method (BEM), the propeller is represented by a vortex lattice method (VLM). Coupling of the BEM and the VLM is carried out in an iterative manner to incorporate the effect of the pod on the propeller, and vice versa. The present numerical method is applied to two different podded propellers with zero yaw angles in order to compare the results with those of experimental measurements. The present numerical method is also validated in the case of 15 degrees of yaw angle for a podded propulsor. The effect of pod and strut on the propeller and vice versa are discussed. (C) 2009 Elsevier Ltd. All rights reserved.