British Aerospace warned last week of job losses and said that it could close more UK plants.
The company confirmed that the future of its armaments business, Royal Ordnance, will be decided within the next six months.
The subsidiary’s workforce of just over 4,000 has already been drastically cut over the past few years as orders for munitions have been scaled down.
Even if Royal Ordnance is not disposed of, it is expected that it will be radically revamped and that factory closures will go ahead.
The company has already unveiled plans to shut a propellant plant in Scotland with the loss of 280 jobs.
But BAe rejected claims that it was close to agreeing a sale of Royal Ordnance to German group Rheinmetall.
BAe group managing director Robin Southwell said it was difficult to move forward with Rheinmetall since there were no concrete proposals on the table.
But BAe admitted last September that the armaments subsidiary was to be subject to a review that could lead to disposal. The business faced major challenges, according to chief executive John Weston, though at the time he said there were no immediate implications for plant closures or job cuts.
The group’s total defence businesses last year produced a 4% rise in interim profits to £303m on sales up 10% to £3.1bn.
However, Royal Ordnance, which accounted for about 20% of the defence division’s £1.9bn turnover, has some of the lowest margins of any of BAe’s operations.
Southwell said last week that defence systems margins were in low single figures, which he wants to turn into double-digits over the next three years.
The business will be transformed by the inclusion of GEC’s Marconi, following BAe’s £7bn acquisition.