BAE has confirmed it is considering closing one of its major shipyards in a move that could threaten more than 1,000 jobs.
BAE's UK chief executive Nigel Whitehead told The Sunday Telegraph a decision was expected by the end of the year.
The future of its three major bases - one at Portsmouth and two in Glasgow, at Govan and Scotstoun - has been under threat after BAE launched a review of its maritime operations at the start of the year.
It is believed Portsmouth is most at risk and a closure could reportedly put about 1,500 jobs at risk.
Mr Whitehead told the newspaper that plans for a "reduction in footprint" could see "the cessation of manufacturing at one of the sites".
"We will be making decisions this year," he added.
The blow comes after last month's collapse of the planned mega-merger between BAE and Airbus parent EADS.
The two groups called time on the tie-up - which would have created the world's biggest defence and aerospace group with 220,000 staff worldwide and combined sales of £60 billion - after political hurdles proved insurmountable.
BAE said it was in contact with the Ministry of Defence as it reviews its shipbuilding future.
It added: "We continue to work closely with the Ministry of Defence to explore all possible options to determine how best to sustain the capability to deliver complex warships in the UK in the future.
"This work is ongoing and we are committed to keeping our employees and trade unions informed as it progresses."
The group employs about 3,500 staff across its Glasgow shipyards and nearly 5,000 at Portsmouth, although less than half are directly involved in shipbuilding.
BAE has been coming under pressure from government spending cuts and it is feared there will not be enough work to keep all three sites profitable, with a gap expected between the completion of work on the Queen Elizabeth class aircraft carriers and the start of the Type 26 Global Combat Ship programme for the Royal Navy.