Ministers are being warned that the entire future of RO, which employs 4,000 staff at 12 plants, will be in danger if the Ministry of Defence places further ammunition and explosives orders abroad rather than supporting its home supplier.
RO's Bishopton factory in Scotland is already closing with the loss of 400 jobs after the MoD chose to place a pounds 100m order for artillery shell propellants with the South African firm Denel.
The head of the German munitions supplier, Rheinmettal, said earlier this week that it was interested in buying RO. BAe insisted yesterday that although it had been in discussions with Rheinmetall for a year, these had been about a joint venture, not an outright sale.
Referring to remarks made by Hans Brauner, chief executive of Rheinmetall, at a press conference on Thursday night, a BAe spokesman said: "If Rheinmetall have other ideas in mind we have not received them. We want them to put down a firm proposal. We have been talking for a year now and we still have not got one."
RO supplies everything from ammunition for small arms, mortars and tanks, to rifles, rocket motors and depth charges. It also owns the German sub- machine gun manufacturer Heckler and Koch.
BAe bought the business 10 years ago from the Government for pounds 190m. Since then it has closed or sold 10 Royal Ordnance sites and slashed the workforce by 80 per cent. Over the same period, its annual work load from the MoD has shrunk from pounds 350m to pounds 150m.
A BAe spokesman said that keeping RO as a standalone operation remained an option but it depended on what strategic capability in munitions supply the MoD wanted Britain to retain.