Company officials told unions that the munitions manufacturer was suffering "huge losses".
Jack Dromey, at the Transport and General Workers' Union, said British Aerospace had warned that its Ordnance unit was facing the worst crisis in its history.
"The company has threatened both a pay freeze for next year and the possibility of pay cuts this year," he said.
Mr Dromey said unions representing RO's 4,000 workers were calling on BAe to back its loss-making subsidiary, and on the Government to intervene.
"Our defence ministers are not backing our ordnance factories in the same way as our European competitors," he said.
BAe has been discussing the possibility of a joint venture to merge RO with German firm Rheinmetal, but nothing has been agreed.
The problem stems from the fact that the Ministry of Defence has slashed orders from pounds 350m a year to pounds 150m since BAe bought the business from the government 10 years ago.Unions fear that six factories and 2,500 jobs could be at risk.Reuse content