BAE Systems, a company that traces its aircraft manufacturing heritage back to the Spitfire, is in danger of losing contracts to assemble the next generation of fighter jets for the Royal Air Force.

The company, Europe's largest defence contractor, is negotiating with the Government to keep the Eurofighter programme alive amid fears that it could be killed off to save money.

It has also emerged that BAE will not have a final assembly line for the F35, or Joint Strike Fighter, despite being heavily involved in the project.

If Eurofighter is cancelled, BAE could become simply a parts supplier in the manned aerospace sector. This would be a sad decline for a company that has incorporated famous names from the history of the British aerospace industry, including Supermarine, which built the Spitfire, and de Havilland, which built the world's first commercial jetliner.

The Ministry of Defence (MoD) has ordered 232 Typhoons from the Eurofighter consortium, which includes BAE, EADS, the European defence group, and Alenia of Italy.

The Eurofighter project has been backed by the UK, Germany, Italy and Spain and these countries are in negotiations over whether to proceed with the final tranche of production. In the final round of production, BAE will produce 88 aircraft for the MoD.

However, government sources have revealed that the MoD would rather not spend its already tight budget on another tranche of the £60 million Typhoon and is seeking a way out of the contract. Italy is also thought to be "wobbly" on tranche 3 and the Germans are pushing for a decision by the end of this year.

Baroness Taylor, the Defence Procurement Minister, said yesterday that she was being lobbied hard by the Eurofighter companies to go ahead with the contract but that no decision had been made.

Senior BAE executives are thought to have raised the issue with David Cameron when the Conservative leader visited the Farnborough Air Show on Monday.

If the Eurofighter Governments back out now, they will be forced to pay compensation to the companies producing the aircraft but this will not replace the lost work that tranche 3 would have provided.

The MoD has also committed to buy 138 F35s to replace the RAF's ageing Harriers. The F35 is stealth aircraft that is being built by Lockheed Martin in the US with BAE as its prime UK partner. The UK has committed about £1.2 billion to the development of the aircraft.

BAE wants a final assembly line in the UK but Robert Stevens, the chairman and chief executive of Lockheed, said this week that the UK Government has bought insufficient F35s to make this commercially viable.

Instead, BAE will make the tail sections and ship them to the US for final assembly. However, this raises the possibility that, should RAF aircraft require serious maintenance, they will have to be taken back to the US factory.

A spokesman for BAE said: "Should the Government decide it requires an F35 final assembly facility in the UK, BAE believes it has the skills and capabilities required to deliver such a facility. We believe these skills and capabilities will be crucial in enabling a managed F35 transition into UK operational service and, indeed, final assembly would act as a risk reduction environment to underpin the F35 entry into UK service programme."

BAE is closely linked with the British aerospace industry and its headquarters are at Farnborough, where the first powered flight took place in the UK a century ago.

Among the aircraft that BAE's predecessors have built are the Lancaster bomber, Concorde and the Hurricane.

The company is developing its range of unmanned aerial vehicles, which are eventually expected to take over from manned fighters.

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