British arms maker BAE Systems said Thursday that stretched defence budgets weighed on the group's profits in 2012 and warned that fresh cutbacks could force it to axe 3,500 jobs at US shipyard operations.

Net profits dropped 14 percent to �1.07 billion ($1.63 billion, 1.23 billion euros) last year, compared with 2011, BAE said in a results statement.

Revenues slid seven percent to �17.83 billion in 2012 compared with a year earlier, as the British and US governments tightened their defence budgets amid global economic strains.

BAE briefly mentioned the collapse of last year's mega-merger with European aviation giant EADS, noting that it would have been an "exciting development" but adding that no "acceptable" agreement to all parties could be found.

"Following a period of growth, defence budgets in the US have flattened and are expected to remain constrained in response to reducing overseas operations and measures to address federal deficits," BAE said in the results statement.

"In the UK, the defence market has stabilised following changes to programme priorities outlined in 2010 through the UK government's Strategic Defence and Security Review."

BAE added that "the overall outlook in both countries is expected to continue to be constrained."

And the company warned that it could slash 3,500 jobs at its US ship repair operations after the US Navy served notice on a number of maintenance requirements amid uncertainty over US budget talks.

"BAE Systems has been informed by the US Navy of its 'intent to cancel' a number of ship maintenance availabilities if current and long-term budget negotiations are not resolved between Congress and the White House," it said in a separate statement.

"These actions, if carried out, would significantly impact our ship repair operations in Norfolk, Virginia; San Diego, California; Mayport, Florida; and Pearl Harbor, Hawaii.

"Therefore, as a result of this possibility, we have informed 3,500 of our employees in advance ... that their jobs may be terminated if these Navy cancellations occur."

The company added it would repurchase up to �1.0 billion worth of its shares over three years.

Dealers seized on the news, resulting in BAE's share price surging 4.43 percent to 346.90 pence in late afternoon deals, making it the biggest gainer on London's benchmark FTSE 100 index, which fell 1.69 percent on profit-taking.

For BAE, 2012 was dominated by the failure of its proposed $45-billion blockbuster merger with EADS.

A plan to create the biggest aerospace and defence group in the world was brought down last October by unexpectedly strong opposition from Germany.

EADS had wanted to expand in the United States and gain better access to a civil aviation market which is forecast to grow in coming years, to reinforce its defence activities.

The US market accounts for 40 percent of BAE Systems' total group revenues -- making it the biggest foreign supplier of military goods to the Pentagon, while the EADS deal had been seen as a boost for BAE amid government defence cuts.

BAE has ramped up its focus on the United States in recent years, with the acquisition of United Defense Industries for $4.2 billion in 2005, and Armor Holdings for $4.1 billion in 2007.

In the US, it is a key supplier for the F-35 Joint Strike Fighter jet and is also responsible for the Trident nuclear submarine programme.

BAE, which also manufactures Bradley fighting vehicles, Challenger tanks and Queen Elizabeth aircraft carriers, said on Thursday that its strategic aim following the merger collapse "was to drive shareholder value."

It is meanwhile part of the Eurofighter Typhoon consortium that includes the German and Spanish subsidiaries of EADS, as well as Italy's Finmeccanica.

In December, BAE announced a �2.5-billion deal to sell 12 Typhoons and eight Hawk trainer planes to Oman.

But the firm warned that a lucrative deal to sell fighter jets to Saudi Arabia was facing unresolved issues more than five years after an agreement was struck between the two sides.

BAE and Saudi Arabia signed a �4.5-billion deal in 2007 to supply 72 Typhoon jets to Riyadh.