The defence giant's earnings totalled £1.03bn during the six months to June 30, 2021, a rise from £987m which it posted during the same period in 2020.
BAE Systems employs nearly 13,000 people in its Air sector at sites across the UK, including Warton and Samlesbury.
It produces the Eurofighter Typhoon, the Hawk trainer jet and sections of the F-35 in Lancashire.
Charles Woodburn, Chief Executive, said: “Thanks to the outstanding efforts of our employees across the Group, we have delivered a strong first half performance which underlines our confidence in the full year guidance for top line growth, margin expansion and three-year cash targets.
“We are well positioned for sustained growth in the coming years and are ramping up our investments in advanced technologies to deliver capabilities for our customers in the face of an evolving threat environment."
Mr Woodburn added: “Following the decisive action taken to accelerate our UK deficit pension payments in 2020, the committed investment in the business coupled with the good operational performance, we are driving enhanced cash generation.
"This enables us today to announce a five per cent increase in the interim dividend as well as initiating a new share buyback programme of up to £500m."
BAE Systems has just been awarded a £250m contract by the Ministry of Defence to progress the design and development of Tempest, the UK’s future combat air system to replace Typhoon.
The contract marks the start of the concept and assessment phase of the programme and will see the business, alongside its partners in industry and government, develop and shape the final design and capability requirements of Tempest.
BAE Systems has also moved towards full rate production levels on F-35 rear fuselage assemblies, completing 70 so far this year.
Typhoon production revenues have increased with work getting underway on the delivery of 38 aircraft for Germany, plus continued final assembly and production of Typhoon and Hawk aircraft for Qatar.
More than 270 apprentices and graduates have started new careers across the Group's UK Air sites so far this year.