"Bayerische Flugzeugwerke (BFW) (Bavarian Aircraft Works) was reformed in 1926 in Augsburg, Bavaria when Udet-Flugzeugbau GmbH was changed into a joint-stock company. In the early stages, BMW AG held a stake in this company and was represented by Josef Popp, who held a place on the Supervisory Board.
Willy Messerschmitt joined the company in 1927 as chief designer and engineer, and formed a design team.
One of the first designs, the Messerschmitt M20, was a near-catastrophe for the designer and the company. Many of the prototypes crashed, one of them killing Hans Hackman, a close friend of Erhard Milch, the head of Lufthansa and the German civil aviation authorities. Milch was upset by the lack of response from Messerschmitt and this led to a lifelong hatred towards him. Milch eventually cancelled all contracts with Messerschmitt and forced BFW into bankruptcy in 1931. However, the German re-armament programs and Messerschmitt's friendship with Hugo Junkers prevented a stagnation of the careers of him and BFW, which was started again in 1933. Milch still prevented Messerschmitt's takeover of the BFW until 1938, hence the designation "Bf" of early Messerschmitt designs.
Messerschmitt promoted a concept he called "light weight construction" in which many typically separate load-bearing parts were merged into a single reinforced firewall, thereby saving weight and improving performance. The first true test of the concept was in the Bf 108 Taifun sports-plane, which would soon be setting all sorts of records. Based on this performance the company was invited to submit a design for the Luftwaffe's 1935 fighter contest, winning it with the Bf 109, based on the same construction methods.
From this point on Messerschmitt became a favorite of the Nazi party, as much for his designs as his political abilities and the factory location in southern Germany away from the "clumping" of aviation firms on the northern coast. BFW was reconstituted as Messerschmitt AG on July 11, 1938, with Willy Messerschmitt as chairman and managing director. The renaming of BFW resulted in the company's RLM designation changing from Bf to Me for all newer designs after the acquisition date. Existing types, such as the Bf 109 and 110, retained their earlier designation in official documents, although sometimes the newer designations were used as well, most often by subcontractors. In practise, all BFW/Messerschmitt aircraft from 108 to 163 (not the same plane as the Me 163) were prefixed Bf, all later types with Me."
The Bf.109 and 110 were designed before Bayerische Flugzeugwerke was reconstitued as Messerschmitt AG so they retained the 'Bf.' designation.