Talks to merge aerospace group EADS and defence contractor BAE Systems are deadlocked, sources close to the talks said on Friday, with the governments of Britain, France and Germany at odds over the outcome.
According to the sources, Germany wants the right to buy a nine-percent stake in the new group to maintain parity with France, but Britain will only accept this with a written guarantee that the French state will not later buy shares held by the French conglomerate Lagardere.
France holds a 15-percent share of EADS which would be diluted to 9.0 percent in the new entity and has stated that it does not plan to sell. Germany wants to keep "a psychological balance" with France, a source close to the talks explained.
Lagardere has stated its intention to sell its 7.5-percent stake in EADS once the new Airbus A350 airliner is launched, around 2015.
The French say: "we don't intend to buy the Lagardere shares but we won't give you a written guarantee", said a source after a video-conference on Friday between economic advisers of British Prime Minister David Cameron, German Chancellor Angela Merkel and French President Francois Hollande.
Hollande told media in Malta on Friday: "We have said what we consider to be our conditions.
"After that it is up to the companies to continue their negotiations with the knowledge of France's position in terms of its presence in the group's capital, the location of its headquarters and the protection of our defense industry."
The British government, as well as EADS and BAE, are concerned that government shareholdings beyond 18 percent would make the deal unacceptable in the United States, the world largest defence market.
Washington, which will have to review the deal because BAE has a large American subsidiary, is wary of state-owned defence contractors.
In London, 45 conservative British lawmakers called on Cameron on Friday to obtain guarantees before he gives the operation his approval.
The British deputies were worried in particular about the implications of a tie-up for jobs in the country, and also pointed to the danger of being shut out of consideration for US defence contracts.
An EADS spokesman said: "We have been informed by the governments about the status of the discussions but in no way have we been told that the deal is off.
"We continue to work towards the October 10 deadline we have been given by the UK Takeover Panel," the spokesman said.
EADS, the maker of Airbus jets, and defence giant BAE Systems have until Wednesday, October 10, to announce to British regulators whether a deal has been reached or more time is needed.
"We still have a few days. I don't know how many more meetings these governments would need," an industry source said.
"You just have to make up your mind whether you agree or not. We have three states showing us the Europe that doesn't work as opposed to the Europe that works, EADS, and would work even better with BAE Systems," the source said.
An EADS/BAE tie-up would create a $45-billion (35-billion-euro) group to rival US giant Boeing.
EADS shares closed on Friday with a gain of 2.24 percent to 26.48 euros, while BAE shares fell by 1.59 percent to 328.1 pence in London.