Leading European aerospace and defence companies EADS and BAE Systems are to ask Wednesday for a delay from British regulators to a deadline on announcing if they will pursue a tie-up that would create a global giant bigger than US rival Boeing, a source close to the matter said.
Approval from European countries concerned by the deal depends on a decision from Germany, the source said late on Tuesday.
But enough progress had been made to warrant a request to the British financial market regulator for a delay to its deadline of 1600 GMT, he added.
EADS head Tom Enders and his counterpart at BAE Systems, Ian King, were expected to decide before markets opened on Wednesday whether to seek a delay or announce that they would abandon their merger talks.
On Tuesday, the negotiations were boosted by news of a compromise between France and Britain to limit state influence in the proposed new company.
"We have learned that France and Britain made significant progress on the issue that has been blocking the talks," a spokesman for the European Aeronautic Defence and Space Company said.
In France, Finance Minister Pierre Moscovici also suggested that matters were moving forward.
"We believe we have defended the interests of France and Europe well and completely in this complicated merger," Moscovici told lawmakers.
It was up to management to "reveal where we stand", he said. "They will do so shortly."
A corporate marriage would deeply affect the civil aviation and defence sectors, with a new behemoth present on land, sea and in the air, building tanks and missile systems, torpedoes, airliners, rockets and satellites.
EADS wants to expand in the United States and gain better access to a civil aviation market which is forecast to grow in coming years, to boost its arms industry activities, and to broaden its cost base from euros into dollars, the currency of aviation sales.
The combined group would be worth around $45 billion (35 billion euros), but details of a merger are sensitive, involving strategic interests in several countries.
A key question is whether the deal can be structured to satisfy Germany and France over their boardroom power in the combined group and over retaining important industrial activities and employment.
A second issue is concern within the British government of undue political interference in the merged entity and problems which might emerge regarding BAE Systems' role as a major supplier to British and US defence forces.
Interests in France and Germany representing the two governments each now vote on behalf of 22.35 percent holdings in EADS. Spain owns 5.45 percent.
France and Germany are likely to initially hold to stakes of no more than nine percent in a combined group, though it remains to be seen if they agree to that level over the long term.
BAE employs 83,600 people, mainly in Australia, Britain, India, Saudi Arabia and the United States, and reported sales last year of 17.77 billion pounds (22.4 billion euros, $28.8 billion).
EADS employs about 133,000 people at more than 170 sites worldwide, and posted 2011 sales of 49.1 billion euros.