A giant merger between European aerospace groups EADS and BAE Systems is still on the launch pad with talks heading for extra time on Wednesday after France eased its demands, various sources suggested.
Progress justifies a request to the British financial market regulator for a delay to the deadline, a source close to the matter said.
The deadline falls at the end of the working day on Wednesday in London.
But the final decision is likely to depend on a decision from Germany, and the position of the German government remains unclear, the source added on Tuesday.
A breakthrough on state interference by France seems to have occurred in hectic talks late into the day on Tuesday to enable the firms to say by a deadline of 1600 GMT if they are still holding hands, or if the deal is off.Sources close to the talks said that France and Britain had agreed that the combined French and German stakes in the new group would not exceed 18%.
France has a direct interest of 15 percent in EADS. This would be diluted to 9.0 percent.
Germany has obtained agreement from its partners to acquire 9.0 percent of the shares in order to maintain parity with France.
If EADS and BAE Systems pull off the ambitious and complex deal, the new entity would be the biggest aerospace group in the world, worth about $45 billion.
It would be a formidable rival to US firm Boeing across the civil and defence fields.
"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 late on Tuesday.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."
French Defence Minster Jean-Yves Le Drian, in Brussels for a meeting of the North Atlantic Treaty Organization, confirmed progress had been made.
British takeover rules give parties to merger and takeover talks 28 days from the initial announcement to make their position clear to market authorities in London.
The clock stops at 5.00 pm Wednesday London time, but the two sides are entitled to ask for an extension of the deadline if they think they are close to a deal.
Under the proposal, EADS would account for 60 percent of the new entity and BAE Systems 40 percent.The main sticking point is believed to have been reluctance by France to meet demands by Britain, but also by the firms themselves, for minimal government interference in the proposed group.
Germany is watchful that it has as many votes in the company as France.
Each country has in effect 22.35 percent of EADS.
In Germany, this interest is represented by the Daimler group.
In France the government has a direct holding of about 15.0 percent, and the total French stake is represented on the board by the Lagardere group.
Spain owns 5.45 percent.
A merged group would be present on land, sea and in the air, building tanks and missile systems, submarines and 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.However, US authorities also have a keen interest in the proposed merger.
BAE Systems is an important supplier to US defence industries, and the United States is wary of possible state interference in the management of its defence contractors.
In addition, Airbus is the main competitor to Boeing in the business of building airliners.
In the event that the deal falls through, BAE Systems is seen as a potential target for being taken over or being broken up.
Both companies are offering written guarantees to Germany, France and Britain over retaining important industrial activities and employment.
BAE employs 83,600 people, mainly in Australia, Britain, India, Saudi Arabia and the United States, and reported sales last year of 19.154 billion pounds (23.83 billion euros, $30.67 billion).
EADS employs about 133,000 people at more than 170 sites worldwide, and posted 2011 sales of 49.1 billion euros.