A merger to create the biggest aerospace group in the world between EADS and BAE Systems collapsed on Wednesday, with analysts saying Germany shot it down from fear of being sidelined.
The two groups issued a statement announcing failure, and a source close to the talks said they fell through because of opposition from Germany.
It had looked late on Tuesday as if France had opened the way for an extension of the talks, with sources saying it had agreed to limit its shareholding, with France and Germany having equal shares making 18 percent together.
But analysts said Germany feared that if the deal to create a giant worth $45 billion (35 billion euros) went ahead, the power behind the civilian arm of the group would shift wholly to Toulouse in southern France where airliner maker Airbus is based.
And Berlin feared that the military operations would be run from London where BAE Systems is based.
"BAE Systems and EADS announce that they have decided to terminate their discussions," the firms said in a statement ahead of a takeover deadline.
BAE Systems was seen as a potential target for being taken over or being broken up if the merger fell through.
The two groups insisted that the deal had been based on "sound industrial logic" which "represented a unique opportunity to create a combination from two strong and successful companies greater than the sum of the parts."
The source, who declined to be named, said that "it did not work because the Germans blocked it."
In London, BAE Systems said it had terminated the talks because some of the governments involved could not reach an agreement.BAE Systems chief executive Ian King said the firms "were unable to reach an acceptable agreement with our various government stakeholders."
He said: "We believe the merger presented a unique opportunity for BAE Systems and EADS to combine two world class and complementary businesses to create a world leading aerospace, defence and security group."
Shares in EADS leapt higher in Paris on the news, while those in BAE Systems fell slightly in London.
Late on Tuesday, a breakthrough on state interference by France appeared to have opened the way for the deal.
The groups were aiming to form a company bigger than US rival Boeing across the civil and defence fields.
The main sticking point was initially 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 was always watchful meanwhile that it obtained as many votes in the company as France.
British takeover rules had given parties to merger and takeover talks 28 days from the initial announcement to make their position clear to market authorities in London.
The clock would have stopped at 5.00 pm Wednesday London time, but the two sides were entitled to ask for an extension of the deadline if they thought they were close to a deal.
In London, shares in BAE slipped by 0.37 to fell by showed a slight fall of 0.18 percent to 322.30 pence in afternoon trading, while EADS shares had leapt by 4.87 percent to 27.37 euros in Paris.
The overall indices for both markets were modestly lower, meanwhile.EADS wanted 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.
But US authorities were also following the merger talks closely because 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.
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.