Crucial phase as governments to have say in the merger of BAE and EADS

After the companies laid out basic proposals to create the world’s biggest arms company twinned with jetmaker Airbus, it is the turn of British, French, German and Spanish governments to put forward demands in exchange for giving their backing.

Each is likely to have a shopping list of concerns ranging from German fears over jobs to French soul-searching over the loss of state influence or Britain’s need to ensure the creation of a European supergroup does not dent BAE’s strong US sales.

While careful to avoid putting public pressure on nations that own the keys to any deal – and that will also be its major customers – defence industry sources have ruled out opening the door to protracted negotiations or a cascade of concessions.

A source familiar with the talks said the companies were ready to listen to European governments, but stressed that their responses could “make or break” the deal.

EADS and BAE declined to comment on the political factors involved in completing the merger.

However, EADS said the companies would reserve the last word on the deal for themselves after hearing governments’ views.

“We are in good, advanced discussions with the governments concerned,” a senior spokesman said.

“When we have their concerns and requests on the table, we and BAE will jointly look at them and determine whether they can be reasonably accommodated within the governance structure we have in mind.”

The project to build a company 60 per cent owned by Franco-German-Spanish EADS and 40 per cent by BAE would make the world’s largest arms firm ahead of Lockheed Martin and grant Europe an all-round aerospace player rivalling Boeing.

Under British stock market rules, the two companies have until October 10 to announce whether they plan to go ahead with the merger.