“If it does go through I will be disappointed because I wanted to own EADS for its significant earnings stream in civil aerospace which was improving markedly ... If the deal goes through I get that earnings stream diluted by a lower, if not negative, growth defence business.”

GERMANY HOLDS OUT

Germany is holding out for the same role as France, which would hold 9 percent in the new group, and wants to host the headquarters. This has put it at odds with EADS, which wants minimum political interference.

Germany’s demand would entail Berlin buying a stake in EADS currently owned by carmaker Daimler. But EADS chief Tom Enders continued to rebuff the idea which also worries UK officials anxious to prevent damage to BAE’s vital, but sensitive, U.S. defence markets.

Britain, France and Germany held “reasonably constructive” talks at official level, a person familiar with the matter said, but securing a deal in time for an Oct. 10 deadline looks increasingly likely to need a push from European leaders.

“Britain and France have moved further forward (towards accepting the deal); Germany’s position has not changed,” a person familiar with the negotiations said.

Talks between Germany and EADS itself are at a standstill while the three affected nations discuss a political response.

A French parliamentary source briefed on the negotiations said that France, Britain, EADS and BAE are now agreed on the deal’s basics, but Germany still had to be convinced.

“The decision is now at the highest level. It may be settled between (French President Francois) Hollande and (German Chancellor Angela) Merkel,” the source said. “Hollande is ready to call Merkel if needed.”