The Ministry of Defence (MoD) has told BAE Systems and proposed merger partner EADS they must provide safeguards over Britain's Trident nuclear weapons programme before the multi-billion-pound tie-up can go ahead, it has been reported.
Guarantees over Trident nuclear submarines - which are built by BAE at its yard in Barrow-in-Furness, Cumbria - are the top priority for the MoD and Department for Business, according to the Sunday Times.
It is also reported that the Government has drawn up a list of so-called "red line" issues detailing national security concerns of the proposed deal, which would create the world's biggest aerospace company with a market value of more than £30 billion, combined sales of about £60 billion and 220,000 staff.
Experts have raised concerns over the political hurdles the mega-merger faces, given the sensitive nature of national security work handled by the two firms and with approval required from a number of governments worldwide.
The British Government has a so-called golden share in BAE that allows it to veto deals that are seen to put the public interest at risk and has already said it will seek to ensure UK interests are "properly protected".
There are also worries over a backlash from the US - with BAE the biggest foreign supplier to the American military - while Airbus aircraft parent EADS is part-owned by the French and German governments, which have stakes of 15% and 7.5% respectively.
It is thought the merger will only receive British Government approval if the companies can give guarantees that details of the Trident programme will not be passed to France or Germany.
Andrew Gollan, analyst at brokers Investec, last week advised BAE investors to sell their shares in the wake of the announcement, citing the complexities of a deal and the "politically-sensitive issues" involved.
Despite the potential difficulties faced in getting the deal waived, there is said to be a strong commercial rationale to a merger of the two.
BAE is an expert in defence with lucrative contracts in the US and UK in particular and Franco-German group EADS is a leader in the commercial aircraft and aerospace sector.