The proposed £28 billion merger of defence giants BAE Systems and EADS is hanging in the balance ahead of a deadline for a deal to be struck.

The boards of the two groups are understood to have met on Tuesday amid reports that the French, German and British governments remain at loggerheads over the level of state ownership of the combined firm.

Under City Takeover Panel rules, BAE and Airbus parent EADS have until 5pm on Wednesday to announce the terms of the merger or ask for an extension to finalise their plans.

But it is thought the hurdles faced by the groups in securing approval from all three governments and increasingly sceptical shareholders could see the plans scrapped.

It is believed Germany dealt the latest blow to the troubled deal, with reports suggesting that German Chancellor Angela Merkel has opposed the merger.

EADS chief executive Tom Enders and Ian King, his counterpart at BAE, must decide if enough progress has been made in talks over government shareholdings to pave the way for a possible deal.

The merger would create a defence titan with combined sales of £60 billion and more than 220,000 staff, with around 52,000 employees in the UK alone. It would instantly leapfrog America's Boeing to become the market leader.

France has a direct stake in EADS while German influence is held through a 22% stake owned by car maker and industrial group Daimler. Reports suggest Germany is insisting on taking a 9% stake in the enlarged group to match France's holding.

But British politicians have voiced concerns over the level of Franco-German ownership when the UK would have no direct stake. Defence Secretary Philip Hammond warned it was a "red line" issue for the UK that France and Germany reduced their stakes, stressing that the Government was prepared to use its so-called golden share in BAE to veto a deal unless its conditions were met.

Britain is also concerned that significant state ownership could jeopardise BAE's US business, with America seen as being against Paris or Berlin having too much influence in the company's operations.