If the talks result in a deal, BAE shareholders would comprise 40% of the new company, with EADS shareholders controlling the rest, Reuters noted.
A combination of the two companies would create the largest defense and aerospace entity in the world, building a wide range of products including, commercial jets, military aircraft and nuclear submarines.
Investors appeared cautious, however. News of the talks prompted shares of EADS and BAE to tumbled on European exchanges. In over-the-counter trading in New York on Thursday morning, EADS shares dropped more than 13%, while BAE shares fell more than 8%.
Analysts noted that such a major defense sector merger was likely to encounter significant regulatory hurdles both within Europe and overseas. Satisfying various international regulators was apt take a long time and prove complicated for the combined company.
EADS officials said that the potential combination would have no impact on Airbus’ current operations.