Trade and Industry Secretary Patricia Hewitt has written to EADS's German chairman, Manfred Bischoff, to voice Britain's opposition after reports earlier this month of a plan for EADS to take over Thales to create a European competitor to the US behemoth Boeing.

Defence Secretary Geoff Hoon is also believed to have voiced his opposition to a merger with French officials, which have supported a tie-up, said the weekly.

Officials in London are concerned Thales would lose its independence in an EADS takeover, making it a less effective competitor for major British government contracts to BAE Systems.

The British defense ministry "has encouraged Thales to develop itself into a major player in the UK. It has an independent strategy and its management is independent-minded. The view is that would certainly be jeopardised if EADS took it over," the newspaper quoted an industry source as saying.

EADS co-chairman Philippe Camus said on Thursday there were no plans for a merger.

But the matter was raised during talks in London on Thursday between French President Jacques Chirac and British Prime Minister Tony Blair.

"The president told Mr Blair that we have the willingness and the objective to consolidate Thales," said one of Chirac's aides, who added that there was "no merger plan under way."

French Economy Minister Nicolas Sarkozy met Tuesday in Berlin with his German counterpart, Wolfgang Clement, to try to ease Germany's concerns by stressing his commitment to a balance of French and German influence in EADS.

France and Germany currently have equal influence at EADS with German carmaker DaimlerChyrsler holding a 30-percent stake and the French state and French holding firm Lagardere 15 percent each.

However, a merger between EADS and Thales would tip the make-up of EADS shareholders in the favour of Paris, a development Berlin opposes, as the French government owns a 31-percent stake in Thales.

The Observer also reported that BAE Systems is considering a 2.5-billion-pound (3.6-billion-euro, 4.6-billion-dollar) sale of its 20-percent stake in European aircraft maker Airbus to free up funds for investment in the United States.

EADS holds the remaining 80 percent in Airbus, and has long sought to acquire BAE's share.

The Observer said a BAE board meeting in Washington last week received the findings of strategy reviews commissioned by chairman Dick Olver, which are believed to have recommended the acquisition of US defence companies.

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