FRANKFURT/LONDON (Reuters) - A row over the ownership ratio in the mooted merger between Airbus parent EADS EAD.PA and Britain's BAE Systems (BAES.L) is the latest threat to a proposal which would create the world's biggest defense and aerospace group.
Sources told Reuters on Tuesday a 60-40 split in favor of EADS was being questioned on several sides and talks were under way about possibly adjusting it. Both companies issued denials.
Europe's biggest defense deal in a decade faces several hurdles including how to ringfence top-secret projects and how to satisfy governments keen to safeguard EADS operations in France and Germany.
With an October 10 deadline to decide whether the talks proceed, EADS Chief Executive Tom Enders, one of the merger's main architects, faces the German parliament on Wednesday to put forward his case.
Yet two sources familiar with the transaction told Reuters that the deal, which the firms acknowledged publicly on Sept 12, already faced differences on how the two would be valued.
They said EADS and BAE were discussing valuing EADS at more than the 60 percent originally announced, pushing the ratio to potentially 63:37 or even 65:35.
"The ratio could be changed up to 3 percentage points in favor of EADS," one EADS adviser told Reuters.
EADS and BAE issued a denial: "The joint announcement published on 12 September outlining the 60-40 shareholder split is the only valid statement on this subject".
It said "any speculation suggesting a different ratio is inaccurate".
Some investors have argued the proposed ratio is weighted too heavily in favor of BAE, which is heavily exposed to shrinking national defense budgets.
BAE is Europe's largest defense company and a top 10 supplier to the United States, by far the largest defense market.
GERMAN GOVERNMENT EYES 70:30
Germany's Daimler (DAIGn.DE), which was in talks to sell a 7.5 percent stake in EADS to Germany's state bank KfW, is one investor unhappy with the terms.
The German government on Monday set out a list of reservations about the deal, saying a 70:30 ratio would be a more accurate valuation, yet other sources familiar with the talks said BAE would likely oppose such changes.
"Changing the 60/40 split is just not on the table at all," said a banker working on the deal, who declined to be named.
Rationale for the merger includes striking a balance between civil and military revenues, with Airbus airliners on one side, and on the other BAE's defense work, which ranges from nuclear submarines to armored personnel carriers.
Yet the deal is fraught with national economic and security concerns. A mooted merger between operations on the two sides more than a decade ago collapsed.
The French government holds a direct stake in EADS and is concerned that the deal would dilute its influence, while Germany wants to keep jobs in the country.
German Chancellor Angela Merkel met French President Francois Hollande to discuss the plans at the weekend, but they failed to come up with any joint decisions.
EADS shares were up 0.64 percent at 25.16 euros at 1355 GMT, while BAE was off 1.4 percent at 329.90 pence.
BAE is up fractionally since news of the merger talks emerged earlier this month while the market value of EADS has fallen by more than 3.8 billion euros ($4.91 billion).
($1 = 0.7743 euros)
(Reporting by Arno Schuetze; additional reporting by Rhys Jones and Victoria Bryan; editing by Giles Elgood and Jason Neely)