European aerospace and defense company EADS and BAE Systems have cancelled plans for a merger that would have created a leading defense firm in Europe.

EADS, which operates plane-maker Airbus, was planning to tie up with BAE Systems to create an industry leader that will surpass rival Boeing of the US. The head of EADS, Tom Enders had indicated that the two companies are in `constructive and advanced' talks with governments but the deal fell apart after stiff opposition from political and other forces in the associated countries, especially Germany.

BAE Chief Executive Officer Ian King said that the company's business remains strong and it is on course to meet its targets for the year. BAE said that the modest growth in adjusted earnings per share will be maintained if the discussions with the authorities in Saudi Arabia over a fighter-jet order are concluded on time.

He expressed disappointment over the falling apart of the deal but said that, "However, our business remains strong and financially robust. We continue to see opportunities across our platforms and services offerings and in the various international markets in which we operate. We remain committed to delivering total shareholder value and look to the future with confidence."

The UK's defense sector has been facing the pressure due to defense budget cuts but it has now begun to show signs of stabilizing.