The Eurofighter Typhoon, sporting the flags of the six nations that have ordered the aircraft, is a collaboration of BAE Systems and Airbus parent company European Aeronautic Defence & Space Co. (Odd Andersen/AFP / September 7, 2012)

September 12, 2012, 12:11 p.m.

Airbus parent company European Aeronautic Defence & Space Co. and BAE Systems, two European giants in the aerospace and defense business, have acknowledged they are in merger talks in a deal that would create the industry's largest company.

The two companies had combined revenues of more than $94 billion last year, which surpasses Boeing Co.s $68.7 billion in sales.

In a joint statement, the companies said that a potential combination would create a world-class international aerospace, defense and security group.

Under the possible deal, BAE Systems shareholders would control 40% of the combined group's stock and EADS shareholders would own 60%.

Both companies already have a large U.S. presence. In July, Toulouse, France-based Airbus announced it would build a commercial jet manufacturing facility in Mobile, Ala. The planes built there will compete directly with those made by Boeing.

Analysts say that the deal makes the most sense on the defense side of business, now that global defense revenues are on the decline.

EADS and BAE have a history of collaboration and currently work together as partners in a number of projects, including MBDA, a European company that develops and manufactures missiles, and the Eurofighter Typhoon, a modern combat aircraft used by various European militaries.

In accordance with British law, the companies said they have until Oct. 10 to announce either that a deal has been made or that they no longer intend to pursue a transaction.

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Potential merger would create world's largest aerospace company