The main partners in Airbus, Daimler Chrysler Aerospace (Dasa of Germany and Aerospatiale of France, were locked at the weekend in a row over whether the French side was trying to gain control of half the Toulouse-headquartered group.

And Britain's Sunday Times newspaper reported that Dasa and British Aerospace Plc were planning to go ahead with a widely expected merger. It quoted French industry experts saying the annoucement of a 14 billion pound ($23.3 billion) link-up could come as soon as next week.

The unusual public spat in the civil aviation sector cast a cloud over the aerospace and defence mergers meant to gird Europe for battle with US giants such as Boeing Co.

The French and Germans have clashed at a time when they, and BAe, are all experiencing turbulencein internal corporate affairs.

All this is taking place just at a time when Airbus's business is booming and Boeing, blaming the Asian economic crisis, is cutting jobs and aircraft production.

Despite the rosier outlook at Airbus, the consortium is still deemed to need a deep restructuring. "The market is setting the pace," an Airbus spokeswoman said.

Dasa says Aerospatiale wants its stake in Airbus increased from 38 to 50 per cent. Aerospatiale denies this.

But, industry officials contend that this is Aerospatiale's price for being left out a BAe-Dasa merger, which is seen as a first step in creating a unified European aerospace and defence group.

"They do not want to play second fiddle to the BAe-Dasa merger," said an industry source who declined to be identified.

Dasa says Aerospatiale is holding Airbus hostage and delaying the Airbus makeover which had been set for next year.

The Airbus row comes at a highly vulnerable time for managers at Aerospatiale, BAe and Dasa, industry officialssay.

Aerospatiale is merging with the Matra High Technology unit of the Lagardere conglomerate, which is due to be completed by next March.

Although meant to strengthen Aerospatiale, the merger has raised doubts over who will keep senior posts and whether Matra executives will lead the merged group, industry officials and analysts say.

Aerospatiale chairman Yves Michot was charged with leading the French talks for a three-way merger with BAe and Dasa. But now it is widely expected the British and Germans will go ahead without Aerospatiale, dealing a blow to his authority.

His potential rival for leadership of the Aerospatiale-Matra merged group is Lagardere's managing partner Philippe Camus, who heads a younger management team at the private company.

Matra also works closely with BAe and Dasa on a missiles joint venture and Dasa is set to pool its space operations with Matra's MMS alliance with GEC Plc of Britain.

Industry sources said the Airbus talks could take off again once theAerospatiale-Matra merger goes through and a new management is in place.

BAe is going through hard times. The stock price has come pressure as its cashflow has suffered from payment delays from Saudi Arabia, which pays for BAe-built Tornado warplanes in oil. Falling oil prices have hit the desert kingdom hard.

BAe, which makes most of its sales from military jets, must also find ways to plug a production gap between the last Tornado deliveries and the new Eurofighter programme.

Analysts say a BAe merger with Dasa, which is also on the Eurofighter programme, could make industrial sense as there is room for rationalising fighter production. A merger could also bring added revenue and work from Dasa's share in Airbus.

For Dasa, the creation of DaimlerChrysler through the merger of Daimler-Benz and Chrysler has made aerospace a small piece of an auto giant with powerful US investors hungry for returns.

Analysts say a merger with BAe would effectively be a takeover by the British firm given thedisparity in size, and raises questions about the future of Dasa chief executive Manfred Bischoff.