Officials from all three countries are concerned at the rapid spate of mergers in the US defence and aerospace industry, and hope that a European equivalent can be created to compete against the Americans. Ideally they would like such a European defence giant to be created by this time next year.

The report was issued by members of the Airbus consortium: British Aerospace (UK), Aerospatiale (France), CASA (Spain) and Daimler-Benz Aerospace (Germany). However, the report has ignored the governments' request to set a timetable for restructuring the industry.

One of the largest stumbling blocks appears to be the state ownership of Aerospatiale. British Aerospace and Daimler-Benz are unenthusiastic about merging with a state-controlled company. They believe that the French government would try to implement French industrial policy through such a merger. The French meanwhile fear that the merger could lead to competitive tendering for the supply of components to the merged company and that this might lead to job losses in French aerospace companies, which are generally less efficient than their German and British counterparts.

Smaller areas such as missiles and electronics companies may merge before any large scale restructuring in the industry.

Response from the various governments to the report have so far been muted. France's defence minister, Alain Richard, has called for the French company Dassault Aviation and British Aerospace to work more closely on combat aircraft. Dassault Aviation is shortly to merge with Aerospatiale.

George Robinson, UK defence minister, and Margaret Beckett, UK minister for trade and industry, issued a joint statement that welcomed the report, but raised a number of concerns at the pace of change. "The UK government remains convinced that urgent restructuring of Europe's aerospace industry is essential, " they said. In Germany, Chancellor Kohl said that he hoped that the report meant there was now 'a serious will' for the companies to create a strong European aerospace defence company.

The European Union cautioned that time was running out for Europe to remain a major player in the aerospace defence market.