UPDATE 1-EADS says continuing BAE merger talks with govts

(Adds details, background) By Gernot Heller BERLIN, Oct 6 (Reuters) - EADS is continuing"constructive talks" with governments over its proposed $45billion merger deal with BAE Systems and remainsconvinced that it is an excellent deal for Europe, a spokesmansaid on Saturday.

Tensions over the proposed supermerger spilled into the openon Friday, casting doubt on a rapidly approaching deadline asFrance, Britain and Germany jockeyed over the role of the statein the world's largest aerospace and arms group.

But EADS has been at pains to stress the merger proposal hadnot collapsed.

"We are continuing our constructive talks with thegovernments," the EADS spokesman said. "We remain convinced thatwe have made an excellent offer for Europe."

While both firms want a minimum government presence, mainlyto protect BAE's defence interests in the United States, thedeal has sparked a three-way political logjam.

France wants to keep a stake but will not rule out addingmore, Germany wants to match France's role to avoid being leftaside by Europe's other main powers, and Britain wants to capstate involvement, several people familiar with the talks said.

Time is running out before a UK stock market deadline ofOct. 10 for a blueprint of the deal, which affects nationalsecurity interests on both sides of the Atlantic.

A French government source has said the deadline could beextended by 28 days, something the companies are so farreluctant to do in the absence of concrete progress.

Senior aides to the leaders of all three countries held avideo conference on Friday and "put everything on the table tosee if we can go forward", the source added.

EADS and BAE denied a German report that this had resultedin deadlock and that the merger proposal had collapsed.

A French parliamentary source said last week that Hollandewas ready to contact Merkel on the issue but there were noimmediate signs of any planned contact.

In a sign of the sensitivities surrounding the deal inBritain, 45 lawmakers from the ruling Conservative Party sent aletter to Prime Minister David Cameron on Friday to say theywould only back the merger if France, Spain and Germany got ridof their stakes in the new company.

"Such is the importance of the proposed EADS/BAE merger tothe UK that it should be a condition of the merger beingapproved by HM Government that the state owned shareholdings arefully divested," said the letter, seen by Reuters.

The members of parliament said they would also need to seeclear safeguards provided to protect British manufacturing andjobs before the government gives the green light to the deal.

"Without such changes it seems it is EADS and its governmentshareholders who have everything to gain while the British armedforces, UK manufacturing and BAE have everything to lose," theletter said.

(Additional reporting by Tim Hepher and Kate Holton; Writing byChristoph Steitz and Sarah Marsh; Editing by Catherine Evans)

((sarah.marsh@thomsonreuters.com)(+ 49 30 2888 5226))