Talks on a $45 billion merger of EADS and BAE Systems collapsed on Wednesday when the governments of France, Germany and Britain failed to reach agreement over a deal to create the world's largest aerospace and arms group.
Britain's BAE and the Franco-German EADS had been working towards a 1600 GMT deadline to either walk away from the talks or seek an extension.
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In a statement, BAE said it had become clear that the interests of the governments could not be adequately reconciled with each other or with the objectives that BAE and EADS established for the merger.
"BAE Systems and EADS have therefore decided it is in the best interests of their companies and shareholders to terminate the discussions and to continue to focus on delivering their respective strategies," it said.
(Reporting by Kate Holton; editing by Jason Neely)