Germany is set to retain its influence over Airbus' parent group EADS after Chancellor Angela Merkel's coalition partner dropped its objections to the state buying shares in Europe's largest aerospace company from Daimler .

The climb-down by the Free Democrats (FDP) should enable state-controlled development bank KfW to buy up to half of the carmaker's 15 percent stake in EADS, with a government source saying on Wednesday that Daimler would retain control of 7.5 percent of EADS beyond 2013.

No price negotiations have taken place and the deal will not happen before July next year because of Dutch takeover law, the source said.

It looks as though it is going to be KfW, said another person familiar with the matter.

Daimler, KfW and EADS declined to comment.

EADS is governed by a shareholder pact giving joint strategic control to Daimler and French shareholder Lagardere .

The prospect of a Daimler pull-out had raised questions over the future of the pact, which has clauses designed to protect national security interests. But two sources familiar with the talks said Germany's Daimler had offered to retain a corporate governance role in EADS to mirror Lagardere's role.

EADS shares fell 5 percent in a weak European market, weighed down in part by concerns the company could take charges for its A350 jetliner project. The company is due to report quarterly earnings on Thursday.

The FDP opposes state intervention in business generally and only dropped its insistence on a market solution to Germany's struggle to find a private buyer for Daimler's stake in return for a promise to roll back state ownership in other firms.

Political and financial sources said the government committed to selling its remaining stakes in Deutsche Post and Deutsche Telekom , although the timing of the sales was unclear. At present KfW holds 30.5 percent of Deutsche Post and 17 percent of Telekom, in which the government directly owns a further 15 percent.

The German parliament's budget committee needs to finalise a decision about the 2012 budget by Thursday and this would have to accommodate any acquisition by KfW of EADS shares from Daimler.

Germany has been searching for domestic investors as a way to retain influence in the Airbus parent group.

France and Germany are seen keen to avoid a full-scale renegotiation of the politically sensitive pact ahead of elections in France next year, followed by a German vote in 2013.


A person familiar with the talks, speaking on condition of anonymity, cautioned there have been several false starts in negotiations between Daimler and the government, but said: An agreement certainly seems to be closer than before.

Diplomats say any major recomposition of ownership would likely be discussed between Merkel and French President Nicolas Sarkozy, who intervened in 2007 to change the management structure and dampen a feud that soured bilateral relations.

Daimler holds a 15 percent economic interest in EADS and 22.5 percent of the voting rights, and is looking for a buyer for part of its stake.

Daimler has said it wants to focus on its core automotive business and reduce the long-term drag on earnings that EADS represents.

Germany's economy ministry, which is headed by FDP party chief Philipp Roesler, was not available for comment. Roesler previously opposed any state purchase of EADS shares.

EADS was founded in 2000 from a merger of French, German and Spanish aerospace interests with Paris and Berlin guaranteed equal weight. The company produces Airbus passenger jets, European Ariane rockets and sensitive national security assets including France's nuclear deterrent and German fighter planes.

The French government owns 15 percent of the company but its day-to-day role is curtailed by the pact. Lagardere owns 7.5 percent and speaks for the French camp as a whole on the board.

(Reporting By Matthias Sobolewski,; Philipp Halstrick,; Edward Taylor, Hendrik Sackmann; Writing by Stephen Brown and Tim Hepher; Editing by Noah Barkin)