A "potential combination would create a world-class international aerospace, defense and security group with substantial centers of manufacturing and technology excellence in the U.K., USA, France, Germany and Spain as well as in Australia, India and Saudi Arabia," the companies said in a joint statement.
The companies have long been rivals of U.S. industrial giant Boeing Co. They also have a "long history of collaboration," the joint statement said.
Besides other collaborations, BAE and EADS are working together on the Eurofighter and MBDA joint ventures.
Any deal struck would have to be approved by both company boards, by shareholders of each company and by regulators, the statement said.