"Thales confirms that discussions are currently being held with Safran," the defense electronics company said in a statement. "These discussions are following on previous exchanges between the two companies, which are aiming at seeking to optimize their respective business portfolios so as to strengthen their competitiveness, especially on international markets."
The confirmation follows an interview with Laurent Collet-Billon, the head of the French arms procurement office, published Tuesday by French business daily Les Echos. Collet-Billon told the newspaper both companies were nearing a deal to swap business assets.
Safran said Tuesday it backed greater cooperation.
"Safran believes there are obviously opportunities and means to optimize French defense industrial and technological capabilities," the Financial Times newspaper quoted Safran as saying in a statement.
The French government has previously said it wants to consolidate the French security industry sector to pool resources and boost their chances when competing with U.S. military giants in the emerging export markets.
Paris, which owns a 27 percent share in Thales and a 30 percent share in Safran, last year urged the companies to join forces in several sectors. It cut research money for projects in which companies do overlapping work to encourage greater cooperation, but talks broke down when Thales resisted handing over its aircraft electronics business, its core expertise.
While shares of both companies gained in Wednesday trading on news that talks have resumed, Safran cautioned a deal isn't in sight.
"At this stage, it is not possible to evaluate the chances of discussions leading to any agreement, nor is it possible to be specific about terms and conditions of implementation," Safran was quoted as saying by the Financial Times.
France's Thales Group, one of Europe's largest defense companies with more than 60,000 employees, makes electronic devices and weapons systems used in military and civil airplanes and ships.
Thales has designed Britain's Future Carrier, will build a drone for the British air force and owns a missile unit that makes short-range missiles.
Safran, from Paris, specializes in defense, aerospace propulsion and equipment and via its Sagem division sells a series of guided bombs. It employs 55,000 people.