BAE Systems' merger plans have come under more strain after the company's biggest shareholder outlined "significant reservations" about the deal.
Invesco Perpetual, which owns more than 13% of BAE, said it does not understand the strategic logic of the proposed £28 billion tie-up with EADS.
It is worried that the merger will materially jeopardise BAE's "unique and privileged position" in the US defence market, adding that the shareholdings of France and Germany will heavily impair its commercial prospects.
The intervention of the leading fund manager is another blow to the merger proposal, which is still mired in political wrangling ahead of Wednesday's Takeover Panel deadline for a deal to be either agreed or abandoned. It is thought that the two companies will ask for an extension to the deadline.
BAE and EADS face a number of hurdles if the deal is to go through, with France and Germany keen to keep significant equity stakes in the merged group.
And David Cameron is facing a major Conservative rebellion after 45 MPs signed a letter calling on the Prime Minister to veto the deal.
The German government may also block the move, it has been reported, after demanding that its stake is equal to France's and that the newly merged company's head office should be in Berlin. It is thought Germany is insisting on taking a 9% stake to match France's holding.
Britain holds a "golden share" in BAE, meaning it can veto deals that are seen to put the public interest at risk, but is not thought to have made any demands for a direct equity holding in the enlarged company.
While Invesco has insufficient votes to block the deal, its decision to go public with its opposition is a significant blow to BAE at a time when other shareholders are reportedly unhappy at a lack of communication from the UK firm. The fund manager, which has owned shares in BAE across a 20-year period, said BAE was a strong business with distinctive positions in the global defence market - especially in the US and UK - and good stand-alone prospects.
It added: "Invesco believes the merger would materially jeopardise BAE's unique and privileged position in the United States defence market, and has been unable to identify any corresponding benefits to offset this. Invesco is very concerned that the level of state shareholding in the combined group will heavily impair its commercial prospects - especially in the United States -and result in governance arrangements driven more by political considerations than shareholder value creation."