Germany may ditch its £90billion fighter jet project with France and join a rival programme with Britain instead.
German Chancellor Olaf Scholtz is reportedly considering whether to stick with the Future Combat Air System (FCAS).
The project by France, Spain and Germany to build the next generation of air power has been mired by rows between the European powers.
Mr Scholtz is said to be worried the scheme is at risk of turning into a white elephant and falling behind competitors.
In Britain, BAE Systems and Rolls Royce are leading the development of a next-generation combat aircraft called Tempest.
The fighter jet is due to be ready by 2035 and is part of a broader pact with Italy and Japan.
A senior German official told The Times that Mr Scholtz believed there was no point in FCAS competing with Tempest.
They added that he wanted to either merge the two projects or scrap FCAS and join Tempest.
Mr Scholtz is said to be in talks on lifting Germany’s veto on the UK sending Eurofighter Typhoon jets to Saudi Arabia as an overture to a possible deal.
Berlin has blocked the sale of 48 of the fighter jets – which are jointly manufactured by Britain, Germany, Spain and Italy – to Riyadh.
The veto is due to a Saudi-led coalition being blamed for killing thousands of civilians in the Yemeni civil war.
But the deal is worth at least £5 billion and derailing it would put thousands of engineering jobs in the UK at risk.
