BAE will have to "evolve its business model to be effective in a different climate in the future, that's a challenge for the management team going forward," British Defense Secretary Philip Hammond admitted.
EADS shares rose on the news the merger was off, closing 5.3 percent higher in Paris. BAE shares ended 1.4 percent lower in London.
DiLorenzo reported from Paris. Juergen Baetz in Berlin also contributed to this report.