Both firms are working in Iraq

Lockheed Martin had given Titan a deadline of 25 June to satisfy the US Justice Department's investigators and salvage the $1.6bn (�877m) merger.

Titan said on Thursday that the deadline - the second set by Lockheed Martin - would not be met.

A Lockheed Martin spokesman has said it does not intend to extend the deadline.

Lockheed Martin, whose most famous product is the US Air Force's F16 fighter jet, is the world's biggest defence company.

It sold $23.3bn-worth of military equipment in 2002, or 88% of its total revenue, according to Defense News' rankings. Titan ranked twenty-sixth with defence sales of $1.3bn.

Saudi Arabia, Africa and Iraq

While Lockheed Martin focuses on military hardware, Titan specialises in providing military communications and IT systems.

"They do the stuff that no one likes to talk about," said Tom Mulholland, the London-based business editor of Jane's Defence Weekly.

Titan also provides translators to the US military in Iraq, where its image has been tarnished. In May, Titan dismissed one of its translators, Adel Nakhla, a US citizen working in Abu Ghraib prison, after a US military inquiry found he had mistreated prisoners.

The US Justice Department is investigating Titan's deals in Saudi Arabia and Benin under the Foreign Corrupt Practices Act which outlaws bribery by US firms abroad.

The US Securities and Exchange Commission is also looking into the allegations; it has said it intends to bring civil charges.

Lockheed Martin first offered to buy Titan in September 2003 for $1.8bn, cutting the price to $1.6bn after US federal investigators began their inquiry.

Titan issued a statement on Thursday saying it would be unable to clear itself in time to meet the merger deadline and "has been informed by Lockheed Martin Corporation that it is unwilling to extend" that deadline past 25 June.

Financial risk

Lockheed Martin set conditions on the merger to protect itself from financial damage.

Financial fortunes Click for Lockheed Martin share price Click for Titan's share price

These stipulated Titan must either obtain a pledge that it would not face charges, or have completed a plea agreement with the Justice Department and settled the size of any financial penalties.

Titan has said it "does not believe that a definitive plea agreement" with investigators "can be finalised and signed" by 25 June.

In Mr Mulholland's view, the Abu Ghraib scandal may also have influenced Lockheed Martin's decision to walk away.

"It's a pretty big scandal I've have thought they want to isolate themselves from it," he told the BBC.

Uncertainty

Titan said it has not received any indication from Lockheed Martin about whether or not it pull out of the merger. However, a Lockheed Martin spokesman confirmed the firm's refusal to give Titan more time.

"We extended the deadline for Titan to satisfy the closing conditions twice previously," said Tom Jurkowsky for Lockheed Martin.

"Titan asked us to amend the agreement again to authorise another extension. We declined to so," he added.

As the deadline remains open during Friday, Mr Jurkowsky declined to comment on whether Lockheed Martin intends to terminate the merger agreement, the Wall Street Journal reported.