Shares in BAe rose in late trading as speculation grew that the deal would boost recovery in the British company's loss-making turbo-prop operation.
A deal with ATR, jointly owned by France's Aerospatiale and Italy's Alenia, would almost certainly involve BAe pulling out of production of its Jetstream 61 aircraft.
The move is likely to mean job losses at BAe's plant at Prestwick, though there would be substantial long-term financial savings for the company.
One analyst said that he was "expecting something" from BAe today. "If it is what we hope it is, then it will be very good news for BAe," he said. "With BAe, Alenia and Aerospatiale, it does become a sort of centre of gravity."
A merger would create a consortium similar to the Airbus partnership, where BAe already works closely with Aerospatiale. The expected ATR deal has already been dubbed "mini-bus'', and could presage further consolidation in the commuter aircraft industry.
Newspaper reports last night in Germany, where ATR's rival Daimler-Benz is watching developments closely, said the merger would be announced today and confirm the ending of Jetstream 61 production. But in return, ATR would give up large turbo-prop production and drop plans to produce a small jet in favour of BAe's Avro jet.
Such co-operation would cover the most important market segments for short-haul aircraft - demand for 40-seaters for turbo-props and 120-seater jets.
It also dashes Daimler-Benz's hopes to fold its smaller Dornier 328 and larger Fokker jets into some sort of Europe-wide cooperation accord.
BAe has confirmed talks with ATR, but declined to comment about an announcement today. However, a source at Aerospatiale said an announcement was very close.
BAe's regional aircraft operation is estimated to have been losing up to £200m, due largely to the Jetstream 61.
BAe shares rose yesterday by 12.5p to 472p.Reuse content