Europe aerospace firms team up in space to counter Musk

By Giulia Segreti and Tim Hepher ROME/PARIS (Reuters) -Europe's largest space groups unveiled a preliminary deal on Thursday to join forces in satellite manufacturing and services after months of negotiations to counter the runaway growth of rivals led by Elon Musk's Starlink. The deal between Airbus, Thales and Leonardo will forge a new France-based venture starting from 2027 in the most ambitious tie-up of European aerospace assets since MBDA missiles maker in 2001. French Finance Minister Roland Lescure said the deal would "strengthen European sovereignty in a context of intense global competition". NEW SPACE VENTURE FACES GLOBAL COMPETITION The new combination will employ 25,000 people with revenues of 6.5 billion euros ($7.58 billion), based on 2024 figures. It is expected to generate "mid-triple digit" millions of euros of synergies starting after five years, the companies said, without detailing how these would be achieved. Shareholders now face up to two years of talks with governments, unions and the European Commission over the deal, which has implications for activities in Britain and Germany as well as Italy and France, where the venture will be based. The companies, who have already cut a combined 3,000 jobs in their space businesses, made no mention of further cuts, but executives said the focus would now turn towards potential growth. Code-named "Project Bromo," talks between the three aerospace groups started last year in a bid to copy the co-operation model of European missile maker MBDA, which is owned by Airbus, Leonardo and BAE Systems. Europe's top satellite makers have long competed to build complex spacecraft in geostationary orbit but have been hit by the arrival of cheap tiny satellites in low Earth orbit, notably the proliferating Starlink network built by Musk's SpaceX. Shares in Thales and Leonardo rose more than 2% while Airbus was fractionally higher in early trading. "The initiative is certainly positive, as it creates a European leader capable of competing globally and improves the profitability of a business … that has struggled in recent years," Italian investment bank Equita said in a note. BALANCING PAYMENTS Airbus will hold 35%, while Thales and Leonardo will each hold 32.5%, the companies said, adding the new firm would come under joint control "with a balanced governance structure". Sources familiar with the deal have said those stakes will be adjusted to a third each through balancing payments between shareholders, with Airbus receiving compensation for lowering its initial stake when the deal closes in 2027. The deal will combine activities of Thales Alenia Space and Telespazio – two joint ventures between Leonardo and Thales – as well as various Airbus space and digital businesses, the remaining space activities owned by Leonardo and Thales SESO. Thales CFO Pascal Bouchiat, announcing quarterly sales that included an initial contract for a new European satellite network, hailed the new venture but sounded a cautious note about the scale of competition ahead. "Telecoms activity in space remains under pressure, that's clear. The fact that we had this first development contract for IRIS² doesn't take away the challenges that the European industry, in particular, is facing," he told reporters. Reuters reported earlier this week that the groups had reached a framework deal on the tie-up. Agreement between the three companies – each of which has had periods of prickly relations in the past – was salvaged after sources familiar with the matter said the talks had hit obstacles over governance and valuation during the summer. The trio gave few details of governance but executives pledged to avoid a system of rotating leadership or making appointments based on nationalities which has roiled parts of the European aerospace industry, especially Airbus, in the past. ($1 = 0.8575 euros) (Reporting by Giulia Segreti in Rome and Tim Hepher in Paris;Editing by Alvise Armellini, Sudip Kar-Gupta and Kim Coghill)

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