European aerospace groups reach framework deal on satellite merger, sources say

By Giulia Segreti and Tim Hepher

ROME/PARIS (Reuters) -European aerospace groups Leonardo, Airbus and Thales have reached a framework deal on a proposed merger of their satellite businesses, two sources familiar with the matter said on Monday.

Leonardo is scheduled to hold an extraordinary board meeting on Tuesday to discuss details of the deal, which is subject to board and regulatory approvals, one of the sources said.

Leonardo, Thales and Airbus declined to comment.

PROPOSED VENTURE AIMS TO COMPETE WITH ELON MUSK

Europe's largest satellite makers have been in talks for more than a year to create a new satellite manufacturing company to compete on a larger scale with rivals led by Elon Musk's SpaceX, which owns the highly successful Starlink service.

Reuters reported last month that the three groups had redoubled efforts to combine their satellite businesses into a roughly 10-billion-euro ($11.66 billion) joint venture modelled on the pan-European MBDA missiles business.

Code-named "Project Bromo," talks had hit a roadblock over the summer when the parties could not agree on governance and valuation, insiders said.

One of the sources said the talks, which involve dividing politically sensitive technology and jobs between France and Italy, had not been helped by the government crisis in Paris.

Problems have also included disputes over the politically sensitive share of work, according to French daily La Tribune.

ANTI-TRUST REVIEW

The key remaining hurdle, analysts say, will be getting past a competition review by the European Commission.

Previous attempts to merge satellite activities in the past decade foundered on anti-trust concerns and national rivalries.

But the dramatic rise of Musk's Starlink network and a shift in the market towards cheaper satellites have increased pressure on Europe to combine assets or be pushed out of the market.

The deal could take up to two years to implement and the initial umbrella deal is the first step, sources familiar with the matter said. Last week, Thales denied a report that a sought-after provisional deal had been reached at that time.

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.

The deal will combine loss-making satellite activities of Airbus with those of Thales Alenia Space and Telespazio - two ventures currently controlled by France's Thales and Italian aerospace group Leonardo.

Paris-based consultancy Novaspace says more than 43,000 satellites will launch over the next decade, representing a $665 billion market in manufacturing and launch services.

(Reporting by Giulia Segreti and Tim Hepher in Paris , editing by Kirsten Donovan, Louise Heavens and Emelia Sithole-Matarise)