European satellite merger looms as Leonardo board meets

By Tim Hepher and Giulia Segreti

PARIS/ROME (Reuters) -The board of Italy's Leonardo held a crucial meeting on Tuesday to review a tentative deal to forge a new European satellite manufacturer with its existing partner Thales and rival Airbus, people familiar with the matter said.

Barring a last-minute setback, the three companies are expected to announce as early as Wednesday that they intend to press ahead with plans to pool loss-making activities into a new venture to fend off competitors led by Elon Musk, two of the people said.

However, after more than a year of tricky talks over the balance of power, valuations, anti-trust issues and most recently a political crisis in France, there is no guarantee of an immediate sign-off and timing is not confirmed, they warned.

None of the companies agreed to comment.

Reuters reported on Monday that the three companies had agreed the framework of a deal, subject to board and regulatory approvals, with further detailed steps to be implemented later.

EUROPEAN SPACE FIRMS FACE SPACEX CHALLENGE

Once seen as pioneers of commercial space, Europe's top satellite firms - Airbus and a pair of ventures controlled by Leonardo and France's Thales - have been dwarfed by tech rivals led by Musk's SpaceX and a deeper shift in the market towards cheap satellites in low Earth orbit.

The talks mark the latest attempt to tie together fragmented European assets and draw inspiration from a decision by France, Italy and Britain to set up a joint venture - missile maker MBDA in 2001.

Industry watchers said any announcement would be closely scrutinised, particularly the extent to which the three parties have agreed detailed governance arrangements including the roles of chairperson, CEO and CFO - issues that have previously caused friction in European aerospace mergers such as Airbus itself.

Leonardo is expected to face pressure to defend Italy's interests in line with the nationalist agenda of Prime Minister Georgia Meloni, who has sharply increased defence spending, as France's Thales, whose CEO Patrice Caine is tacitly acknowledged as the venture's effective leader, the people said.

France-based Airbus is widely seen as the most willing of the three to reduce its exposure to space after crippling losses in its space systems business and roughly 2,000 job cuts.

(Reporting by Giulia Segreti in Rome, Tim Hepher in Paris. Editing by Louise Heavens)