Airbus and Thales consider merging space activities, sources say

Airbus and Thales are reportedly considering merging their space activities to strengthen their positions in the aerospace industry, according to sources. This potential strategic move aims to enhance their competitiveness and collaboration in space technology and services. If successful, the merger could lead to significant advancements in their capabilities and market influence in the rapidly evolving space sector.

‍European aerospace groups Airbus (AIR.PA) and Thales (TCFP.PA) are considering merging some of their space activities due to new competitive pressures in the sector, according to two industry sources.

The sources indicated that preliminary talks are concentrating on their overlapping satellite activities. Both companies have declined to comment on the discussions, initially reported by La Tribune.

"They are thinking about this seriously," one of the sources said, requesting anonymity.

Shares of both companies were slightly higher in midday trading.

Airbus and Thales Alenia Space, in which Italy's Leonardo (LDOF.MI) holds a 33% stake, are Europe's leading manufacturers of satellites for telecommunications, navigation, and surveillance.

Demand for their geostationary satellites is facing increasing pressure as traditional manufacturers compete with massive constellations of expendable satellites in low Earth orbit, such as Elon Musk's SpaceX Starlink network.

La Tribune reported that Airbus, headquartered in France, and the French defense and technology firm Thales, had initiated "low-key discussions that are exploratory in nature" on space, with support from the French government.

The report added that similar tie-ups were explored as recently as 2019 but faced potential anti-trust objections from the European Commission. France's competition authority stated it was "much too early" to comment on any ongoing discussions.

The shares rose 2.5% after Morgan Stanley named the iPhone maker a "top pick."

The discussions came weeks after Airbus took a 900 million euro ($980.37 million) charge for its struggling space services business, in addition to 500 million euros last year.

CEO Guillaume Faury told analysts last month that the company was "evaluating all strategic options" for its space business, including restructuring, cooperation, portfolio review, and potential merger and acquisition options.

For 2023, Airbus reported that its Space Systems revenue represented 20% of total Defence & Space revenue, worth 11.5 billion euros. Thales Alenia Space, which contains nearly all of Thales' space activity, posted 2023 sales of 2.2 billion euros.

Besides EU approval, any alliance or merger negotiations would need support from the French and Italian governments.

Germany, which like France holds 11% of Airbus, is also expected to monitor closely any developments that could alter the group's Franco-German balance by increasing France-focused space activities, according to one industry source.

CRITICAL MASS

While Italy's far-right government has been generally open to tie-ups with foreign companies, Prime Minister Giorgia Meloni has actively used anti-takeover "golden powers" to preserve national interest in strategic assets.

In November, Rome blocked a takeover of Italian components maker Microtecnica by France's Safran, threatening a broader $1.8 billion takeover of assets controlled by U.S. aerospace group Collins (RTX.N) before clearing the deal last month.

Rome also recently passed a law to boost Italy's presence in the space industry.

"The intent is clearly to try to build up critical mass in a sector that currently is not going well and is being undermined by players like Starlink," an Italian industry source said, referring to the reported talks between Airbus and Thales.

The source added that broadening the alliance beyond France would improve the chances of obtaining anti-trust clearance.

Leonardo declined to comment on the reports of talks between Airbus and Thales.

It has previously called for a pan-European satellite venture mirroring the MBDA missiles consortium, in which both Airbus and Leonardo hold stakes.

Since January, Faury has increasingly focused on reviewing Airbus's strategy in Defence and Space after separating the day-to-day management of the core commercial jetmaking business.

In January, he expressed impatience with writedowns in space, telling staff that "mishaps of this magnitude and suddenness are just not acceptable." He also replaced the head of Space Systems in an internal note marked "it is what it is."

Airbus faces separate competition from SpaceX in launchers, where it collaborates with France's Safran (SAF.PA). Their Ariane 6 rocket launched after four years of delays last week.

Several analysts have suggested that the recent decision to narrow Faury's role, as well as competition from SpaceX and others, has raised questions about Airbus' future in the space business.

However, in January, Faury told staff that Airbus was stronger with a high-performing Defence and Space division than without a presence in those sectors.

Since then, a further review under new management has revealed deeper losses than expected, as Airbus revises down projected satellite services revenues over the coming years.

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Source: Reuters‍