Key Points

Pending regulatory approval, the new company could be operational as early as 2027. Airbus will hold a 35% stake in the new joint venture, while Leonardo and Thales will each own 32.5%. This merger comes as Europe seeks to create a homegrown competitor to Musk's Starlink, which has expanded significantly across the continent.

On November 10, 2023, in a cleanroom at Airbus Defense and Space in Toulouse, France, employees stood in front of the second-generation meteorological satellites MetOp-SG A (left) and MetOp-SG B (right). The MetOp-SG series operates in sun-synchronous polar orbits and can be used to enhance short-term weather predictions. Airbus, Leonardo, and Thales announced on Thursday that they will integrate their respective satellite and space operations to form a leading European space enterprise. This initiative aims to bolster Europe’s capabilities to counter Elon Musk's Starlink. All three companies are major players in aerospace and defense. They stated that the new joint venture will develop and deliver "a complete portfolio of complementary technologies and end-to-end solutions, spanning from space infrastructure to related services;" however, the development of space launchers will not fall under the new company's purview. The merged entity is expected to yield annual operating profit synergies in the "high triple-digit millions of euros" within five years post-completion, with the combined workforce in Europe reaching 25,000. European defense stocks rose following the announcement, with the Stoxx Aerospace and Defense index climbing by 0.9%. Among them, Leonardo's stock jumped by 1.8%, Thales rose 0.6%, and Airbus increased by 0.2%. Airbus will become the controlling shareholder with a 35% stake in the joint venture, incorporating its Defense and Space division's "Space Systems" and "Space Digital" business segments. Leonardo and Thales will each hold 32.5%. Leonardo will contribute its entire aerospace division's assets, including its holdings in Telespazio, the Rome-based space services company, as well as its shares in Thales Alenia Space, a joint venture with Thales. Thales will also inject its shares in Thales Alenia Space along with its Thales SESO business into the new company. Europe plans to invest billions of dollars into domestic defense firms, though market observers suggest that it may not fully exclude U.S. companies. The three firms stated that the new entity will become "a unified, integrated European aerospace company with resilience, capable of engaging in global competition and expanding export markets." They added, "The new company also aims to be a reliable partner for countries developing and implementing sovereign space programs." The CEOs of the three firms described the joint venture as "a key milestone for the European aerospace industry," which will help "enhance Europe's competitiveness and market presence in the increasingly active global aerospace market." They emphasized the importance of maintaining control over domestic aerospace ventures as European governments plan to increase their investment in aerospace and defense capabilities. Countering Starlink Europe has been searching for alternatives to Starlink, the satellite broadband service launched by Musk's SpaceX, which currently dominates the market and has a substantial footprint across Europe. Since Russia's full-scale invasion of Ukraine in 2022, Starlink has played a critical role in the conflict, although communication outages have been reported. Earlier this year, rumors emerged that Eutelsat, the French-European satellite firm that merged with OneWeb, is vying to become an alternative service provider within Ukraine. Meanwhile, French President Emmanuel Macron has shown support for the idea of a "European satellite giant." He remarked in a speech this summer that "in a sense, space is now a measure of international influence." Additionally, Italian lawmakers warned in July against allowing SpaceX to participate in upgrading the country's satellite program. Speculation about Airbus, Leonardo, and Thales joining forces for satellite business has been ongoing for some time. In April, Leonardo CEO Roberto Cingolani indicated to CNBC that the alliance would materialize in the coming months. He noted that the goal of the joint venture is not solely to challenge Starlink but to offer a "homegrown European alternative." For years, Eutelsat has sought to position itself as a regional force to counter Musk's Starlink; however, its satellite fleet pales in comparison—earlier this week, Starlink launched its 10,000th satellite. David Barker, an investment manager at GAM's European equity team, told CNBC that this joint venture marks "the first concrete action since the Trump administration to address the erosion of European technological sovereignty." He stated, "Until now, European companies have been competing internally—three small players against the ever-expanding dominance of SpaceX. We view this as a positive step for the European aerospace industry to re-establish itself as a global power, sending a strong signal that, despite challenges within cross-border banking, capital markets, and defense integration, European integration efforts can still regain influence in specific sectors." Morningstar's chief equity strategist Michael Field also commented to CNBC that this move represents "another step in the right direction for Europe." "For Leonardo, Thales, and Airbus, their space business is relatively small within their overall operations, but unifying undoubtedly enhances their impact in global market competition," he stated, adding, "We remain optimistic about the entire aerospace and defense sector, giving both Thales and Leonardo four-star ratings."