GALILEO AND THE EU -- NAVIGATING THE PORK BARREL

UNCLAS SECTION 01 OF 02 MUNICH 000652

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SUBJECT: GALILEO AND THE EU -- NAVIGATING THE PORK BARREL

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REF: Munich 412

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SUMMARY
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1. (SBU) EADS-Astrium officials told Embassy Berlin EMIN and ConGen
Munich that the Galileo satellite navigation project is proceeding
under its new EU funding mechanism, albeit well behind schedule.
The officials expressed frustration at the Byzantine web of EU
politics and blatant promotion of contracts for national champions
by EU member states, often resulting in expensive redundancies.
EADS-Astrium would like to see closer cooperation with U.S. industry
on the project, cooperation which has been limited to date due to an
attempt to keep the program all European. The Galileo story offers
a textbook illustration of the challenges of carrying-out EU
projects while satisfying the parochial demands of member states.

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STATE OF PLAY
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2. (SBU) Embassy Berlin EMIN and ConGen Munich met December 14 with
Dr. Wilfried Bornemann, EADS-Astrium's Director for Navigation
Germany, Thomas Mayer, the firm's Chief of Business Development for
Galileo, and Ulrich Scheib, Head of Strategic Development for
Galileo. Astrium is the "space" division of EADS (European
Aeronautic Defense & Space),offering equipment and services for
launchers, manned spaceflight, civil and military satellites and
ground systems. EADS-Astrium has a central role in the design and
development of Galileo, the proposed European counterpart to the
Pentagon's Global Positioning System (GPS).


3. (U) Since our last meeting with EADS-Astrium in July in the wake
of the collapse of the Public-Private-Partnership, or "PPP"
(REFTEL),the EU has developed a funding model for Galileo using EU
public funds. At least $1.48 billion in public funds has already
been spent on the project. Of the remaining $3.5 billion needed to
complete the project, $2.4 billion will come from "excess" EU
agriculture funds and the rest from EU research, transport and
administration budgets. As the main contributor of EU agriculture
funds, Germany would have been reimbursed for a large share of those
excess funds. For that reason it voted against the funding proposal
on November 23, but was defeated 26-1.


4. (SBU) On November 30, EU governments agreed to jointly complete
the development of Galileo, with the European Commission setting a
December 31 deadline for final approval of the program. Spain was
the lone holdout this time, over the location of ground stations.
In seeking unanimity, the EU subsequently won Spain's approval with
a deal that left open the possibility that a ground station planned
for Spain to monitor emergency services on Galileo channels may in
the future be made into a full ground control station if Spain pays
for the upgrade. The original plans for Galileo only called for two
ground control stations: one near Munich and another near Rome. Our
EADS contacts confided that even the Rome station was an expensive
redundancy, being fully-manned around the clock simply as a "backup"
facility in the wake of Italian demands. Assuming the project
proceeds as planned, full deployment of 30 satellites should occur
by 2013. Only one of Galileo's satellites has been launched thus
far, in December 2005. The second satellite missed its launch date
toward the end of 2006 after it short-circuited during final
testing.

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SPREADING THE WEALTH
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5. (SBU) Following the failure of the PPP, the European Commission
drafted contracting rules to ensure both large and small companies
across the EU would benefit from Galileo. The rules divide Galileo
contracts into six segments covering various stages of the project.
No single company can be the prime contractor for more than two
segments, and prime contractors are obliged to hand over 40 percent
of the order value to subcontractors. Our EADS contacts explained
that one key change resulting from the new financing model is the
way contracts are apportioned. Under the PPP, the European Space
Agency (ESA) was responsible for financing and apportioning
Galileo-related contracts. The contracts were divided among ESA
members according to their contributions to the ESA - while the
process was relatively transparent, it was at times complicated (for

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instance, EADS having to find sub-contractors in small ESA member
states like Finland). However, with direct EU funding, contracts
will now be apportioned by Brussels and administered by the ESA
without a direct relationship to contributions from member states --
in theory, a big contributor country like Germany might not get a
single contract. While expressing the hope that contracts will be
fairly divided, our interlocutors were clearly concerned about the
potential for the political manipulation of contracting decisions in
Brussels by EU member states.


6. (SBU) The EADS officials anticipate EADS-Astrium will be awarded
the contract for the space portion of Galileo (construction of the
30 satellites),along with ground control of the satellites.
France's Thales-Alenia, they expect, will likely be awarded the
contract for the ground "mission" segment -- the operation of the
GPS payload aboard the satellites. Our contacts noted that German
industry had the full support of Chancellor Merkel, and speculated
that in the absence of an EU agreement, Germany would have elected
to go it alone and set-up its own satellite navigation system. Our
interlocutors explained that Germany's infrastructure, from
toll-collecting to aviation to EMS services, has become increasingly
dependant on GPS, leaving many in German government and industry
wanting an alternative to the lone U.S. Department of
Defense-controlled system. In addition, Galileo provides a key role
for German contractors like EADS-Astrium - something they don't have
with GPS.

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LOOKING FOR CLOSER COOPERATION WITH THE U.S.
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7. (SBU) Our EADS contacts insisted Galileo should be viewed as a
complement to, rather than a competitor of, GPS. The additional
satellites would only make it easier for all users to get a stronger
signal in areas where GPS coverage alone is spotty, as in
mountainous areas and near tall buildings. The EADS officials said
they would like to see more cooperation with U.S. industry on
Galileo, as U.S. firms have expertise in some areas that Europe
lacks. They expressed frustration that initially U.S. companies
were barred from participating in Galileo as sub-contractors, as it
was to be an all European project. These rules have since been
relaxed, creating the hope among our contacts that in the future
there could be synergies achieved in the project via cooperation
between U.S. and European firms.

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COMMENT
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8. (SBU) Projects such as Galileo probably couldn't happen without
the involvement of the EU. However, as our EADS contacts made
clear, the EU never appears more as a collection of squabbling
parochial interests than with the very same big projects it makes
possible. Everything from the failure of the PPP to expensive
unnecessary redundancies, such as multiple control centers, are a
demonstration of the difficulty of forming and carrying out
consensus projects among EU members and their national champions.
We continue to believe Galileo will eventually be built, giving
Europe its own version of the free GPS signal - but as expenses keep
mounting, Galileo will be anything but free to EU taxpayers.


9. (U) This report was coordinated with Embassy Berlin.


10. (U) Previous reporting from Munich is available on our SIPRNET
website at www.state.sgov.gov/p/eur/munich/ .

GUY