EU/GALILEO/GPS: POLITICAL CAVEATS FOR AMERICAN

UNCLAS SECTION 01 OF 02 MUNICH 000409

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TAGS: EAIR ECON EINV ETRD PGOV PREL TSPA GM
SUBJECT: EU/GALILEO/GPS: POLITICAL CAVEATS FOR AMERICAN
CONTRACTORS

SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY.


1. (U) SUMMARY: American subcontractors could be well-placed to
partner with primary EU contractors as the EU presses on with its
aggressive schedule to attain an operational 30-satellite Galileo
constellation by 2013. Successful bidders will have to keep in mind
that Galileo projects have technical and especially political
components that could shift up to the final bidding moment in summer

2009. EU political considerations will present special challenges,
not only because there will be pressure to keep design honors at
home but also because there will be a push to protect EU jobs from
going to the Americans in these financially uncertain times. END
SUMMARY.


2. (SBU) On December 16, Munich Consulate PolOff and Economic
Specialist met with officials from EADS Astrium Germany (Munich) to
discuss the company's role in the Galileo project, Astrium's
prospects in the bidding process, and where American firms could fit
in. Astrium officials highlighted how their proposal to build 26 of
the 30 satellites, valued at 3.4 billion euro and the Galileo
contractual crown jewel, will be superior to their only competitor,
OHB Technologies of Bremen. They stated their desire to partner
with U.S. contractors to strengthen the technical aspects of their
proposal.

GALILEO CONTRACTS TAKING SHAPE AGAINST AGGRESSIVE SCHEDULE


3. (U) The EU has stipulated that all Galileo primary contractors
be of EU origin, stemming from a decision to limit bidders to EU
member states because Galileo is a matter of EU security. However,
this does not legally preclude EU primary contractors from
partnering with U.S. firms on a sub-contractual basis.


4. (SBU) Astrium officials explained that the European Space Agency
(ESA) is currently reviewing preliminary offers from primary bidders
and in March 2009 bidders will specify their supply chain, which is
where U.S. sub-contractors (if any) will be officially named. After
a series of "dialogues and refinements," our contacts explained that
the ESA plan is to award final contracts by June 2009 with
construction to begin immediately thereafter. (COMMENT: This last
statement was delivered with laughter as our Astrium contacts
admitted that this construction plan is very ambitious. END
COMMENT)

ASTRIUM CITES MANUFACTURING ABILITY AND EXPERIENCE AS EDGE


5. (SBU) Astrium, bidding against OHB Technologies to build 26 of
the 30 Galileo satellites, believes that their experience
constructing the first four Galileo satellites coupled with their
superior manufacturing capacity will ultimately lead to their
landing the contract. Astrium officials said that the EU's current
plan to manufacture 26 satellites in three years would demand
sophisticated high-volume manufacturing capabilities and precise
control of supply chains. Astrium officials argued that OHB
Technologies was the much smaller bidder and that it is unclear
whether or not they have the production know-how or capacity to
fulfill the contract.

U.S. INVOLVEMENT IN GALILEO CONTRACTS A DICEY SITUATION


6. (SBU) On the technical side, Astrium's representatives pointed
out that American contractors could have an advantage up front if
they had appropriate components on the shelf or have components that
they could modify easily for Galileo. They pointed out, however,
that the American GPS system is a more robust, hardened design
compared to the smaller, more streamlined Astrium design for
Galileo. Because of this, they thought American contractors might
be challenged to adapt their larger or heavier products to fit on
the smaller Galileo platform.


7. (SBU) More importantly, on the political side, Astrium officials
made it clear that their bidding war with OHB would likely lead to
EU political interference regarding the presence of U.S.
subcontractors and the amplitude of the U.S. role. Additionally,
Astrium officials noted EU aspirations to distribute adequately an
appropriate piece of the Galileo pie to each of the major EU Galileo
contributor nations. This could crowd contract distributions,
reducing the political attractiveness of non-EU subcontractors.
However, Astrium said that although the political gamesmanship in
awarding supply contracts would "create challenges" for American
suppliers, it would "not cut them out" by any means. In addition to
from the United States, Astrium expected to see contractor bids from
companies in France, Germany, Great Britain, and Italy, and maybe

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aspirants from other EU countries.

COMMENT
--------------


8. (SBU) The confidence that Astrium conveyed in securing the
contract to build 26 Galileo satellites may be a little premature
considering that OHB beat Astrium on the bid to build the SAR-Lupe
(space radar imaging system) constellation for the German Ministry
of Defense. Further, Astrium cannot count on the German Government
to lobby for them since both bidders are German already. In
addition, OHB has quietly strengthened its own position by
purchasing in April 2008 UK based Surrey Satellites Technology
Limited (SSTL) - builder of the first Galileo In-Orbit Element
(GIOVE-A). Given that Galileo is now EU tax-payer funded, the
presence of potential significant participation of U.S.
sub-contractors may raise political sensitivities of EU pride and
job loss, and that in very financially uncertain times.

NELSON