OHB ECLIPSES ASTRIUM FOR GALILEO CONTRACT BUT BOTH END UP WINNERS

C O N F I D E N T I A L SECTION 01 OF 02 BERLIN 000043



SIPDIS

STATE FOR EUR/CE PETER SCHROEDER

STATE FOR OES/SAT RAYMOND CLORE AND DAVID TURNER

STATE FOR ISN/MDSP DICK BUENNEKE



E.O. 12958: DECL: 01/14/2035

TAGS: ETTC, PGOV, PINR, MCAP, PREL, TSPA, FR, UK, GM

SUBJECT: OHB ECLIPSES ASTRIUM FOR GALILEO CONTRACT BUT BOTH

END UP WINNERS



REF: A. BERLIN 1324

B. BERLIN 1207

C. BRUSSELS 1153

D. BERLIN 655

E. BERLIN 430

F. BERLIN 429

G. 08 BERLIN 899

H. 08 BERLIN 897

I. 08 BERLIN 264

J. 08 BERLIN 243



Classified By: Global Affairs Unit Chief Don L. Brown for

reasons 1.4 (d).



1. (SBU) SUMMARY: Germany's OHB-Technology GmbH, in

partnership with Surrey Satellites Technology Limited (SSTL),

recently pulled off an underdog victory over industry giant

EADS-Astrium for a majority of the EU's heralded Galileo

satellite contract worth around 850 million euro.

Interestingly, this is not a total loss for Astrium, as it is

the majority shareholder of SSTL and is entitled to a share

of the OHB/SSTL profits. Industry observers believe OHB's

bid was superior to that of Astrium in terms of cost and that

OHB's established reputation of delivering product on-time

and within budget ultimately sealed the deal. END SUMMARY



2. (C) On January 7, the European Commission awarded

OHB-Technology a contract worth 566 million euro to build at

least 14 of the currently planned 22 Galileo position,

navigation, and timing (PNT) satellites. The French

newspaper Le Monde reported that Astrium's bid for the 14

satellites was valued at 100 million euro higher than OHB's

and that this was likely the salient factor in the

cost-conscious European Commission's (EC) decision.

(COMMENT: OHB is a conservative, family-run company about one

tenth the size of Astrium. Some insiders view OHB's victory

as a serious blow to Astrium, as it was always considered the

favorite to win the contract. END COMMENT)





A WIN/WIN FOR EVERYONE

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3. (C) OHB Director for Business Development, Fritz Merkle,

told us that since Astrium is the majority shareholder of

SSTL, a win for the OHB/SSTL partnership is an indirect win

for Astrium as well. Merkle estimated that up to 40 percent

of the OHB/SSTL profits will wind up in Astrium's hands.





OHB IN PARTNERSHIP WITH ITS COMPETITION?

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4. (C) A couple years ago, when OHB was positioning itself

to compete for the Galileo contract, it formed a strategic

partnership with SSTL, in which SSTL would integrate the

payloads OHB would take care of the satellite buses. As part

of this partnership, Merkle said that OHB tried to purchase

SSTL, but Astrium swooped in with its deeper pockets and

outbid OHB. Merkle emphasized that the Fuchs family, OHB's

owners/operators, has a standing policy to not get in bidding

wars for companies/assets, and that once the SSTL price

reached OHB's limit, it politely stepped aside. Merkle said

that as a condition of the SSTL sale to Astrium, the EC and

British Parliament specified that OHB's prior arrangement

with SSTL on Galileo would hold and that all of SSTL's

involvement with Galileo must be firewalled-off from Astrium.





COMMENT

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5. (C) OHB will continue to compete with Astrium for the

remaining eight satellites, but if price remains the EC's

primary criteria, OHB may very well get the rest of the

contract. On the other hand, the EC also values multiple



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sources for the satellites and if Astrium can close its price

gap with OHB, it may get the upper hand. While it is true

that the OHB/SSTL victory is also a win for Astrium in terms

of profits, job creation is the other prize. If OHB/SSTL

wins the rest of the satellite competition, it is clear that

a bulk of the resultant job creation will reside in Germany

and the UK and not in France.

MURPHY