Can Airbus Evolve Into a Space Company?

By Markets Fool.com


Space -- the final frontier for European antimonopoly regulators? Image source: Getty images.

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Boeing and Lockheed Martin , beware: The competition to win contracts for launching satellites into space just got a little bit tougher.

Earlier this year, we told you how European aerospace giant Airbus is moving to shore up its business in actual space, and to lower prices to better compete with Boeing and Lockheed Martin's United Launch Alliance. In cooperation with France's smaller Safran SA, Airbus produces Ariane 5 rockets for spaceflight via ajoint ventureknown as Airbus Safran Launchers (ASL). ASL then turns around and sells these rockets to Arianespace, a primary competitor to United Launch Alliance in the business of spaceflight.

Currently, ASL owns a 39% stake in Arianespace, giving Airbus a big indirect stake in this key customer -- but it's not a controlling interest. Airbus wants to consolidate control in order to"gain cost efficiencies to compete more nimbly" against rivals such as ULA and, more recently, SpaceX.

Accordingly, last summer Airbus began negotiating to have ASL acquire the 35% stake in Arianespace currently owned by French government space agency Centre National D'etudes Spatiales (CNES). If Airbus and ASL succeed in this gambit, they will win supermajority control over Arianespace -- 74% ownership.

Last things first

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Unfortunately, at last report, this side of Airbus' big move into space was still... er, up in the air.

ASL announced last year that it had signed an agreement to acquire CNES' stake in Arianespace, and the French government is reportedly already on board with the plan. The European Union's competition regulator responsible for nixing monopolies, however, has yet to decide whether it will approve the acquisition.

ASL washoping to get the deal cleared within just "months" of its announcement last summer. But after waiting a year for an answer, it appears Airbus, Safran, and their joint venture will have to... wait another month. On July 4, EC spokesmanRicardo Cardoso announced: "The deadline for the Commission to decide on the proposed merger has been extended to 10 August 2016."

That's the bad news.

First things last

The good news (for Airbus investors) is that progress is being made on the first step of Airbus' plan -- its joint venture with Safran. Last week, Airbus and Safran finally nailed down the numbers that will permit them to set their ASL joint venture in stone. Specifically, Safran will pay Airbus $834 million to buy enough of a stake in ASL to give it full 50% ownership of the JV.

With this agreement in hand, Airbus CEO Tom Enders confirms that "Airbus Safran Launchers becomes fully operational." The companies also remove one possible quibble that the EC might have raised in objection to ASL proceeding with its plans to take majority ownership of Arianespace.

Other quibbles still remain, however, namelythe EC's worry "that the proposed transaction leads to a decline in innovation and higher prices on the markets for satellites and launch services," according to a statement. ASL will need to allay these concerns if it's to succeed in creating a European equivalent to America's United Launch Alliance. (If it fails to do so, that would be great news for Boeing and Lockheed, as it would imply higher costs for their competitors.) At least now, though, with Safran fully integrated into the joint venture, Airbus and Safran can present a united front and make their case.

Their profits may depend on it.

The article Can Airbus Evolve Into a Space Company? originally appeared on Fool.com.

Rich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 278 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.