European Union flags outside of the EU headquarters Berlaymont building in Brussels, Belgium. Photo: Kyle Wagaman via Flickr, Creative Commons license

In August, 2022, less than six months after Russia’s invasion of Ukraine, the Atlantic Council’s David T. Burbach proposed that the conflict was the first ‘two-sided space war.’ He described how Ukraine, having no indigenous space capacity, had made effective use of space-based communications, surveillance and reconnaissance from providers based in the United States and Europe. Russia had largely used its own space capacity to launch cyberattacks, some of which caused collateral damage in Europe. Commercial space would only grow in importance in conflicts, Burbach predicted, and two years on from the outbreak of the Ukraine war, we can say that it’s grown in importance in that conflict, too.

It’s therefore no surprise that Thales Alenia Space and Airbus, Europe’s largest manufacturers of satellites for communication, navigation and surveillance, are holding explanatory talks with a view to merging some of their space activities. Both are acutely aware of how vital space has become to the security of individual countries. It’s worth acknowledging that both Thales and Airbus have been struggling due to a fall in orders for their Geostationary (GEO) satellites. But this has more to do with the proliferation of Low-Earth Orbit (LEO) satellites.

According to sources close to the deal, the main motivation is to create a pan-European alliance in space, not unlike that of MBDA, the European multinational developer and manufacturer of missiles. MBDA is the product of a mega-merger of Matra, BAe Dynamics and Alenia – the main missile systems companies in France, the United Kingdom, and Italy, respectively. But any deal would have to overcome some big regulatory and antitrust hurdles.

The two companies explored a similar agreement five years ago, in 2019, and it fell through. A merger of this scale would need to be approved by governments of France, Germany, and Italy as well as the European Commission. And this would be complicated by the volatile political situation across Europe in general and in particular in France, where Emmanuel Macron’s prime minister Gabriel Attal and government resigned after the snap election called last month led to a political deadlock.

But with the world growing more turbulent, Europe may choose to relax its rules and pursue the creation of a pan-European alliance in space modeled on MBDA. MBDA’s highly successful combination of cross-border manufacturing and one-company administration has provided a blueprint for defense industry collaboration of the kind seen as strategically necessary in Europe following Russia’s invasion of Ukraine.

At present, despite having a deserved reputation as a hub of innovation, and despite leading the world in a number of critical areas of space technology, such as Earth Observation and photonics, Europe suffers from a shortfall of launchers and is thus dependent on foreign support – chiefly SpaceX and its Falcon 9 rocket – to get its own satellites, even strategically important ones, into space. Europe finds itself supporting the U.S. space sector which is already the world leader, rather than strengthening its own. An Airbus-Thales merger may help here: Airbus currently co-operates with France’s Safran to build launchers, and their Ariane 6 rocket blasted off (albeit after four years of delays) earlier this month.

But there are structural challenges in Europe, too – ones that a cross-border merger could start to address. There is an unhelpful conflation of national and business interests in Europe, complicating investment decisions involving one country funding another and, in the end, undermining the development of new satellite launchers and other technology, downstream from which is the overall success of the continent’s space sector.

The laser communications field serves as a useful case study. The U.S. has shown great ambition in this area, mindful of the advantages of laser — it’s faster, carries more data and is almost impossible to jam or intercept. The Space Development Agency has bought laser communication terminals made in Europe to bolster its satellite constellations and build capabilities beyond what exists in Europe. As a result, companies creating laser communications terminals are thriving in Europe, but the U.S., rather than Europe, benefits from their work.

A more strategic, continent-wide approach to space, ushered in by the merger of Airbus and Thales, could help Europe to promote more healthy competition among its tenders. The U.S. has done this with huge success, creating a fertile landscape for investment by encouraging smaller companies across the country to push for lucrative contracts. This has also invited more space investment from private actors. Europe can learn from this.

At present, the European Space Agency (ESA) works according to a principle that in theory privileges no one country over another and yet, in practice, can hurt the kind of competition that would boost the continent’s space industry. Under ‘geographic return,’ ESA invests in each member state an amount of money equivalent to that state’s contribution to it. If Italy invests 1 million euros, it receives 1 million euros in industrial contracts. Companies do not battle it out to produce a product, such as a launcher, and win a lucrative contract. ESA builds its own.

Implicit in the proposed Airbus-Thales space merger is a question: How strategic is space for Europe? How willing is it to be flexible to achieve long-sought-after ‘strategic autonomy, harness its enormous talent and develop the kind of pan-European space alliance that would shore up its defense and invigorate its commercial space sector? The outcome of the proposed merger might give us an answer.

Jean–François Morizur is the founder and CEO of Cailabs and a Forbes 30 Under 30 honoree in Science & Healthcare. Prior to founding Cailabs in 2013, he was Senior Associate at Boston Consulting Group and is co-inventor of Cailabs‘s groundbreaking Multi-Plane Light Conversion technology.