VZCZCXRO2107
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHPOD RUEHYG
DE RUEHMZ #0412/01 1941356
ZNR UUUUU ZZH
P 131356Z JUL 07
FM AMCONSUL MUNICH
TO RUEHC/SECSTATE WASHDC PRIORITY 4036
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHBJ/AMEMBASSY BEIJING 0291
RUEKJCS/SECDEF WASHDC
RUCPDOC/USDOC WASHDC 0026
RUEHZG/NATO EU COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNFRG/FRG COLLECTIVE

UNCLAS SECTION 01 OF 04 MUNICH 000412 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR EUR/AGS, EUR/ERA AND EB/IFD/OMA 
PASS TO USTR MOWREY 
 
E.O. 12958: N/A 
TAGS: ECON TSPA EAIR ETRD PGOV EINV PREL EUN FR GM
SUBJECT: NAVIGATING A MESS: EADS OFFICIALS ON GALILEO 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
REFS: A) Paris 2634, B) Frankfurt 3043, C) 06 Munich 715 
 
------- 
SUMMARY 
------- 
 
¶1.  (SBU) Senior EADS-Astrium officials told ConGen Munich the 
recent collapse of the Galileo consortium of private firms resulted 
as much from squabbling between EU states over apportionment of 
contracts as a failure to find a workable economic model.  They 
described the current economic model as a "macroeconomic" one, in 
which the EU funding will create jobs and end-user applications that 
will boost member nation economies.  Additionally, Galileo would be 
able to charge for enhanced services beyond the basic free signal. 
Our contacts said China, no longer a participant in Galileo, appears 
to be rapidly and successfully developing its own positioning, 
navigation, and timing technology.  The officials said that rather 
than being concerned about Galileo's potential use by enemy forces, 
the U.S. should view Galileo as a complement to GPS's capabilities 
for our own forces.  Our interlocutors were confident the political 
will exists in the EU to field Galileo satellites despite the 
numerous obstacles, perhaps as early as 2012.  End Summary. 
 
-------------------------------- 
GALILEO -- CURRENT STATE OF PLAY 
-------------------------------- 
 
¶2.  (SBU) ConGen Munich Pol/Econ Officer and Economic Specialist met 
on July 9 with Hanspeter Kuhlen, EADS-Astrium's Galileo Program 
Director and Thomas Mayer, the firm's Chief of Business 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).  Conceived almost a 
decade ago as a partnership between the European Commission, the 
European Space Agency (ESA) and the private sector, the project was 
intended to provide navigational, telecom and transport services, 
with the operational phase originally expected to begin in early 
¶2008. 
 
¶3.  (U) EADS-Astrium was a member of a consortium of eight private 
firms that has since dropped out of Galileo's 
Public-Private-Partnership (PPP) financing mechanism.  The 
consortium was to have paid two-thirds of the costs of the program, 
with the EU taxpayers covering the remaining third.  The consortium 
included EADS, Alcatel-Lucent (France), Thales (France), 
Finmeccanica (Italy), AENA (Spain), Hispasat (Spain), Inmarsat (UK), 
and TeleOp (Germany).  The consortium would have gained long-term 
concession rights to operate Galileo with a share of the profit. 
Contract negotiations which should have led to the deployment and 
operation of Galileo's network of 30 satellites stalled this year, 
with the consortium demanding that the public sector guarantee its 
commercial risks.  The EU transport ministers decided to suspend the 
PPP after the consortium firms failed to develop an organizational 
structure by May 10.  Reportedly, firms were not even able to agree 
on a common representative.  The transport ministers from the 27 EU 
governments then failed to agree June 8 on a plan to salvage 
Galileo, postponing until the fall a decision on how to come up with 
the 2.4 billion Euros needed to keep the project afloat.  As a 
result of the delays so far, deployment has been pushed back to 2012 
or later. 
 
------------------------------------- 
POLITICAL INTERFERENCE - IN THE EU??? 
------------------------------------- 
 
¶4.  (SBU) Kuhlen did not hesitate to blame massive political 
interference from EU governments for the consortium's demise.  He 
noted Spain, in particular, had been a problem because it insisted 
on receiving 25 percent of Galileo's contracts.  Madrid had argued 
that as two of eight firms in the consortium were Spanish, they 
should also receive 25 percent of the work, even though the Spanish 
government's financial contribution to the program was half that, 
according to the Astrium officials.  They said, in contrast, the 
German government's financial contribution is 20 percent of the 
program - the largest within the EU. 
 
¶5.  (SBU) Kuhlen joked that Galileo "should have 27 control 
 
MUNICH 00000412  002 OF 004 
 
 
centers," one in each EU member state, so that politicians could 
have their own ribbon cutting ceremonies and tell voters their 
country was in charge.  Mayer offered an example to illustrate the 
point.  The German space agency was operating a satellite earth 
station dish in Weilheim, Bavaria.  Even though the equipment was 
perfectly suited for Galileo, a second dish had to be built in 
Belgium to satisfy political demands.  Our contacts confided that 
while risk apportioning between the public and the private sectors 
had played a role in the collapse of the consortium, in their view, 
it was less of a factor than the intra-EU squabble over apportioning 
of contracts. 
 
------------------ 
NORTH-SOUTH DIVIDE 
------------------ 
 
¶6.  (SBU) Kuhlen noted that while the southern European partners 
such as Spain, France and Italy were pushing Galileo with the intent 
to win a disproportionate share of contracts, the northern European 
states appeared to lack the enthusiasm to match their funding.  He 
continued that Germany and the UK contributed nearly half of 
Galileo's financial support to date, and thus had the most to lose 
from its failure -- particularly the UK, which produced the bulk of 
the critical electronic "payload" aboard the satellites. 
Nevertheless, London was fixated on "value for money," rather than 
the less tangible returns of the program, such as prestige and 
macroeconomic benefits.  Our contacts underscored France's desire to 
be at the center of Galileo.  Implying that French dominance of key 
decision-making posts impacting Galileo gave the French an advantage 
over other EU states, Kuhlen noted that "[EU Transport Commissioner] 
Barrot is very close to ESA DG Dordain."  Offering a compliment of 
sorts to the French, Kuhlen added that France's embracing of grand 
ideas like Galileo was probably necessary, as the Germans would be 
too worried about potential pitfalls to propose such a major 
undertaking. 
 
--------------------------------------------- -- 
"WHY BUY PEPSI WHEN YOU CAN GET COKE FOR FREE?" 
--------------------------------------------- -- 
 
¶7.  (SBU) When asked about the apparent lack of a viable economic 
model for Galileo, our interlocutors conceded that firms found it 
hard to find a viable business model, given that the GPS signal was 
free.  Kuhlen quoted the line: "Why buy Pepsi when you can get Coke 
for free?"  Then, making an argument we had not heard from EADS 
officials in the past, he said the economic model should not be 
looked at purely in terms of profit generation, but rather in a 
macroeconomic context.  He cited a 2001 Pricewaterhouse Coopers 
study that showed Galileo would produce a benefit to cost ratio of 
4.6 to one for European economies, given job creation, tax revenue, 
and the incentive for the private sector to provide end-user 
products and services such as personal navigation systems.  Kuhlen 
added frankly that another reason for keeping the project afloat was 
that if the EU were to remain a player in space and high technology, 
it could not simply cede satellite navigation to the U.S., Russia 
and China. 
 
¶8.  (SBU) Our sources insisted that basic Galileo signals would 
remain free, but offered that there could be fees for enhanced 
services used by civil aviation, truck fleets, taxis, etc.  An 
example would be in the "safety of life" area.  For instance, rescue 
services in a mountainous area would need very precise coordinate 
and elevation information to determine whether a car accident took 
place on a bridge crossing a valley, or on a road below the bridge 
on the floor of the valley -- a simple grid coordinate would be 
insufficient.  When asked if the EU might attempt to recoup 
Galileo's costs by requiring the use of fee-based services within 
the EU (i.e., for intra-EU aviation), Kuhlen said this could be a 
logical step, but Mayer noted that it would most likely be 
prohibited by an agreement with the U.S. that prevents charging for 
basic GPS signals. 
 
---------- 
NEXT STEPS 
---------- 
 
¶9.  (U) Given the collapse of the PPP, European Transport 
Commissioner Jacques Barrot has called for full public funding of 
Galileo, to the tune of nine billion Euros over the next several 
years.  While Barrot continues to serve as a cheerleader for 
Galileo, his EU colleagues appear more reticent.  German Transport 
Minister Wolfgang Tiefensee has said he supports the program in 
 
MUNICH 00000412  003 OF 004 
 
 
principle, but conceded that a complete failure of Galileo was 
possible if financing could not be found.  Former British Transport 
Minister Stephen Ladyman said he welcomed indications that the 
project "would have to be ended if it is not affordable." 
Reportedly, Denmark and the Netherlands are also unenthusiastic 
about the supporting the project. 
 
¶10.  (SBU) While our Astrium contacts indicated frustration with the 
current state of uncertainty over Galileo's future, they said they 
expect Galileo will continue as a purely public project under the 
authority of the Global Navigation Satellite System (GNSS) 
Supervisory Authority, or "GSA."  In contrast to its forerunner 
organization, the "Joint Undertaking," GSA is exclusively an EU 
entity operating under the supervision of the Directorate-General 
Energy and Transport of the EU commission without the participation 
of third states such as China.  While program management would be 
with GSA, the ESA in Paris would be the contracting agent.  Our 
contacts were confident that ESA would take account of the work 
already done and the know-how thus far accumulated when handing out 
contracts to industry.  Under this scenario, deployment could, in 
the best case, begin by the end of 2012 -- four years behind 
schedule. 
 
----- 
CHINA 
----- 
 
¶11.  (SBU) Originally a part of Galileo as a member of the "Joint 
Undertaking," China has since dropped out and developed its own 
satellite navigation system called "Compass."  Our contacts insisted 
that China was not given access to any sensitive technologies on the 
project -- mostly "passive" components, such as the construction of 
an orbiting laser reflector.  Mayer said China had attempted to 
purchase "Rubidium" atomic clocks, a key component of satellite 
navigation systems, from EADS for Compass.  EADS refused to sell the 
clocks, so China went directly to Switzerland and acquired them from 
"Temex Time." 
 
¶12.  (SBU) Our contacts said China appeared to be doing very well 
with Compass.  They related how the Chinese delegations had 
aggressively lobbied for participation in Galileo and technological 
transfer.  Mayer recalled that when the Chinese first started 
working with EADS, they were very secretive about even the existence 
of Compass, and its forerunner "Beidou."  Our contacts said they 
have been impressed with the recent advances of Chinese space 
technology, including the testing of a killer satellite in orbit, 
and the increasing sophistication of the Chinese delegations they 
deal with. 
 
------------ 
MILITARY USE 
------------ 
 
¶13.  (SBU) Military use of Galileo has always been on the table. 
According to the European Commission's own website: "Galileo will 
underpin the common European defense policy that the Member States 
have decided to establish."  On May 16, EU Transport Commissioner 
Barrot told the press: "You cannot exclude a user because he is 
military.  It will be civilian controlled...but there will be 
military users."   When asked about the potential military 
dimensions of Galileo, Kuhlen referred to the obstacle of the UK's 
instance that Galileo was exclusively a civilian project and its 
fierce opposition to any use for military purposes.  In any case, he 
explained, Galileo signals were not really tailored for pure 
military purposes such as missile guidance, although the EU had 
adopted a similar architecture to GPS, aiming to provide a series of 
"open access" signals intended for civilian use with the addition of 
separate encrypted signals similar to GPS' more precise military 
"M-code." 
 
¶14.  (SBU) Kuhlen said U.S. concerns Galileo could be used by an 
enemy military or terrorists to guide weapons against U.S. targets 
were overstated.  Galileo (presumably in consultation with the U.S.) 
would be able to be selectively turned off or made less precise in 
the event of a security threat.  Indeed, he argued, Galileo would 
effectively augment GPS for the Pentagon by doubling the number of 
navigation satellites available to U.S. forces, allowing for 
enhanced precision, particularly in areas where it is presently 
difficult to receive a GPS signal alone. 
 
----------------- 
WILL IT BE BUILT? 
 
MUNICH 00000412  004 OF 004 
 
 
----------------- 
 
¶15.  (SBU) Our contacts said that despite the many obstacles facing 
Galileo, including funding and political turf battles, the political 
will exists to complete the project.  They added that members of the 
European Parliament backed Galileo across party affiliations.  The 
EU could not afford to leave this field to the U.S., China, and 
Russia.  Having said that, they agreed many important questions will 
have to be answered before work on Galileo can begin in earnest, 
making the day when end-users will actually be able to navigate by 
Galileo anyone's guess. 
 
------- 
COMMENT 
------- 
 
¶16.  (SBU) We were struck by the shift in the portrayal of Galileo 
as a profit-making business model to one that provides 
"macroeconomic" benefits -- a description that could be given to 
most any government program.  We left our meeting with EADS-Astrium 
officials with a similar impression as that which followed our 
meeting with EADS officials a year ago in the midst of the Airbus 
crisis (REF C).  EADS and its various divisions have a tremendous 
amount of technical capability -- capability frequently frustrated 
by the multi-state environment in which EADS operates.  Just as 
member state influence over EADS/Airbus resulted in a convoluted 
manufacturing system spread across Europe and the questionable 
decision to build the A380 superjumbo to the detriment of the 
potentially much more lucrative A350 program, EADS-Astrium is a 
company whipsawed by bickering among its EU state clients.  We have 
no doubt that the EU will manage to cobble together the necessary 
funds and apportion contracts across various states in such as way 
that Galileo will indeed be built.  But the ultimate cost, both to 
the EU taxpayers, and arguably in terms of European "prestige," will 
be very high. 
 
¶17.  (U) This report was coordinated with Embassy Berlin. 
 
¶18.  (U) Previous reporting from Munich is available on our SIPRNET 
website at www.state.sgov.gov/p/eur/munich/ . 
 
NELSON