VZCZCXRO7651
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHPOD RUEHYG
DE RUEHMZ #0652/01 3551053
ZNR UUUUU ZZH
P 211053Z DEC 07
FM AMCONSUL MUNICH
TO RUEHC/SECSTATE WASHDC PRIORITY 4201
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEKJCS/SECDEF WASHDC
RUCPDOC/USDOC WASHDC
RUEHZG/NATO EU COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNFRG/FRG COLLECTIVE

UNCLAS SECTION 01 OF 02 MUNICH 000652 
 
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: GALILEO AND THE EU -- NAVIGATING THE PORK BARREL 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
REF: Munich 412 
 
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SUMMARY 
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¶1.  (SBU) EADS-Astrium officials told Embassy Berlin EMIN and ConGen 
Munich that the Galileo satellite navigation project is proceeding 
under its new EU funding mechanism, albeit well behind schedule. 
The officials expressed frustration at the Byzantine web of EU 
politics and blatant promotion of contracts for national champions 
by EU member states, often resulting in expensive redundancies. 
EADS-Astrium would like to see closer cooperation with U.S. industry 
on the project, cooperation which has been limited to date due to an 
attempt to keep the program all European.  The Galileo story offers 
a textbook illustration of the challenges of carrying-out EU 
projects while satisfying the parochial demands of member states. 
 
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STATE OF PLAY 
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¶2.  (SBU) Embassy Berlin EMIN and ConGen Munich met December 14 with 
Dr. Wilfried Bornemann, EADS-Astrium's Director for Navigation 
Germany, Thomas Mayer, the firm's Chief of Business Development for 
Galileo, and Ulrich Scheib, Head of Strategic 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). 
 
¶3.  (U) Since our last meeting with EADS-Astrium in July in the wake 
of the collapse of the Public-Private-Partnership, or "PPP" 
(REFTEL), the EU has developed a funding model for Galileo using EU 
public funds.  At least $1.48 billion in public funds has already 
been spent on the project.  Of the remaining $3.5 billion needed to 
complete the project, $2.4 billion will come from "excess" EU 
agriculture funds and the rest from EU research, transport and 
administration budgets.  As the main contributor of EU agriculture 
funds, Germany would have been reimbursed for a large share of those 
excess funds.  For that reason it voted against the funding proposal 
on November 23, but was defeated 26-1. 
 
¶4.  (SBU) On November 30, EU governments agreed to jointly complete 
the development of Galileo, with the European Commission setting a 
December 31 deadline for final approval of the program.  Spain was 
the lone holdout this time, over the location of ground stations. 
In seeking unanimity, the EU subsequently won Spain's approval with 
a deal that left open the possibility that a ground station planned 
for Spain to monitor emergency services on Galileo channels may in 
the future be made into a full ground control station if Spain pays 
for the upgrade.  The original plans for Galileo only called for two 
ground control stations: one near Munich and another near Rome.  Our 
EADS contacts confided that even the Rome station was an expensive 
redundancy, being fully-manned around the clock simply as a "backup" 
facility in the wake of Italian demands.  Assuming the project 
proceeds as planned, full deployment of 30 satellites should occur 
by 2013.  Only one of Galileo's satellites has been launched thus 
far, in December 2005.  The second satellite missed its launch date 
toward the end of 2006 after it short-circuited during final 
testing. 
 
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SPREADING THE WEALTH 
-------------------- 
 
¶5.  (SBU) Following the failure of the PPP, the European Commission 
drafted contracting rules to ensure both large and small companies 
across the EU would benefit from Galileo.  The rules divide Galileo 
contracts into six segments covering various stages of the project. 
No single company can be the prime contractor for more than two 
segments, and prime contractors are obliged to hand over 40 percent 
of the order value to subcontractors.  Our EADS contacts explained 
that one key change resulting from the new financing model is the 
way contracts are apportioned.  Under the PPP, the European Space 
Agency (ESA) was responsible for financing and apportioning 
Galileo-related contracts.  The contracts were divided among ESA 
members according to their contributions to the ESA - while the 
process was relatively transparent, it was at times complicated (for 
 
MUNICH 00000652  002 OF 002 
 
 
instance, EADS having to find sub-contractors in small ESA member 
states like Finland).  However, with direct EU funding, contracts 
will now be apportioned by Brussels and administered by the ESA 
without a direct relationship to contributions from member states -- 
in theory, a big contributor country like Germany might not get a 
single contract.  While expressing the hope that contracts will be 
fairly divided, our interlocutors were clearly concerned about the 
potential for the political manipulation of contracting decisions in 
Brussels by EU member states. 
 
¶6.  (SBU) The EADS officials anticipate EADS-Astrium will be awarded 
the contract for the space portion of Galileo (construction of the 
30 satellites), along with ground control of the satellites. 
France's Thales-Alenia, they expect, will likely be awarded the 
contract for the ground "mission" segment -- the operation of the 
GPS payload aboard the satellites.  Our contacts noted that German 
industry had the full support of Chancellor Merkel, and speculated 
that in the absence of an EU agreement, Germany would have elected 
to go it alone and set-up its own satellite navigation system.  Our 
interlocutors explained that Germany's infrastructure, from 
toll-collecting to aviation to EMS services, has become increasingly 
dependant on GPS, leaving many in German government and industry 
wanting an alternative to the lone U.S. Department of 
Defense-controlled system.  In addition, Galileo provides a key role 
for German contractors like EADS-Astrium - something they don't have 
with GPS. 
 
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LOOKING FOR CLOSER COOPERATION WITH THE U.S. 
-------------------------------------------- 
 
¶7.  (SBU) Our EADS contacts insisted Galileo should be viewed as a 
complement to, rather than a competitor of, GPS.  The additional 
satellites would only make it easier for all users to get a stronger 
signal in areas where GPS coverage alone is spotty, as in 
mountainous areas and near tall buildings.  The EADS officials said 
they would like to see more cooperation with U.S. industry on 
Galileo, as U.S. firms have expertise in some areas that Europe 
lacks.  They expressed frustration that initially U.S. companies 
were barred from participating in Galileo as sub-contractors, as it 
was to be an all European project.  These rules have since been 
relaxed, creating the hope among our contacts that in the future 
there could be synergies achieved in the project via cooperation 
between U.S. and European firms. 
 
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COMMENT 
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¶8.  (SBU) Projects such as Galileo probably couldn't happen without 
the involvement of the EU.  However, as our EADS contacts made 
clear, the EU never appears more as a collection of squabbling 
parochial interests than with the very same big projects it makes 
possible.  Everything from the failure of the PPP to expensive 
unnecessary redundancies, such as multiple control centers, are a 
demonstration of the difficulty of forming and carrying out 
consensus projects among EU members and their national champions. 
We continue to believe Galileo will eventually be built, giving 
Europe its own version of the free GPS signal - but as expenses keep 
mounting, Galileo will be anything but free to EU taxpayers. 
 
¶9.  (U) This report was coordinated with Embassy Berlin. 
 
¶10.  (U) Previous reporting from Munich is available on our SIPRNET 
website at www.state.sgov.gov/p/eur/munich/ . 
 
GUY