By Tim Hepher and Giulia Segreti

PARIS/ROME (Reuters) -Europe’s Airbus, Thales (EPA:) and Leonardo are exploring plans to set up a new joint space company as they look to compete with Elon Musk’s Starlink.

“Project Bromo”, named after an Indonesian volcano, envisages a standalone European satellite champion modelled on missile maker MBDA, which is owned by Airbus, Leonardo and BAE Systems (LON:), three people familiar with the matter said.

Until now, Europe’s leading satellite makers have said only that they are looking at working together to create greater scale in a sector marred by heavy losses, as the rapid growth of Musk’s Starlink network dominates low Earth orbit.

Although still at an early stage, talks have progressed far enough to earn a code-name inside Airbus and a preferred structure with a new company combining satellite assets, rather than one partner buying assets from the rest, the people said.

Leonardo CEO Roberto Cingolani told Reuters the talks involved various technical discussions and confirmed the intended structure would be based on the MBDA model.

“That’s the one; it is hard that it can be anything else,” he said on the sidelines of an event in Rome.

Airbus and Thales declined to comment.

The merger proposals are separate from job cuts to be unveiled this week and could take years to implement, one source said. But together, they represent a multi-speed effort to bring Europe’s struggling space sector into shape to face competition.

Europe’s top satellite makers have traditionally focused on complex spacecraft in geostationary orbit but have been hit by the arrival of cheap tiny satellites in low Earth orbit. Cingolani said satellites would become 75% of the space economy.

JOB CUTS

Talks to reshape the industry’s long-term structure come as thousands of Airbus workers await details of space and defence job cuts to be presented to unions on Wednesday and Thursday.

Airbus said in October it would cut up to 2,500 jobs, or 7% of its Defence and Space division, by mid-2026.

Thales, which has two existing alliances with Leonardo in satellites and services, is in talks with unions over plans to cut 1,300 space-related positions.

The bulk of the Airbus job cuts are expected to fall in the 2-billion-euro ($2.10 billion) space systems business, reeling from 1.5 billion euros of recent charges, industry sources said.

Airbus has most of its space activities in France. Defence and Space divisional headquarters in Germany are also seen likely to be scaled back, while Britain faces concerns over the future of at least one plant. Spain faces pressure in defence.

The four nations founded Airbus over 50 years ago and the share of any cost cutting is a politically sensitive topic.

Airbus has said cuts are expected to be achieved through voluntary schemes.

The emerging bromance between space companies via “Project Bromo” and its vision of a European satellite champion is expected to take longer, following years of stalled efforts.

MBDA was founded in 2001 through the merger of Anglo-French Matra BAe Dynamics, France’s Aerospatiale Matra Missiles and missile activities of Anglo-Italian Alenia Marconi Systems.

It is owned by groups descended from the founders – Airbus, BAE and Leonardo – with the first two having most control.

Just months after helping to set up the world’s second-largest missile maker, Airbus’ then-parent EADS pledged to “pursue the necessary restructuring” of the space industry.

More than two decades later, Europe’s satellite firms have so far been unable to overcome competition concerns among other hurdles despite sporadic sets of talks over that period.

“The MBDA model is being discussed, but technicalities of governance could be different,” Cingolani said.

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