(Adds details on plans to unify Ariane launch activities)
By Tim Hepher and Elizabeth Pineau
PARIS, June 16 Airbus Group and Safran confirmed plans on Monday to pool their efforts on space launchers, taking the first step towards what could become a unified European company to prevent the Ariane space rocket being eclipsed by U.S. low-cost rival SpaceX.
The move is the first step towards consolidation after Airbus Group's chief executive Tom Enders, speaking exclusively to Reuters last month, urged a total rethink of the way Europe makes launchers to defend against the new threat.
Executives discussed the new venture with French president Francois Hollande, who called it a "major step" towards consolidation while underscoring the importance of 16,000 Ariane jobs in France - a number that many analysts expect to come under pressure as Europe slashes the cost of space launches.
"The space sector is changing fast. That is why we need to do things differently and alter the way we share our efforts and responsibilities," Safran's chief executive, Jean-Paul Herteman, said after the meeting at the French presidential palace.
"This is absolutely indispensable ... in order to complete successfully the family of launchers for the future," he said.
After initial gains, Airbus and Safran shares both fell in line with a weaker market following the announcement, which confirmed details reported by Reuters on Sunday.
Europe's Ariane 5 space launcher dominates the market for large commercial satellites but alarm bells have rung over its future due to competition from Space Exploration Technologies (SpaceX), run by billionaire entrepreneur Elon Musk.
The companies said the joint-venture would combine Airbus Group's launch systems with Safran's propulsion systems, but hinted at broader integration of public and private activities in an effort to duplicate the success of planemaker Airbus.
Airbus's planemaking unit was spurred into turning itself from a consortium into a single company by the merger of U.S. rivals Boeing and McDonnell Douglas in 1997.
"It is the same type of event, with competition pushing us to change our configuration completely," said Airbus Group's chief strategy and marketing officer, Marwan Lahoud.
The new orbital initiative is the latest and most serious effort to reorganize Europe's space industry and tackles an area that has remained heavily controlled by state agencies, even as the rest of the aerospace industry embraced financial markets.
Under the current system, national government space agencies such as CNES in France and the DLR in Germany design launchers, and pass the designs to Airbus Group to manufacture the product, which is then passed to a third party, Arianespace, to market.
Arianespace is owned by various public and private interests across 10 different European countries, including Airbus with about 30 percent and Safran with 11 percent while CNES is the biggest shareholder with nearly 35 percent.
The joint-venture is seen as the first step towards creating a single company integrating everything from design to manufacturing to sales - a reform that Enders say is badly needed to avoid Europe becoming "irrelevant" in space.
The shake-up also comes less than two years after Enders was forced to call off efforts to create a European defence giant when German Chancellor Angela Merkel intervened to prevent what was then Airbus parent EADS bidding for Britain's BAE Systems.
This time, the German-born executive has taken no chances and secured the agreement of both the French and German governments before pursing the deal, people familiar with the matter said. German officials were not available for comment.
The move was immediately backed by the world's third largest satellite operator.
"Simplifying the multiple layers of Europe's space industry is going in the right direction," said Eutelsat President Michel de Rosen. "The arrival of ... SpaceX has caused an upheaval in the global space industry," he told reporters.
Europe aims to replace its Ariane 5 rocket launcher with an Ariane 6 by 2021, but has been wrestling with complex structures behind the design, manufacture and marketing of space launchers as well as strict conditions on the national share of work.
Airbus and Safran said they would propose a common design for Ariane 6, on which there have been disagreements between France and Germany, and speed an interim solution, Ariane 5 ME.
By seizing the industrial initiative, Enders and Safran's chief executive Jean-Paul Herteman are effectively offering to lead Europe's fightback against SpaceX but must also tackle sensitivities among public bodies involved, observers said.
There have been differences with France's space agency over strategy and the speed of the process, which gathered pace after last month's Berlin Airshow, according to industry sources. But its most senior official threw his weight behind the venture.
"It is Europe's response to SpaceX. It strengthens the future of Ariane," Jean-Yves Le Gall, president of CNES, said after taking part in Monday's talks with Hollande. (Additional reporting by Geert De Clercq, Cyril Altmeyer; Editing by Louise Heavens and Greg Mahlich)