20.11.09: OHB-SYSTEM TO BUILD GERMAN OPTICAL SPY SATELLITE; LOOKING AT U.S. MARKET

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S E C R E T BERLIN 001476

SIPDIS

STATE FOR EUR/CE PETER SCHROEDER

STATE FOR ISN/MDSP DICK BUENNEKE

STATE FOR OES/SAT DAVID TURNER

NSC FOR PETER MARQUEZ

E.O. 12958: DECL: 11/20/2034

TAGS: ETTC, PGOV, PINR, MCAP, PREL, TSPA, CH, FR, GM

SUBJECT: OHB-SYSTEM TO BUILD GERMAN OPTICAL SPY SATELLITE;

LOOKING AT U.S. MARKET

REF: A. BERLIN 1324

B. BERLIN 1207

C. 08 STATE 48069

Classified By: Global Affairs Officer David L. Fisher for

reasons 1.4 (b), (c) and (d).

1. (C) SUMMARY: OHB-System, Germany´s top satellite

manufacturer and third largest in Europe, will be the prime

contractor on Germany´s planned High Resolution Optical

Satellite (HiROS) reconnaissance system -- a system that

France would like to see not happen because it would directly

compete with its own commercial satellites. In addition to

HiROS, OHB-System is investing in a follow-on to SAR-Lupe,

Germany´s space-radar reconnaissance system, and a series of

cutting-edge laser communications satellites to support

German military/intelligence operations. OHB-System is

placing strategic importance on opening up opportunities to

market its space-based remote sensing, communications and

missile surveillance technologies in the US. END SUMMARY

2. (C) On October 2, EconOff met with OHB-System CEO, Mr.

Berry Smutny at the US Embassy in Berlin for general

consultations. Smutny became CEO of OHB-System in June of

this year and was previously the CEO of Tesat SpaceCom, a

German subsidiary of the European Aeronautical Defense and

Space Company (EADS). Smutny brings to OHB-System world

class expertise in satellite laser communications and is

tasked with broadening OHB-System´s market horizon beyond

Germany.

OHB-SYSTEM TO BE PRIME CONTRACTOR FOR HIROS

-------------------------------------------

3. (C) Smutny acknowledged that OHB-System´s role as the

primary contractor on HiROS is out of political necessity to

ensure that a purely German owned firm, at least on paper,

leads the project development. The original plan was for

EADS-Astrium in Friedrichshafen, Germany in partnership with

the German Space Agency (DLR) to design, build and operate

the HiROS. However, when it became obvious to DLR and German

Astrium officials that the France, through its influence in

EADS-Astrium, would attempt to scuttle the project for fear

that HiROS would compete with French commercial satellite

business, the decision was made to bring OHB-System on board

as the primary contractor. Smutny said the current plan is

for OHB-System to build the HiROS satellite bus;

Astrium-Friedrichshafen, to assemble the payload

(Kayser-Threde GmbH will supply the optical cameras); and

DLR, to develop instruments and ground segment.

OHB-SYTEM´S ASPIRATION TO JUMP INTO THE US MARKET

--------------------------------------------- ----

4. (C) Smutny said increasing OHB´s footprint in the US

market is one of the reasons he was hired, but his company

would make its move "when the time is right." For starters,

Smutny said OHB-System would "love to offer US customers"

SAR-Lupe data and/or complete spacecraft. Recognizing that

Astrium has already offered US customers TerraSAR-X

data/spacecraft, he emphasized the SAR-Lupe technology is

different and would be complimentary to the existing USG

systems, whereas the TerraSAR-X systems would only be

redundant. In addition to SAR-Lupe, Smutny said his company

is formulating plans to offer US customers cutting-edge

satellite communication and missile surveillance technologies

(NFI).

5. (C) Smutny noted that breaking into the US market is

particularly tricky these days, particularly with

defense-related exports. He said in order for a European

company to be successful doing so, it must provide product

that is 30 percent better and 30 percent cheaper than US

industry rivals to shake the stigma of not buying American

and also overcome the currency exchange rate disadvantages.

OHB-SYSTEM: GERMANY´S HOUSE INTEL SATELLITE MANUFACTURER

--------------------------------------------- -----------

6. (C) OHB-System is Germany´s preferred contractor for

highly sensitive intelligence satellites due to its 100

percent German ownership and relative immunity to the French

interference. Although Astrium´s size, deeper pockets and

vast pool of resources give it a clear advantage over

OHB-System (fierce industry rivals) competing for contracts,

OHB-System smallish size allows it to minimize bureaucratic

inefficiencies resulting a well established history of

delivering product on-time and within budget; a reputation

that resonates very strongly with the German government.

Smutny, as well as Astrium officials, quietly acknowledge

that OHB-System´s cozy relationship with the German

government is a big reason why they beat out

Astrium-Satellites for the SAR-Lupe contract in 2001.

OHB-SYSTEM GOING GLOBAL WITH SMUTNY AT THE HELM

--------------------------------------------- --

7. (C) OHB-System brought in Smutny, a well respected

industry veteran with expertise in satellite communications

and international marketing, to expand its international

presence. Smutny spoke proudly of the fact that while

serving as the CEO of Tesat-SpaceCom GmbH and earlier as

managing director of Bosch-SatCom, he led an effort that

captured a 50 percent world market share in space-based

optical laser communications equipment, an area of technical

expertise for Smutny. He also noted 70 percent of Tesat´s

sales were to US customers. (COMMENT: Tesat-SpaceCom is a

subsidiary of EADS-Astrium and purchased Bosch-SatCom in

2001. END COMMENT)

THE "FRENCHIES" STEAL MORE IPR FROM GERMANY THAN CHINA/RUSSIA

--------------------------------------------- ----------------

8. (C) Smutny said his primary reason for leaving

Tesat-SpaceCom was that he was sick of developing world class

German-origin satellite technology only to have the

"Frenchies" swoop in via their influence in EADS and siphon

German intellectual property. Smutny frankly said "France is

the evil empire stealing technology and Germany knows this",

but Germany´s decentralized government is not willing to do

much about it. Going on at length of his despise of the

French, Smutny said French IPR espionage is so bad that the

total damage done to the German economy is greater the that

inflicted by China or Russia. When asked about the

possibility of EADS acquiring OHB-System Smutny responded

that OHB is a special case and the German government is

particularly careful to ensure that OHB stays within

Germany´s sphere for German military/intelligence reasons.

CUT THE CHINESE A LITTLE SLACK ON ITAR

--------------------------------------

9. (S) While Smutny spent a great deal of time accusing the

French of economic espionage, he took a much softer view on

China´s espionage activities. Smutny said the International

Traffic in Arms Regulations (ITAR), though a good apparatus

for preventing illicit technology transfers and something

that he personally supports, is severely hurting US business

opportunities in China. Smutny opined the US should relax

ITAR restriction on the exports of goods with black box

technologies, such as that found in integrated circuits. He

reasoned the risk of technology transfer is very low because

these devises can not be easily reverse engineered.

(COMMENT: Per ref C, Chinese entities have attempted to

procure German satellite technology from Tesat-SpaceCom in

the past under the guise of the Galileo program. END COMMENT)

COMMENT

-------

10. (S) Smutny painted a clear picture that French

involvement in German industry is not to be trusted and he

feels that German politicians are witting of this fact. On

the other hand, it was interesting that he somewhat

downplayed the severity of the Chinese economic espionage

threat. Past reporting captured procurement ties between

Tesat and Chinese military procurement entities affiliated

with its military for the same type of "black box" components

that Smutny says should be less ITAR restrictive.

MURPHY





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