Airbus Group and Safran said on Monday they had agreed to create a 50-50 joint venture in space launchers, combining Airbus's launch systems with Safran's propulsion systems, to help to compete with new low-cost rivals.
The move is designed to protect Europe's commercial access to space in the face of competition from U.S.-based competitor Space Exploration Technologies (SpaceX), top officials of both companies said after meeting French President Francois Hollande on Monday.
It is the first concrete step towards consolidation in the sector after Airbus Group Chief Executive Tom Enders called in a Reuters interview last month for a radical overhaul of complex private-public partnerships and a bigger say for industry.
"It is Europe's response to SpaceX. It strengthens the future of Ariane," Jean-Yves Le Gall, president of France's CNES space agency, said after taking part in Monday's talks.
Airbus and Safran shares were both up around 0.4 percent, while the CAC40 index was down 0.2 percent.
Reuters reported the move towards closer industrial co-operation on Sunday.
The partners said the venture would accelerate entry-into-service of a new Ariane 5 ME launcher and propose an agreed configuration for the next-generation Ariane 6 launcher, which has seen differences between France and Germany over design.