French engine maker Safran will pay Airbus Group 750 million euros ($832 million) as they combine their space launch activities to combat growing low-cost competition.
The move paves the way for the next generation of European rocket, the Ariane 6, which will make its first flight in 2020 and be used to put satellites into orbit.
The two firms are combining these activities in response to increasing rivalry with private U.S. launch provider SpaceX.
The heads of both companies said on Thursday that the combination would allow Europe to be more competitive.
The deal calls for the integration of industrial assets, turning their existing Airbus Safran Launchers venture into an operational concern with 8,400 employees.
The Safran payment will ensure an equal 50/50 ownership split in the new venture, the companies said. It is slightly less than the previously expected figure of 800 million euros..
The deal had been held up for months as the two companies and the French government debated how the payment to Airbus should be treated for tax purposes.
French tax regulations are not easily applicable to a partnership of equals in which both companies view the stake as strategic, and are locked in for the long term, so a compromise was reached sparing Airbus a hefty tax bill.
The Safran board will meet on Thursday to make a preliminary selection from a dozen offers for its Morpho biometrics and security business, sources told Reuters on Wednesday.