Intelligence Online reported Thursday that the deal would be finalized within the next few months, pushing forward the Emirates' drive to boost its military capability to counter Iran's expansionist policy and nuclear ambitions.
"This will be Astrium's first big Middle East contraction," the newsletter observed.
"In 2009, it made an unsuccessful bid to sell a military surveillance satellite to Egypt. A contract with Saudi Arabia is also under consideration."
Negotiations began two years ago between Abu Dhabi, the seven-member federation's economic powerhouse, and Astrium, the aerospace subsidiary of the European Aeronautics Defense and Space Co.
Initially, Thales Alenia Space, which has headquarters in France and is owned by Thales Aerospace of France and Finmeccanica of Italy, was seen as the front-runner for the contract.
It had a partnership with 4C Controls, a French-Emirates company whose founders included Phillipe Aubay, one of the fathers of the French imagery intelligence program Helios.
4C Controls was set to establish a space intelligence center in Abu Dhabi. But the company folded and Thales fell out with the United Arab Emirates authorities.
EADS stepped in, using its relationship with the Mubadala Development Co., the Emirates' investment arm which is heavily involved in the federation's drive to build up its defense industry.
Mubadala developed the Emirates' Yahsat network of telecommunications satellites.
The surveillance satellite project was first mooted in 2008, shortly after the Gulf Cooperation Council, consisting of Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain, scrapped its HudHud program.
The satellite is based on Astrium's highly successful Eurostar E3000 platform.
On April 24, the emirates launched its fifth communications satellite into orbit. It is the first device to provide secure and independent telecommunications for its armed forces amid a drive by Arab states in the gulf to boost their military capabilities against Iran.
The Emirates' Y1A satellite was launched from the European Space Center in Kourou, French Guyana, atop an Ariane 5 rocket. It was built by Yahsat, the Emirates' Al Yah Satellite Communications Co., a wholly owned subsidiary of Mubadala.
A second satellite, Y1B, should be launched in 2012 to complete the $1.66 billion Yahsat program.
Y1A and Y1B will also provide commercial communications across the Middle East, Africa, South West Asia and Europe.
The Emirates spearhead efforts by the GCC states to acquire its own military surveillance satellite system to bolster the early warning system it has been seeking to develop for several years.
The GCC states have been talking about a joint early warning system for a decade but largely due to dynastic squabbles within the alliance, established in 1982 at the height of the 1980-88 Iran-Iraq war, this and other GCC military aims remain unfulfilled.
However, the growing tension between the GCC states and Iran appears to be spurring them to work together to develop their common military capabilities, and lessen dependence on the United States for early warning.
The development of the emirates satellite has strategic implications for the Gulf Arab states. The Emirates Institution for Advanced Science and Technology runs the satellite program.
The Emirates, a regional leader in the telecommunications sector, launched its first satellite, the 419-pound DubaiSat-1, July 29, 2001, from the Baikonur Cosmodrome in Kazakhstan, former center of the Soviet space program.
The remote sensing satellite, carried in the nosecone of a Russian Dnepr rocket, was lofted into orbit 425 miles above the Earth with an operating life of five years. DubaiSat-2 is scheduled for launch in 2012.
The United Arab Emirates has established itself as the space technology hub in the region and has had dealings with foreign companies that specialize in military satellites.
In September 1997, the U.S. Hughes Space and Communications International signed a $1 billion communications satellite deal, at that time the Arab world's largest satellite contract, with Abu Dhabi's Thuraya Satellite Telecommunications Organization, which groups investors in 14 Arab states.