Under the planned Brexit transition deal – agreed by both parties – Brussels “merely have to notify the UK Government” that British firms cannot bid for contracts, in order to protect security, their report says.
The conclusion will leave ministers red-faced, after they vowed to fight the exclusion - and threatened to weaken Galileo by walking away entirely unless it was reversed.
Last month, the prime minister suggested the EU was acting beyond its powers, telling MPs: “As long as we are a member of the European Union, we will meet our obligations, but we should continue to be treated as a full member of the European Union.”
But the report, by the all-party European scrutiny committee, says Article 122 (7b) of last month’s draft exit deal allows the UK’s exclusion from programmes which “grant access to security related sensitive information”.
Furthermore, the relevant part of the text was “highlighted in green” – which meant it had been “agreed at negotiators' level”.
“To do so, the EU would merely have to notify the UK Government that it was exercising a derogation in the agreement,” said the scrutiny committee.
Ms May’s criticism centred on contracts expected to be awarded in June - before Britain leaves the EU in March next year.
But the MPs said the draft agreement allowed the exclusion now of UK companies from any work “which will involve delivery post-transition, as the legal basis for them to do so is not established”.
The exclusion would be from the Galileo’s sensitive “public regulated service” (PRS), an encrypted navigation system for government users to be accessed only by EU member states.
Airbus has led protests that ending Britain’s participation in European space programmes will undermine security and defence across the continent.
"Maintaining and enhancing security and defence ties across Europe is vital for all citizens across the continent,” said Tom Enders, Airbus chief executive, last month.
“Irrespective of the UK's membership or not of the European Union, the UK is an important part of Europe.....and must play an integral role for our mutual security.”
The €10bn Galileo project is intended to be Europe's rival to the global positioning system (GPS), which will be developed and controlled by the United States.
Gavin Williamson, defence secretary, was said to have “hit the roof” over the EU’s stance on the project, which has received about 12 per cent of its funding from the UK.
Greg Clark, the business secretary, responded by threatening to walk away altogether – arguing that would increase Galileo’s costs and lead to lengthy delays.
The European scrutiny committee agreed, warning a UK pullout would “disrupt the rollout of the PRS service, cause further delays, and potentially have a detrimental impact on European security”.
For that reason, it was “unlikely that the UK will be excluded from accessing the PRS in the long-term” – but future contracts would probably rule out “involvement in the most sensitive security-related aspects of the service”.