LE BOURGET, France (Reuters) - A possible alliance between U.S. and European commercial satellite manufacturers is under discussion as industry consolidation has bypassed the sector, officials at the Paris Air Show said on Tuesday.

Carlier, however, declined to reveal at what stage negotiations were with U.S. manufacturers Lockheed Martin and Space Systems/Loral.

Astrium, however, sees legal obstacles which have to be surmounted before an alliance or merger can be envisaged.

Officials point to the joint venture formed in December by Raytheon Corp. of the U.S. and France's Thales SA to develop radar and air-defense systems. That linkup had to clear a slew of regulatory hurdles in Washington but eventually did so with political support on both sides of the Atlantic.

"If we form an alliance with an American company, we need to be treated in the U.S. like an American company and not be restricted to lucrative government and military markets," an Astrium official said.

European aerospace firm EADS owns a 75 percent stake in Astrium, while Britain's BAE Systems Plc holds the remaining 25 percent.

Lockheed Martin also sees consolidation as inevitable, but declined to reveal if negotiations were advanced.

"We feel that there is overcapacity in the industry," Albert Smith, Lockheed Martin executive vice-president said. "We have seen a movement by all the manufacturers toward consolidation. These are complex issues and discussions are on-going."

A decline in U.S. companies' market share is increasing pressure for consolidation.

The decline in U.S. satellite manufacturing market share was highlighted in a study commissioned by the Satellite Industry Association (SIA).

It found American satellite manufacturers had lost their dominant position in winning contracts. Their share of the world market slipped to roughly 50 percent in 2000, compared with about 65 percent of world contracts in 1999.

Alcatel SA, another major European satellite builder, is conducting its own talks about forming a possible strategic partnership with Boeing Co.'s satellite unit.