FLUG REVUE February 2003: European space companies in crisis

DIFFICULT TIMES FOR EUROPEAN SPACE COMPANIES

By Volker K. Thomalla

The timing of the failed launch could not have been worse: the blow up of the latest version of the European Ariane 5 launcher at the beginning of Decemeber coincides with a phase of restructuring that was necessary even before these incidents. On the first try to send of the high-performance variant, seconds before the end of the countdown the launch had to be abandoned due to a computer error. Although this was damaging to the image of the manufacturer, Arianespace, at least there was no material damage. But when on 12 December, three minutes after launch, Ariane 5 started behaving erratically and had to be destroyed from the Control Centre at an altitude of 69,000m above the Atlantic, the disaster could not have been worse. The two satellites it was carrying – the Hot Bird communications satellite, built by Astrium for Eutelsat, and the French CNES Stentor satellite – were together worth Euro 600 million. Although Hot Bird was insured, CNES had launched Stentor on its journey into space at its own risk.

The failed launch is a heavy blow to the European space programme. Ariane 4 was the perfect example of reliability and had worked its way up to being the market leader. By contrast, four out of a total of 14 Ariane 5 launches have failed, an appalling state of affairs. And this is at a time when the world market for commercial satellite launch services is at rock bottom. Against this background, Ariane 5, with its payload capacity of up to ten tonnes, was to have significantly cut the providers' costs by permitting two satellites to be transported at once.

The actual demand for communications satellites has turned out to be only one-half of what was expected. On top of this, Lockheed Martin and Boeing are pushing ahead with plans to enter the market as launch service providers, which will lead to an overcrowded market for launch vehicles. Arianespace had therefore already announced a 50 per cent price cut, which looked as if it would require huge exertions to bring off. But even this measure would not have restored Arianespace to profit in the next two years. Arianespace is now under enormous pressure: if the next launch goes awry, the loss of confidence that this would cause, coupled with the present market situation, could drive Arianespace out of the market.

Yet it is not just the launch service providers who are under pressure in the market. The satellite manufacturers have been hit by unexpectedly low demand. They are currently grappling with losses in the triple digit millions. The medium- and long-term prospects for the European manufacturers may have received a boost from the decision to go ahead with the Galileo satellite navigation system, but there is a dearth of lucrative communications satellite contracts. Clearly the demand forecasts were overoptimistic.

In the area of satellites, the lack of orders from European national governments is a noticeable handicap. Whereas a steady stream of contracts from the Pentagon ensures that American manufacturers are achieving a basic level of capacity utilisation, European manufacturers are having to manage without such orders. Stringent economies are also affecting research satellites, as national governments do not have the financial resources necessary. The result will be that the consolidation process which culminated a few years ago in the establishment of Astrium will have to push forward. Anyone can see that some jobs will have to go in this high-technology industry as a result. Security policy considerations probably preclude transatlantic mergers between different companies, so that consolidation within Europe is the only remaining option. Alcatel Space and Astrium know each other well after a number of joint projects. In the medium term it therefore seems almost inevitable that these two manufacturers will merge.

From page 4 of FLUG REVUE 2/2003

Last updated 15 January 2003

FLUG REVUE, Ubierstr. 83, 53173 Bonn, Germany