The space industry in Europe is the beneficiary of a sustained burst of investment from civil agencies on a variety of levels, from European government, armed forces and space agencies, to the wider European Union.
The beneficiaries of this largesse…
The space industry in Europe is the beneficiary of a sustained burst of investment from civil agencies on a variety of levels, from European government, armed forces and space agencies, to the wider European Union.
The beneficiaries of this largesse range from the established aerospace giants to smaller, up-and-coming manufacturers, as well as operators who are increasingly coming to be seen as a source for government satellite capacity.
The most high profile pan-European initiative, the long-awaited global navigation system Galileo, is now well underway. The European Commission’s handling of the Galileo procurement process has been the subject of heavy criticism over the years. Indeed, the initial public-private funding plans for the project completely fell apart before the new, fully EU-subsidised model was agreed upon in 2008.
However, the decision to award the contract to manufacture the first 14 Galileo satellites to a consortium of Germany’s OHB System and Britain’s Surrey Satellite Technology Limited (SSTL) is an excellent example of how EU and governmental funding can galvanise the space industry.
Both OHB and SSTL are relatively small manufacturers that have built up a reputation for outstanding technical expertise over the last decade. They are exactly the kind of businesses that can benefit most from large government-funded contracts.
Contracts like Galileo allow these companies to strengthen the foundations of their existing small satellite businesses and diversify from there, and both have ambitions to enter into the geo satellite sector using their work on Galileo as a springboard.
The established powers in the European manufacturing sector are also set to benefit from increased European investment in space, with both Thales Alenia Space and EADS Astrium having the opportunity to bid on a host of French government and military contracts over the upcoming year.
Investment in the space sector is becoming a priority for Europe’s largest economies for differing reasons, all related to combating the economic downturn.
In the case of France, there is a desire to preserve an existing space industry that is one of the largest in the world. The aerospace sector is poised to become one of the beneficiaries of President Nicolas Sarkozy’s ‘Grand Loan’, which will raise E35bn in 2010 to be redistributed as a stimulus to the French economy.
For Germany and Britain, there is a realisation that their respective space sectors represent the kind of high-tech, dynamic industry that needs to be supported and developed during an era in which so much traditional industry is migrating east to India and China. This new commitment on the part of these nations can be seen through Britain’s creation of a new national space agency and Germany’s drive towards cutting edge space programmes such as the Heinrich Hertz mission.
The opportunity also exists for satellite operators to capitalise on the European civil funding drive, as highlighted by SES Astra’s recent announcement that it is hosting a second EGNOS payload on one of its newly ordered commercial satellites.
With the European Defence Agency’s decision to mandate Astrium to create a unified framework for EU armed forces to order satellite capacity, it is likely that there will be increased demand for hosted payloads on commercial spacecraft and for the construction of new military satellites.
COFACE leads the way in reducing risk
One area where Europe has been ahead of the rest of the world in promoting its space industry has been the increased use of export credit guarantees. More specifically, the role that the French export credit agency COFACE has played in supporting construction projects for European vendors, particularly Thales Alenia Space.
While the use of export credit in the satellite sector is not a new phenomenon, the scale and quantity of the deals that COFACE has backed during the global economic downturn is notable.
With banks reticent to lend as they seek to reduce their risk profile and shore up their capital bases, the ability for a satellite operator to secure the necessary financing to fund large-scale capex projects has been remote at best. As one banker argued: “There are not many banks that are able to provide this type of service independently for this kind of large project. Not many are willing to play a leading role, with more seeking a niche position.”
Export credit guarantees have negated most of the risk for the banks and have turned once precarious lending propositions into reasonably safe bets. The COFACE backing of the US$574m senior secured credit facility funding Globalstar’s next generation constellation is a prime example of this and has subsequently paved the way for a series of similar deals.
Since the Globalstar transaction in March 2009, Ka band start-up O3B Networks secured a COFACE guarantee on a US$465m credit facility to pay for the construction of its 8 initial satellites by Thales, while in December SES netted a E523m COFACE backed loan to fund a package of four new Astrium-built birds. Avanti is now the latest satellite operator to seek COFACE support, this time for its second Hylas satellite, which is to be launched by Arianespace.
Other export credit agencies such as the US Ex-Im Bank and Export Development Canada are also playing an increasingly active role in project financings, but over the past year COFACE has taken centre stage.
