Arianespace has a busy summer ahead as it goes for a record breaking year by potentially launching 12 missions. This comes as the future shape of the French launch provider looks set for a shake up by the proposed consolidation of Europe’s space…
Arianespace has a busy summer ahead as it goes for a record breaking year by potentially launching 12 missions. This comes as the future shape of the French launch provider looks set for a shake up by the proposed consolidation of Europe’s space sector. SatelliteFinance editor Ed Ansell speaks to CEO Stéphane Israël to find out more.
Ed Ansell: How is your launch manifest for 2014 looking?
Stéphane Israël: If all the satellites are ready in due time, we are still contemplating 12 launches from the Guiana Space Centre in 2014: six Ariane 5, four Soyuz, two Vega. So far, we have performed four: two Ariane 5, two Soyuz, one Vega. The next launches will orbit the last Automated Transfer Vehicle “Georges Lemaître” on Ariane 5 on 24 July, and the two first Galileo FOC satellites on Soyuz again on 21 August. All these payloads are now being prepared for launch in the Guiana Space Centre’s facilities.
EA: Are there any concerns over missing these dates?
SI: As you know, we lost one launch opportunity in May-June due to technical issues on Optus 10, the lower passenger of the next Ariane 5 dual launch mission to GTO: the satellite had to be shipped back for repair to SSL’s factory in Palo Alto, California. We are now confident that Optus will be back at the CSG by mid-August, allowing a launch for Measat in the first part of September. However, the possibility of performing 12 launches this year remains, although it is more challenging than it was initially. It will depend on the on-time availability of the satellites to be launched.
EA: Does the nature of having to rely on two satellite passengers for the Ariane 5 restrict your ability in any way to get these launches off the ground?
SI: The dual launch has some constraints, but we have been living with these constraints for more than 30 years for the benefit of our customers. And the entire story of Arianespace was made with this dual launch ability. It is a way for us to propose a more competitive price. For sure, we need to have the two satellites ready at the same time and it is something we have experienced for years.
Also for this, we need to put together a big and small satellite, and we are seeing that the market is proposing this kind of mix. So the market is there.
EA: How do you balance the launch requirements of government and commercial operators, such as the recent Galileo / O3b Soyuz missions?
SI: First, we are careful to follow the contractual rules that we have set up with all our customers, as these contracts establish launch priority in our manifest. Then, in rare situations such as the one you refer to, where these contracts did not enable us to determine which customer had the priority over the other, our policy is to serve the customer whose payload is available first. This is why O3b was launched in July and Galileo will be in August. There is no conflict between government and commercial operators, all are subject to the same contractual rules. Moreover, it is a top priority for Arianespace to perform two launches for Galileo this year and we are poised to do so.
EA: You recently signed an agreement to launch a small satellite for Indonesia’s BRI, will this be a co-passenger with a larger satellite?
SI: Yes, BRISat will be the co-passenger of a larger geostationary satellite, in the lower position of an Ariane 5 ECA dual mission to GTO. We have various possible candidates: the decision will be made later, in accordance with our contractual commitments and based on the actual availability of both BRISat and those possible candidates.
EA: Where are we with the Ariane 5 ME upgrade?
SI: The programme development is going according to the planned schedule and with the overall requested performance. The target is to perform the inaugural launch in 2018. But, let me stress that, in the current organisation, this development, as all launch vehicle developments in Europe, is under the responsibility of the European Space Agency (ESA). Arianespace’s role is mostly to provide ESA with inputs related to the launch services market and its expected evolution, in order to make sure that future European launchers in general, and the Ariane 5ME in particular, will meet customers’ needs once available. Final decisions will be made by ESA in December during the Luxemburg ministerial conference.
EA: Are there still differences between the nations, Germany in particular, over Ariane 6, its technical requirements and its funding? When do you expect these to be resolved and is an inaugural flight in 2021 still the goal?
SI: A new concept for Ariane 6 has just been proposed by Airbus Group and Safran. I expect ESA is now going to fully examine and assess their concept. The ultimate goal is that all players of the Ariane sector reach an agreement on the roadmap for Ariane 6 prior to the next ESA Council meeting at the ministerial level. I am confident that we will have then a good decision for the future of the Ariane sector.
EA: So do plans by Airbus DS and Safran to merge their launch assets make the Ariane 6 more likely to be picked over Ariane 5 ME as the way forward?
SI: Ariane 6 is the way forward in any case. I mean, it has been said very clearly by ESA that Ariane 6 is the future of Ariane 5. There is no doubt about that.
The industry has proposed a roadmap with Ariane 5 ME, Ariane 6.1 and Ariane 6.2. Now we will see how ESA will cope with this roadmap to make the best possible decision during the upcoming ministerial conference.
EA: What kind of demand have you had for Soyuz and Vega launches?
Given the growth in smaller satellites, do you expect to see more demand for these launch vehicles
SI: Soyuz has a wide range of satellites in its order book, addressing mainly constellation deployment (O3b and Galileo), as well as scientific or Earth Observation missions. So the demand is very diverse. Today, there are seven Soyuz missions in our order book and 15 launch vehicle units under construction to comply with our expected needs until 2019.
Vega encountered great success in the expanding market of small (around one ton or less) Earth Observation satellites, which represent 80% of its current order book. And there is significant growth potential in this market, as we see more and more governments in emerging countries willing to rely on their own satellite solutions for environmental monitoring or disaster management. As of today, 13 launch vehicle units have been ordered from industry, thus covering the nine already-contracted missions and beyond.
Last but not least, Soyuz and Vega’s attractiveness is enhanced by their reliability and availability, with respectively eight and three perfect launches from the Guiana Space Centre.
EA: While both profit and revenues have increased year on year, your margin remains very low. Do you believe your business model is sustainable?
SI: Our target business model is based on an annual launch rate of 12 on average, with six Ariane 5, three Soyuz and three Vega launches per year. It is all the more sustainable that a considerable effort is currently made by all players of the Ariane value chain to improve our cost competitiveness. And the recent Airbus Group and Safran joint venture programmes can only help lower costs and improve competitiveness.
EA: What do you think the impact of the Airbus DS/Safran launch merger will have on Arianespace?
SI: It would be a very positive change because it would allow the launch sector to be more competitive and more agile. Airbus DS and Safran have said that their goal would be a system that carries through from the design to the launch service delivery, which means that Arianespace should be part of this new story. It is a new company and a new enterprise, and for Arianespace it could be an opportunity because this Newco could be the most competitive launcher company in the world.
This being said, it is worth reminding that Arianespace has other shareholders than Airbus DS and Safran, as well as a convention with ESA to guarantee an independent access to space to Europe through the operation of three launch vehicles in the Guiana Space Centre. These parameters shall be accounted for in the equation.
EA: Particularly given what happened to Sea Launch in the past, do you have a working capital facility to fund your hardware requirements?
SI: We have ordered batches of launch vehicles from the industry, and we have a very strong backlog of orders from our customers – amounting to more than €4bn. Our strategy and day-to-day management rule is to ensure a constant treasury level so as to avoid any requirement for a working capital facility. Our main financial challenge and focus is more related to our structural exchange rate exposure, with all our costs being expensed in EUR, while most of our revenues are in USD. Our hedging strategy is a key component of our financial activity.
EA: Reliability has always been a major deciding factor for operators in choosing a launch service provider but pricing is increasingly important. Have you seen a downward pressure on pricing in recent years?
SI: Yes, we have seen a downward pressure on pricing for small geostationary satellites in recent years due to competition. We have decided to adapt our pricing policy to this trend. This is being performed in parallel to the implementation of a competitiveness plan, which addresses both quality competitiveness and price competitiveness.
Competition is a good way to stimulate innovation and continuous improvement: Arianespace relishes the opportunity to compete, as it has always done in the past, for the benefit of our customers. But we will refuse to enter into a price war: quality has a cost, and any dumping strategy on this market will impact the quality, i.e reliability and availability, of the launch service.
EA: The arrival of SpaceX has been a major factor for this. Do you see them as the biggest competitive threat to yourselves?
SI: We should neither under nor overestimate SpaceX. It is, with International Launch Services, our main competitor. Yet, ILS, and Sea Launch as well, have experienced failures and have to cope with serious quality issues and financial difficulties, which have weakened their position.
But we remain attentive to all our competitors throughout the world and make no obsession with SpaceX. We never lose sight of that. We are confident that we offer to our customers and to governments the best mix between three key criteria for them: reliability, availability, price.
EA: You have a new pricing policy to help compete with these rivals, has this had a significant impact on your sales already?
SI: We have always adjusted our pricing policy to take into account the evolution of the competition. Today, there is more competition on the small satellite market segment for Ariane, so we reacted. We have already secured two small GEO satellite launch contracts for Ariane 5, and others will come.
But this is not just about price, it is also because we deliver, like we delivered with O3b yesterday [10 July]. And, if you compare us with our competition, we have one competitor which has had a lot of failures and another that is now in an embarrassing position regarding its ability to deliver.
So I repeat, it is not all about price, it is a mix of reliability, availability and price. And for this reason, we will maintain a premium in our pricing policy.
EA: How important is having export credit agency support in winning contracts?
Do you think there will come a time when it is not a necessary part of bid proposals? Are you concerned about the emergence of Russia’s EXIAR and its support of ILS?
SI: Though difficult to quantify, we know that the support of the French export credit agency (COFACE) has been decisive in many of our export deals. It should be used when required by the context, which is not always the case: so it is not a necessary part of bid proposals. At Arianespace, we like to design tailor-made launch solutions for our customers, and these solutions may include financial packages involving the support of COFACE, if relevant.
Regarding EXIAR, it started operations two years ago, and is still in the development phase. It certainly has a strong desire to advance its activities in the space industry and support ILS launches. However, its ability to do so will depend on the insurance capacity it can raise, as well as on the associated pricing, which is indeed linked to Russia credit rating.
EA: Many of your rivals are developing dual launch capability, does this concern you?
SI: Not really. Arianespace benefits from years of experience in managing dual launch manifesting and we know that, in order to be efficient, a true dual launch capability requires a significant order book in addition to actual separation between upper and lower positions on the launcher to provide full flexibility. These are two key factors for success our competitors do not have. I have rather the feeling that our rivals are talking about performing dual launches in some scarce occasions, for identified satellite couples in “stack”, whose fates will remain linked to each other from the signature of the launch service agreement until launch.
EA: Is there anything you would like to add?
SI: This year is really remarkable for us. We have already performed five launches with our three launchers. Each launch vehicle has proven its capability and reliability and, when you compare with other systems around the world, you see their negatives.
This year, we are going for another record. We want to make more than 10 launches, and we could be in a position to make 12 if the satellites are available on time. We have demonstrated, launch after launch, how robust is our system, and all I would like to highlight that, so far, nothing compares to it in the commercial launch business.
