Arianespace Leads Campaign in U.S. To Stifle Chinese Launch Competition

by

PARIS — For the past eight months the global space industry has witnessed an apparently unprecedented campaign by one French company, the Arianespace commercial launch consortium, to enlist the U.S. government to prevent another French company, satellite builder Thales Alenia Space, from bidding for satellite manufacturing contracts that include launching the satellite aboard one of China’s Long March vehicles.

Led by Chief Executive Jean-Yves Le Gall, Arianespace officials have said they view China as a serious threat to Arianespace’s core commercial business. They have sought to incite an anti-Thales move in Washington, where anti-Chinese sentiment often finds a receptive audience.

“Coupled with cut-rate launch prices, China is working to flood the market with [commercial telecommunications] satellites,” Le Gall said in a Nov. 30 address to the Washington Space Business Roundtable. “Europe and the U.S. must rise together to address these issues.”

In recent months, Arianespace has refused to provide Thales Alenia Space with price quotes for contracts calling for in-orbit delivery of a satellite, industry officials said. In these contracts, the satellite builder bundles the price of the satellite, the launch vehicle and the related insurance into a single bid.

Arianespace is the world’s most-active commercial launch services provider. Refusing to provide ThalesAlenia Space with a price quote is equivalent to a boycott, and effectively could prevent the French-Italian company from bidding for some contracts.

Industry officials say one or more U.S. satellite manufacturers have quietly sought to achieve the same end in Washington, but have let Evry, France-based Arianespace spearhead the effort publicly.

Arianespace also has solicited French government support against ThalesAlenia Space, but this effort has fallen on deaf ears, officials said. Thales Alenia Space does almost no U.S. government business and therefore presents an elusive target in the United States. But another division of Thales Group, Thales North America, reported $1.3 billion in U.S. business in 2007, mainly in contracts with the U.S. Department of Defense.

Lt. Gov. Brian Dubie of Vermont, chair of the Aerospace States Association, seized the issue in a Nov. 26 commentary in Space News: “It is ironic that at the same time the U.S. Department of Defense rewards Thales, a DoD supplier, with new American contracts, Thales explicitly and publicly disregards U.S. policy on sharing satellite technology with China,” Dubie wrote. “Congress must take action.”

Since around 1999, the U.S. government has refused to permit U.S.-built satellites to be exported to China for launch aboard Chinese rockets, arguing that China has used its commercial launch business to hone its missile expertise, and that China’s launch industry has exported missile technology to Iran.

A series of renewable two-year bans on exporting satellites, most satellite components and any other items on the U.S. Munitions List has been directed at China Great Wall Industry Corp., the company that has managed China’s launch-services business.

Most satellite builders, even those in Europe and Japan, use at least some U.S. components. The U.S. government ban has had the effect of barring China from the global commercial-launch market.

But since 2002, ThalesAlenia Space has invested several million dollars in developing alternative sources for the U.S. components on its satellites, and has marketed an “ITAR-free” commercial product. ITAR, or International Traffic in Arms Regulations, is a U.S. State Department regulation that governs technology exports of armaments and satellites.

This product has made ThalesAlenia Space the only world-class builder of telecommunications satellites to be able to sell into the Chinese market. It has sold three telecommunications satellites to China-based satellite operators using the ITAR-free model.

In May, ThalesAlenia Space contracted with Indonesia’s PT Indosat company to provide the Palapa-D telecommunications satellite. Indosat had solicited an in-orbit delivery of the satellite. ThalesAlenia Space officials’ least-expensive option was to make a combined offer of an ITAR-free satellite and a Chinese rocket.

But the U.S. sanctions on China Great Wall Industry Corp. meant that company could not be used. Instead, ThalesAlenia Space made its Palapa-D bid with a heretofore unknown company named Beijing Talentway Technology Corp.

“This company is basically CASC,” ThalesAlenia Space Chief Executive PascaleSourisse said in a Dec. 20 interview, referring to China Aerospace Corp., the umbrella agency that oversees China’s aerospace activities. “CASC is not subject to sanctions. Do you really think that if the U.S. government wanted to blacklist CASC or all of the Chinese government, that it wouldn’t know how to do this?”

U.S. and European industry officials have long said that if the goal is to shut down exports to China of technologies useful for weapons, the ban would have to include Boeing and Airbus commercial aircraft, whose guidance systems and other avionics packages are at least as useful as a modern telecommunications satellite.

Thales Alenia Space won the Indosat Palapa-D contract with China’s launch vehicle against a competing bid made by Space Systems/Loral of California, coupled with Arianespace.

The Palapa-D win was announced in June two months after Thales Alenia Space’s corporate ownership changed from Alcatel-Lucent to Thales Group.

Thales North America, made aware of its new sister company’s ITAR-free product, visited the U.S. defense and state departments to explain the product and take the measure of the U.S. government’s reaction.

“We proactively met with the U.S. State Department, and the U.S. Defense Department,” Thales North America Chief Executive Allan Cameron said in a Jan. 9 interview. “We are completely transparent with the U.S. government on this matter. We have not violated any aspect of ITAR or other U.S. regulation in any way.”

Cameron said no one at Thales North America has received any indication that the U.S. government has a problem with Thales Alenia Space’s activities.

Cameron said Thales North America welcomed a recent congressional order that the U.S. Secretary of Defense deliver a report by May assessing China’s rocket program and identifying non-Chinese companies that use the rockets. “It’s another opportunity for us to be involved in the process,” Cameron said. “It gives us a chance to reinforce the fact that we are not violating ITAR.”

Thales Alenia Space officials have said privately that Arianespace is fighting a battle over very small stakes.

“In the five years since we have had our ITAR-free product we have built 25 commercial telecommunications spacecraft,” one Thales official said. “Twenty have contained U.S. components subject to ITAR. Five have been ITAR-free. Of these five, three were for Chinese customers.”

The two other satellites were Palapa-D and the Rascom-QAF1 telecommunications satellite built for the 45-nation Rascom organization of Africa. Rascom had been built ITAR-free not because of China, but because at the time its construction began, Libya was subject to U.S. export sanctions. Libyan interests are major shareholders in Rascom, and both Rascom and its satellite manufacturer thought prudence dictated that it be built ITAR-free.

Thales Alenia Space and Rascom had sought to use China’s rocket for the launch, but decided to contract with Arianespace because Chinese authorities could not guarantee a launch before mid-2008, according to Jean-Pierre Note, Rascom’s chief financial officer. The launch aboard an Ariane 5 rocket occurred Dec. 21.

“When Rascom construction started, what is now Thales Alenia Space was owned by Alcatel-Lucent, and we judged there to be some political risk if we selected the Chinese vehicle,” Note said in a Dec. 20 interview. “But we were concerned that our financial backing might not hold if we had to wait until mid-2008. And in our case, the difference in price between Arianespace and the Chinese rocket was not that large when you factor in the added costs of having Thales Alenia Space perform the prelaunch preparations in China instead of at Europe’s launch base.”

“Our objective is to optimize our offer in all the contracts we bid on,” Sourisse said. “We habitually offer several launch options in the in-orbit delivery contracts we compete for. We are agnostic on this. Our business is to sell satellites. We will offer Arianespace or the Chinese rocket, or ILS or Sea Launch [commercial-launch providers] depending on the specific demands of the customer, and on market conditions.”

Publicly at least, Sourisse has showered Arianespace with compliments, never missing an opportunity to point out that ThalesAlenia Space is one of the launch-service provider’s biggest customers.

For Le Gall, China remains a non-market economy in many respects and can ratchet up or down its launch-vehicle price at will, without the profit-and-loss concerns that govern Arianespace and its other competitors. Le Gall also has said ThalesAlenia Space, as a European company, should fall in line behind Europe’s launch-services provider as a matter of course, except in exceptional circumstances.

But in a Dec. 19 interview, Le Gall conceded that, sooner or later, China likely would be readmitted into the commercial-launch market with a lifting of the U.S. government restrictions, and that Chinese prices would rise as China’s economy continues to boom.

Le Gall said the unique price advantage that China’s rockets now enjoy likely would disappear, just as the price of Russian rockets has risen steadily with the strengthening of Russia’s economy. “It will be the same with China,” he said. “We are confident we can adapt to it.”