Ten years ago the British Ministry of Defence (MoD) and Astrium UK signed what has become a 20-year satellite communications services outsourcing contract, valued at 3.6 billion British pounds ($5.8 billion), called Skynet 5.
The contract, the first of its kind, has been extended twice and is scheduled to continue to 2022. The fourth and perhaps final Skynet 5 X-band satellite financed by Astrium under the contract, Skynet 5D, was launched in December 2012. The satellites were designed to give the British MoD room to order surge capacity when needed, and to give Astrium room to sell unused bandwidth to allied governments.
The Skynet 5 Private Finance Initiative did not start a trend. No other government has since adopted the model of letting industry handle the entire capital expenditure of building and launching military communications satellites, and providing the ground infrastructure to use them, within a services contract.
It remains unclear whether that will change with France, Italy, Spain and Britain all facing military satellite communications fleet-replacement decisions at a time of intense pressure on government spending.
Colin Paynter, managing director of Astrium UK, was involved in the Skynet 5 project from the start. He spoke with SpaceNews staff writer Peter B. de Selding about the project’s early challenges and current status.
He also addressed the company’s views on future military Ka-band services alongside its global X-band product offering, and Astrium’s role as Britain’s biggest prime contractor at a time when Britain is increasing its contribution to the European Space Agency () by 25 percent for at least five years.
Ten years after you signed the Skynet 5 contract, it remains unique in its field. Are you surprised?
No other government has chosen to take what was, in 2003, a hugely bold step — outsourcing mission-critical services like this in the military satcom domain. The whole concept of a long-term partnership was tremendously bold. To get the partnership structure embedded on both sides was quite an achievement. We hadn’t come from that side. Astrium was a system supplier and MoD was a standard asset-based procurer.
Why has it not been adopted elsewhere?
In the early years we were providing services via the Skynet 4 satellites, but we were also building an infrastructure. There were huge risks in building it on our own balance sheet. Both sides were hesitant in talking about the successes in the partnership because there were so many risks around the infrastructure.
One of our most significant achievements is that while we signed the contract in 2003, it was 1997 when the Skynet requirements and the need for the first satellite were laid down. And we met that requirement 10 years later. We delivered the spacecraft in 2007, on time.
Laying the ground network, refreshing all the U.K. naval ships, building a lot of ground terminals, updating and developing a satellite control center in an army facility — it was a very risky period for the project. Because this partnership mindset went well it didn’t attract much attention.
Some French government officials say the U.K. government paid too high a price.
Clearly I disagree with that. The U.K. National Audit Office concluded that there was a 15 percent savings when looking at the public-sector comparator, including what would have been the cost to MoD of ownership of the assets and the maintenance of skills. Set against that were the efficiencies we could bring. We sized the spacecraft so that we could open up a third-party market, providing flexibility for MoD to increase and decrease its usage and giving us the ability to take the system into the wider market.
You have to be careful in properly assessing what a system like this would cost the MoD to run over what is turning out to be a 20-year concession. From outside the MoD it is seen as a good value-for-money move by the MoD.
And the contract has been extended to 2022, with additional spacecraft.
Yes, we started with two satellites, and we made proposals that resulted in their having a four-satellite system, pretty much inside the same cost envelope but extended in time.
Have there been areas where cost or revenue was different than expected?
We are pretty much on the business plan today, which is astonishing. But it is based on different activities than what we assumed 10 years ago. We had higher usage by the MoD in the early years, with the large overseas troop deployments. And that countered the fact that the third-party market was slower to build up than we had anticipated. It took longer for people to understand that via a standard commercial contract they could buy capacity or managed services, with a full-milspec, hardened system anchored in secure sites.
Now we’re seeing quite an interest in the third-party market, fortuitously timed as the U.K. overseas deployment comes back to a more level from the peaks. Other countries perhaps don’t want to go down the full capital expenditure of buying their own military satcom. They’re looking at maybe a mixture of doing their own small military satcom and picking up backup facilities and out-of-area capacity through the worldwide X-band coverage of Skynet.
So although the business plan is different, we’re pretty much in line with our initial financial assumptions.
Is the new third-party interest because people are more comfortable with the idea, or because of the global reach of your X-band coverage, which you didn’t have before?
It’s both, and the fact that there is a lot of pressure on defense budgets around the world. In this type of commercial contract they can turn up and turn down their use of a premium military facility.
We are active in the market now because we have a business plan to fulfill and we are seeing U.K. deployments roll off the peaks of recent years. So we’re pushing a bit more.
How many Astrium people work on the Skynet contract?
At its peak, well over 1,900 people were on the program when we were developing the infrastructure and setting up the services. As a more steady-state number, it’s down to 200-250 to maintain the network and do logistics work for all of the kit we own, which is deployed around the world. There is also a joint team in the U.K. that provides all the planning, and a team that handles satellite operations.
How are technology updates handled?
When we negotiated the contract, the MoD and ourselves agreed that we would maintain a service catalogue to keep the system evolving with new functions. We added a small amount of money per year — less than 5 million pounds [$8 million] — to work with MoD to pilot new services.
That was a very clever thing to do and it has also helped us retain flexibility in the contract. Apart from the two new satellites, 5C and 5D, I don’t think we’ve had any contract changes. This is rare in my experience with the MoD.
We’ve added transmissions to and from the unmanned aerial vehicles, which is a new service. But there has been no real change to the core service and the contractual framework. Keeping the contract in the drawer rather than on the table is of considerable help.
It is really important for a contract like this that both sides vest their interests in its success. You couldn’t have one side losing and one side winning over such a long period.
Skynet 5D has been in orbit nearly a year, and 2022 seems a long way out. Will there be a 5E, and if not when does the new contract preparation start?
These are questions for MoD. From our perspective there is capacity in orbit now to fulfill the requirements through to the end of the concession, but not a very long period after that.
Skynet 5C and 5D will carry on after the concession. I don’t see a 5E. We’ll see how best to build on the services and infrastructure we have. MoD is thinking through its procurement options.
I think it is in their minds to continue with a service construct because they have been happy with this model, and they are now familiar with it.
Five European nations have deployed their own milsatcom capability and with the exception of a Franco-Italian effort they have been unable to pool resources to save money. What’s the problem?
It’s really up to the countries involved to understand their position and determine what to do. They understand we have X-band capacity available. We can talk to them about a possible ownership model that doesn’t have to be the full outsourcing that the U.K. undertook. There is a mix of things that can be done.
The U.K. was ready to go down that path. We wait to see the deliberations in France and Italy and elsewhere. There has been discussion in the French-U.K. high-level working group for some time. But there are no real conclusions yet. There is further discussion needed to see how the armed forces might manage this.
When do you need to decide on a Ka-band strategy alongside your X-band to keep up with the market’s evolution?
It has been interesting to watch the development of this market. We built and help operate the Yahsat Ka-band system in the United Arab Emirates. From our point of view, our anchor customer is the U.K., and there is no published requirement in the U.K. for military Ka. Without the anchor customer being ready, it’s difficult for us to lead with anything significant.
I don’t think the market is mature enough for the type of Ka-band we would like to offer to our anchor customer — a full-milspec Ka-band spacecraft. What you see coming out in the market now is a sort of mix, with military Ka-band frequencies but not really the fully secured system.
Our position in the market is to offer this premium, a full-milspec facility under a commercial contract. That is our unique selling point, and I’m not sure the market has developed so that nations are ready to buy that. I think it’s coming, it’s just not there today. For our business case, we’d like to have customers who are looking for the type of military Ka we would like to provide.
How many people work at Astrium UK in total?
Around 3,000. It moves up and down. Our commercial satcom activities are at a good level, and we are seeing a slight rise in the staffing of our ESA work because of the tremendous boost the U.K. government gave by raising its ESA subscription so substantially.
But as with most other places in the world we’re seeing a reduction in the military development work. Overall it’s a stable position, but of course we have skill-mix issues almost on a quarterly basis.
Your Geo-Information division has seen cuts too.
Yes, it was hit quite badly by the financial crisis. A lot of the early decrease in government spending was around the services aspects of acquiring images. That hit our U.K. operation.
It’s bouncing back now. It’s had a number of good wins this summer, and I think we’re stabilizing that business and we’ll see some growth toward the end of the year.
But we had to reshape it. The U.K. part of Geo services can be more volatile because it does not have its own assets with which to develop its business. Look at France with the Spot spacecraft, and Germany with TerraSAR and the WorldDEM products coming out of that. In the U.K. we are more of a services entity. We don’t have that owner/operator stability. So it will be a more immediate business with a lower backlog and having to refresh its business quicker as a result.
How do you avoid becoming seen as monopoly supplier as the British government’s space budget increases?
It’s a big question for the next several years. The government is looking to anchor jobs through the functionality of satellites.
This will attract other actors and this has to be accepted by Astrium. There is a mature conversation that has to occur at some stage as to whether the U.K. can, like some other countries, support two prime contractors.
We have to be careful that we manage that conversation not in terms of Astrium having a monopoly hold — that is not a long-term satisfactory solution for anybody.
When we acquired SSTL [small-satellite specialist Surrey Satellite Technology Ltd.], after talking to the government we put it at arm’s length, maintaining competition between SSTL and its owner, Astrium.
The government sees satellites as a way of encouraging the economy, not only as a science value but as an economic value.
If we ever get up to the dizzying heights of the French spending, then maintaining two prime contractors on the world market may be a subject. But the U.K. spend is a long way from being able to do that.
To make this new government ambition successful you have to keep a very vibrant community of small and medium-sized enterprises. We certainly recognize our responsibility as the prime in the U.K. in doing that.
Will government concerns about the perception of Astrium UK as a dominant contractor affect make-or-buy decisions where outsourcing appears uneconomic?
No, we will do what needs to be done to maintain our position in the market, but I don’t think it’s black-and-white decisions like that. We will look at what is economically sensible.
Where is biggest growth in next five years at Astrium UK?
We’re well placed in the commercial satcom market. We produce the mechanical platform and we produce the payload here. That is going to remain important.
From our milsatcom position we might develop services for the wider government, along the lines of national critical infrastructure and the security issues government has. That is an interesting area for us, and worthy of exploration.
With Airbus Defense and Space [the new division including Astrium inside Airbus, the new name for EADS], the interesting thing is around the communications and information security area, where government customers will be interested in bundled services. That could lead to some interesting growth.
Follow Peter on Twitter: @pbdes