The Arianespace launch consortium, which invented the commercial space-launch industry almost by accident 34 years ago this month, now faces what may be its greatest challenge since the mid-1990s arrival of former Soviet rockets into the marketplace.
The successful Dec. 3 launch of the Space Exploration Technologies Corp. (SpaceX) Falcon 9 v1.1 rocket carrying a commercial telecommunications satellite for SES of Luxembourg establishes SpaceX as a credible Arianespace alternative for satellites at the smaller end of the geostationary-orbit satellite market.
At the other end of the spectrum, the successful Dec. 9 launch by Russia’s Proton rocket of a satellite for Inmarsat of London illustrates the longstanding competition that Proton offers.
Proton’s recent quality-assurance issues, at least for the rocket’s government launches, have lessened — for the moment — Proton’s appeal to some commercial customers. Proton operators in any event charge prices that do not radically differ from what Evry, France-based Arianespace charges.
SpaceX by contrast is advertising prices that are 30 percent lower than Ariane’s going rate for the lighter satellites it must carry alongside the heavier spacecraft — on each launch — to make the business case for the heavy-lift Ariane 5 rocket.
Arianespace Chief Executive Stephane Israel spoke with SpaceNews staff writer Peter B. de Selding about how the company plans to address the new competitive landscape.
SES said the commercial launch industry would be shaken to its roots by the arrival of SpaceX. Are you shaken?
No, but we certainly need to be aware of what is going on around us, especially as we are in a leadership position. The competitive landscape is evolving, just as it evolved some years back with the arrival of Russia’s Proton on the market. Today, with SpaceX, there is another competitor. There’s no need to overreact or to underreact — just to act.
Their launch was a success, so now they have arrived, as others have arrived before them.
Was the SpaceX launch a relief in some ways?
SpaceX is now a fact. They have left the virtual to join the reality of the market. We have conducted 215 Ariane missions, with 57 consecutive successes, so we need to put things in perspective.
The world’s second-largest commercial fleet operator, SES, seems enamored of SpaceX. Are you surprised?
SES wants to introduce maximum competition into the market. They introduced Proton in 1996, and SpaceX in 2013. Ariane has been here since 1980. I know my customers want competition, and want the choice of at least two launchers.
Other operators want this as well. We need to take account of this, and we are. Competition in the coming years will mainly be between Ariane versus Proton in the upper position, and Ariane versus Falcon in the lower position.
Do you need to adjust pricing given SpaceX’s presence?
Of course we will; it’s a normal reaction, and we have done this in the past. If you look at launch prices for large satellites, you see an evolution over the years as Proton and others have entered the market. Prices have not remained static.
When it comes to Ariane 5, our maneuvering room is not huge. But with our partners we’ll examine those areas where we can find economies in an exercise that will occur in the coming weeks.
Will you be able to adjust the cost of the 18-vehicle Ariane 5 contract you’re about to sign?
For this contract we have already signed commitments for long-lead items. But we’ll continue to monitor the market’s evolution and be ready to adapt it. In addition, independently of this contract, we can look to see elsewhere in the Ariane system where efficiencies might be found.
Even without touching the contract, which you have estimated will be valued at around 2 billion euros ($2.7 billion)?
Yes, in addition to procurement contract adjustment, we can look at where efficiencies might be found, and where processes might be optimized. Again, our maneuvering room on prices for Ariane 5 is not huge, but it’s not zero either.
If you don’t renegotiate, where can you find costs to cut?
First of all, the Ariane 5 contract will enable us to effectuate certain price reductions compared to the prices of today. It includes certain adjustment possibilities and we’ll see if we need to go further. Our object is to sign this contract before the end of this year.
I am not going to get into a price war. Quality has a cost and Ariane 5 has demonstrated that quality. Just one example: We have launched 12 times consecutively at T-0 with no countdown holds. We have a mature launcher whose quality has increased over the past 10 years. All this comes at a price.
There is now more competition in the smaller end of the geostationary telecommunications satellite market than in the larger end. The competition with Ariane for satellites weighing around 3,200 kilograms was fairly limited until the arrival of SpaceX.
For the larger satellites, the difficulties Proton encountered have resulted in new orders for Arianespace. This situation could change, but that’s the way it is today.
But you don’t need to cut your costs by 30 percent or so to match SpaceX?
We won’t be pulled into a price war. Second, we shall see what their prices are over time. For the moment, they benefit from a $1.6 billion contract with NASA, and from a currency that is weak. These are advantages we don’t have.
Some customers are very sensitive on price, and we need to respond to that. But I don’t think the initial prices announced by SpaceX will remain the same as they enter into regular launch services. Still, Arianespace has to adapt to a context where we now have competitive pressure at both the lighter and heavier ends of the market.
You estimate that around 15 small geostationary transfer orbit (GTO) satellites — sized for the Ariane 5 lower position and for SpaceX’s Falcon 9 — will be ordered in the next 18 months?
That is what comes from our discussions with market players. There are lots of small satellite projects that are in the works. We are not sure all of these will be realized, but this is a dynamic market, in part because of a catching-up process as there were lots of large satellite contracts signed recently, and in part because of SpaceX.
People see a new launch supplier in addition to Arianespace. And when you add to that the fact that many nations formerly without their own satellites now want one, and that people in the industry are thinking about electric propulsion, you have a very dynamic market for this class of satellite.
So there will be a relative equilibrium between larger and smaller satellites, and there will emerge a medium-size market with electric propulsion as that technology reduces the size of what once were large satellites. Plus you have SpaceX moving toward a GTO performance capability of 4,000 kilograms. These factors will stimulate a middle ground of satellites between the large and the small.
Is that good news or bad for you?
It’s good news for us given that we need to launch two satellites at a time. The more the market is balanced between large and small, the better it is for us, even in a context of heightened competition — and even if in 2013 we had a record year in orders for larger satellite launches.
Having these big satellites already in our backlog means we can make firm commitments to owners of smaller satellites as to launch dates. That will give us an advantage in negotiating with operators as we promote our manifest in 2016 and beyond.
Your small-satellite launcher, Vega, has launched twice. Is the 10 additional Vega rockets you just ordered big enough to bring down the unit cost to where it needs to be for world markets?
The size of the order was an important element to encourage Vega’s prime contractor, ELV, to commit to prices that are near the market price. We took only a limited risk since of the 10 launchers, eight are already dedicated to missions that are about to be added to our backlog.
So there is some remaining risk for two launches. Our goal for Vega is to arrive at a cadence at two or three launches per year.
Are those eight Vega orders divided between European Space Agency (ESA) and non-ESA commercial customers?
They are both for ESA and for commercial export contracts. I don’t want to identify them until the contracts are final.
Vega’s market is also dynamic, and very competitive, and the vehicle’s competitiveness needs to be improved. We have passed a big milestone with this new order, but we can do better. This contract is only a point of departure.
We took what we viewed as a limited risk in this 10-rocket order. Now Vega needs to get to its industrial cadence. The contract divides the risk between Arianespace, ESA and ELV for Vega for the 10 rockets.
Why should ESA agree to share in the risks beyond the Vega demonstration program currently underway?
The agency wants to favor European launchers for European missions, and it participates in the risk. They did this for the Vega demonstration program, Verta, and they will be doing it in other ways for this new order.
European governments, and especially Italy, want this launcher, whose development cost hundreds of millions of euros, to succeed in its commercialization. They have agreed to assume responsibilities so that the Vega system reaches equilibrium at a two-flight-per-year cadence. The business model is centered on a three-flight-per-year scenario. But the financial viability of the vehicle is assured even if there are only two vehicles per year.
For 2014, you can launch eight Ariane 5 rockets?
Up to eight, depending on when satellites arrive. We are extremely busy in both 2014 and 2015. This year, 2013, was not up to our expectations in part because of late satellites and then the component issue on satellites set for Soyuz launches.
So we are going to have two big years in 2014 and 2015, which is why we need to organize the launch base to deal with three vehicles. It has only been since 2012 that we have had three rockets operating at the spaceport.
Our shareholders understand this, which is why they agreed to finance the new fueling facility for the upper stage of Soyuz, which will free up space for other payloads starting in 2015.
For 2014, we need to optimize the length of launch campaigns, and organize ourselves better with the French space agency, CNES, ground operation.
Eight Ariane 5 launches in a single year would be a record.
There will be two Ariane 5 launches before the end of February. After that we’ll see about the fine-tuning. I don’t think we’ll get to eight Ariane 5s, but we need to be in position to do up to eight.
For Soyuz, the delays of 2013 are behind us. Galileo will be there, O3b will be there, all of which makes 2014 very busy.
Three to four Soyuz launches in 2014?
Yes, four Soyuz and one or two Vegas is the target.
There are likely to be two Galileo launches, plus Sentinel, plus two O3b? That would make five Soyuz campaigns.
If we need to go to five Soyuz vehicles, the production has to be there to do that. We had 10 total launches in 2012. The point is we need to organize ourselves to be as efficient as we can during a very busy period.
After we sign the Brazilian contract for SGDC [a Brazilian civil-military telecommunications satellite], we will have signed 15 GTO contracts in 2013, a record year for us, plus one Vega mission contract. We’ll probably sign two more orders for Vega by the end of the year.
Lots of nations want their own telecommunications satellites now. Is this enthusiasm sustainable over time?
We launched the first Azerbaijan satellite and the first Qatar satellite this year and both these nations have larger ambitions. I was in Mongolia recently and it has a very credible space program. We think that this will be an open competition and the nation is looking for the best possible offer.
But is this a bubble?
No, we think we’ll have a stable market of 20-25 units per year in the coming years with a new equilibrium between larger and smaller satellites. There is a strong desire for telecommunications autonomy in these nations. Chile is another, Bangladesh also looks credible, and Nigeria has not finished its development. Near the Persian Gulf, Saudi Arabia, United Arab Emirates and Qatar are active. Argentina is, too.
So stable-plus, meaning beyond 20 GTO satellites per year, to 2030 is our sense of the market.
Some operators are already complaining about the design choice made for Ariane 6. What is your judgment?
We have two priorities: ensuring the continued competitiveness of Ariane 5, and preparing a new launcher. The configuration for Ariane 6 has been decided, but it will be ESA’s job in late 2014 to define the roadmap on the way to Ariane 6, and the introduction of Ariane 5 ME, an upgraded Ariane 5. Here Arianespace’s role will be to give to our shareholders and to ESA our best estimate of the market, so that they make the best choices.
For ESA the first concern is strategic autonomy for European institutional payloads. ESA member states need to decide the roadmap for Ariane 6, and we have a few months left to complete this. And as for Arianespace, our job is to be as agile as possible given the competition.
Is the current Ariane 6 design the best possible viewed from the commercial market?
For us, the challenge is to reach the goal of 70 million euros in launch costs. The price of Ariane 6 will be decisive. All those involved — industry and agencies and us — need to understand this. We must ensure that Ariane 6 is competitive for both big and small satellites to optimize our ability to cope with different market scenarios.
We need the best mix between institutional demand and commercial demand. We have not heard from all the commercial operators, only from some of them. ESA has been in discussions with commercial operators and it will be ESA’s job to determine how to proceed. For Arianespace, the more we listen to Ariane customers, the better we are.
Arianespace is mobilized to augment the competitiveness of Ariane 5. We will give to our shareholders our view of the evolution of the market, and the best way to approach it, in early 2014 — before the ESA ministerial conference in late 2014.
That’s not a bit late to weigh in with an opinion?
I don’t think so. We are in regular discussions with our customers, with ESA, with our shareholders. It will be up to us to say how we see the evolution of the market and how our roadmap needs to be adapted. We’ll be sharing our opinions first with our shareholders. A choice of design has been made, so the priority is to discuss issues of timing and the ability to reach the target price.
Do you still expect Arianespace to fall short of 2012’s 1.33 billion euros in revenue because of the lower launch rate?
Yes, we expect to report about 1 billion euros in revenue in 2013 because we could not launch as we expected, especially with the non-arrival of one expected satellite for Ariane 5, and another that was late, and the Soyuz satellite component issues. We had five launches that were affected — two Ariane 5s and three Soyuz campaigns.
The two Ariane 5 satellite issue-caused delays meant SES’s Astra 5B, which was to ride with both these customers, is more than six months late in launching.
How late was SES’s satellite in launching on SpaceX? That said, we suffered from an incredible sequence of adverse events, and now we must do our best to recover and to deliver.
You see electrical propulsion arriving quickly?
Yes, we recently completed a market study and concluded there is a large appetite for this, even though time to orbit is a concern for many satellite operators. The relatively long period it takes for an all-electric satellite to reach final position is a worry for some operators both because of the delay in service availability and revenue, and because of concerns about what happens in the months of orbital transfer. Still, we think this technology is in the starting blocks.
Is the French export-credit agency, Coface, still an important component as you seek export orders?
When we deal with operators who want this option, Coface is extremely important to use especially since the U.S. Ex-Im Bank has become more aggressive on the market, as has the Japanese agency. We are seeing a kind of competition among agencies.
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