Cost Savings Minimal in Latest Ariane 5 Contract

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PARIS — The contract signed in December for the production of 18 Ariane 5 rockets and valued at about $3 billion reflects only a 5 percent per launcher cost reduction from a similar contract inked nearly five years ago for the same type of rockets, according European government and industry officials.

These officials said the PB-Plus contract for 18 Ariane 5 rockets — but only 13 upper stages — is valued at more than 2 billion euros ($2.7 billion) and highlights the challenge in Europe of reducing the cost of a vehicle now facing more global competition than ever.

Entrenched interests in industry and government resist any major price cuts in part because of the incentive structure that has long been part of the Ariane launcher system, officials said. 

The Evry, France-based Arianespace launch services consortium orders rockets from a contracting team made up largely of its own shareholders. These companies would prefer to generate revenue from building high-cost rocket components rather than take dividends from their Arianespace equity holdings.

The fact that European governments have guaranteed to offset certain Ariane 5 operating costs means there is still less incentive to assure that Arianespace wrings a profit from its business. The current European government cost-reimbursement guarantee is 100 million euros a year.

This entire ecosystem is now under threat by France’s push for a next-generation Ariane 6 rocket that will cost much less to build and operate. Among other features, the Ariane 6 program is being promoted as requiring no more annual operating-cost support from governments.

The Ariane PB-Plus contract, signed Dec. 17 between Arianespace and Ariane 5 prime contractor Airbus Defence and Space in the presence of French President Francois Hollande, brings to 117 the number of Ariane 5 rockets ordered from industry since 1995.

The orders have been for different quantities of basically the same vehicle, although the Ariane 5 rocket itself has been subject to minor tinkering through the years that has improved its performance and reliability. The vehicle has now gone more than a decade, and 57 flights, without a failure.

The first industrial order for Ariane 5 was made in 1995, for 14 rockets. The second, in 1999, covered 20 vehicles. 

A third order, called PA, was signed in 2004 and covered 30 rockets to be launched starting in 2005. It included five models without the upper-stage HM7B engine because they were reserved for European government missions not going to Ariane 5’s usual destination of geostationary transfer orbit. The order was valued at 3 billion euros at the time.

The next batch, called PB and signed in January 2009, covered 35 rockets and was valued at more than 4 billion euros. The contract was later modified to reflect the fact that five of the vehicles would be without the Ariane 5 ECA upper stage — again to adapt to European government missions.

The government missions include launches of Europe’s ATV-4 and ATV-5 unmanned freighters to the international space station, the BepiColombo mission to Mercury and between one and three Ariane 5 vehicles to carry Europe’s Galileo positioning, navigation and timing satellites to medium Earth orbit.

The latest PB-Plus order is for 18 rockets but only 13 upper-stage engines, reflecting the ECA upper stages remaining from the previous contract.

Arianespace Chief Executive Stephane Israel on Jan. 7 defended the contract’s terms. While the cost per vehicle is only about 5 percent less than the cost of the 2009 order, it includes features that give Arianespace room to adapt to market pressure, he said.

In a statement issued after the contract was signed, Airbus Defence and Space said: “The cost-performance ratio of these new Ariane 5 ECAs will significantly improve due to ongoing [Airbus]-led technical and process improvements across the entire industrial chain.”

One industry official said the most recent contract shows little in the way of cost reductions in part because it calls for just six Ariane 5 vehicles to be delivered per year between 2017 and 2019, against a seven-per-year rhythm of the previous order.

 

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