Arianespace CEO Says Price Cuts Are Bearing Fruit

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PARIS — Arianespace’s decision to lower prices for smaller satellites riding on its heavy-lift Ariane rockets — a move Europe’s launch service provider made in response to price pressure from Space Exploration Technologies Corp. — has already resulted in several contracts to be announced in the coming weeks, Arianespace Chief Executive Stephane Israel said.

With the new pricing policy bearing fruit, Israel said the next step will be to realign the company’s cost structure. Arianespace and its industrial contractors — which are also its principal shareholders — are scheduled to present the basis for a new, lower-cost industrial structure to European governments later this year.

The competition from Hawthorne, California-based SpaceX for satellites weighing around 4,000 kilograms, and Arianespace’s inability to cut costs as quickly as it cuts prices, will force the European launch supplier to ask European governments this year for a 16 percent increase in annual support payments.

In its 2013 annual report, Evry, France-based Arianespace said it will ask European Space Agency governments in December to allocate 116 million euros ($158 million) per year for the period between 2015 and 2018 to enable Arianespace to reach financial break-even. That figure compares with the current allocation of about 100 million euros per year for 2013 and 2014 that ESA governments approved in late 2012.

Arianespace reported revenue of 989 million euros in 2013, a 26 percent decline from 2012 as the company was confronted with late-arriving satellites that made it impossible to launch as often as it had planned.

Arianespace launched four Ariane 5 heavy-lift rockets in 2013. It had planned on six for the year. The company launched two medium-lift Europeanized Russian Soyuz vehicles from Europe’s Guiana Space Center spaceport in South America, against four planned.

The company said in its annual report that to avoid financial losses it must launch at least five Ariane 5 vehicles and two Soyuz missions from the European spaceport each year.

The Soyuz delays were due to issues related to satellite constellations whose hardware confronted last-minute issues or were simply behind schedule.

Arianespace now has three rockets at the equatorial launch base, with the light-class Vega vehicle now in the rotation with Ariane 5 and Soyuz.

In hopes of making up for a poor 2013, Arianespace had planned 12 launches in 2014. In a briefing in Singapore during the CommunicAsia exhibition and conference, Israel said that remains the goal but that satellite delays are again threatening the schedule.

Because the Australian Optus 10 satellite was returned to the manufacturer just days before launch, the next commercial Ariane 5 mission missed its May launch date and has been delayed to September.

Like almost all Ariane 5 commercial launches, this mission was scheduled to carry a heavier satellite in the Ariane 5 upper berth — Measat of Malaysia’s Measat 3b — along with a lighter satellite, in this case Optus 10, in the lower berth.

Without these lighter satellites to complement the heavier payloads, the Ariane 5 business model collapses — one reason Israel has said a planned Ariane 5 upgrade to be decided by ESA governments in December is so important as it will give the company more flexibility in pairing satellites.

“The number of small satellites to be launched defines the Ariane 5 launch cadence,” Arianespace said in its annual report.

Satellites available for commercial launch in a given year do not always divide evenly between heavier and lighter classes, which has been a problem for Arianespace. The arrival of SpaceX has made it worse, which is why Arianespace early this year announced a price cut for smaller satellites riding in the lower berth.

In an appearance on France’s BFMtv business television June 23, Israel said the new pricing policy is already a success.

“What we have seen is that when we reduce our prices, there is a strong reaction in the market, which says, ‘A less-expensive Ariane 5 is of enormous interest to me.’ We’ll be announcing several contracts in the coming weeks. This will force us to lower our own costs,” he said.

Joint Venuture

Airbus Defence and Space, which is the largest Ariane 5 industrial contractor and Arianespace’s largest industrial shareholders, and French rocket-motor builder Safran, also a large shareholder in Arianespace, have announced their intentions to create a 50-50 joint venture that will allow them to reduce their costs.

The two shareholders have said the joint venture’s goal is to expand to include Arianespace and other Arianespace shareholders, and to purchase the 35 percent Arianespace equity stake now held by the French space agency, CNES.

Whether Arianespace will disappear in the new industrial structure or remain as it is inside a larger company is unclear.

Israel said Arianespace could be the customer-facing entity as part of a company that in addition to selling rockets also builds them. By 2016, he said, the new entity, with Arianespace as its most visible element, could generate some 2 billion euros in annual revenue by adding today’s Arianespace commercial sales to the rocket-development programs ESA governments will be asked to approve in December.

These development programs include about 1.2 billion euros to be spent on the Ariane 5 ME upgrade and around 3 billion euros on a next-generation Ariane 6, whose design and cost remains a subject of debate.

In its annual report, Arianespace said that as of Dec. 31 it had 45 million euros of debt to the European Investment Bank, part of a long-term, fixed-rate loan taken out to purchase Russian Soyuz rockets for launch from the European spaceport.