Arianespace Shareholders Agree to Offset Consortium’s Losses

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PARIS — The Arianespace commercial launch consortium has won approval of its shareholders to recapitalize the company to compensate for two years of losses totaling 135 million euros ($184 million), European government and industry officials said Jan. 26.

The shareholders, led by the French space agency CNES and Ariane 5 prime contractor Astrium Space Transportation, will not be paying that amount in cash, however.

Taking account of an apparently exceptional cash reserve of 55 million euros at Evry, France-based Arianespace, the company’s shareholders ordered that these funds be used to offset the amount of cash the company was soliciting.

As a result, the shareholders were obliged to write checks for a total of 80 million euros.

CNES President Yannick d’Escatha, in a Jan. 26 press briefing, confirmed that CNES and the other Arianespace shareholders agreed to take responsibility for the recapitalization on a pro rata basis following each shareholder’s existing equity stake in Arianespace. CNES, which has a 34 percent share in the company, thus paid a bit more than 27 million euros, CNES Financial Director Laurent Germain said in a Jan. 26 interview. Germain said the French government paid these funds from a separate account that was not part of the CNES budget.

In addition to taking a 34 percent stake in the recapitalization of Arianespace to mop up the company’s red ink over two years, the French government is pushing its fellow European Space Agency (ESA) nations to allot 120 million euros in 2011, and an identical sum in 2012, to bolster Arianespace’s finances.

D’Escatha said CNES has agreed to pay 50 percent of this sum, a contribution he said corresponds to French industry’s work share in the Ariane 5 heavy-lift rocket program, which is Arianespace’s principal source of revenue.

Before agreeing to pay this amount, ESA governments have insisted on an outside audit of Arianespace and its principal hardware suppliers. ESA Director-General Jean-Jacques Dordain said Jan. 14 these nations have no knowledge of Arianespace’s billing practices, nor of whether Ariane 5’s contractors, most of which are also Arianespace shareholders, are making a large profit on their work. In this context, Dordain said, an audit is a reasonable precondition of any fresh cash injection into Arianespace.

D’Escatha said it may well be true that ESA governments do not know how Arianespace sets launch prices, or whether its suppliers/shareholders have fat profit margins. But he said these governments have had every opportunity to learn the basics of Arianespace’s business in recent years, especially since ESA has a seat on Arianespace’s board of directors.

In addition, d’Escatha said, ESA governments insisted on getting access to financial details about Arianespace as a condition for a six-year, billion-euro program called European Guaranteed Access to Space, or EGAS, that came to an end in 2010.

But d’Escatha agreed that ESA governments had been promised, when EGAS was adopted, that once it ended, Arianespace would be able to support itself without further direct aid from ESA.

On being told in late 2010 that a new round of support payments, albeit at a lower level, was required, “these governments were shocked,” d’Escatha said.

“They were shocked by this because we had told them it would be ending,” he said, adding that while the financial basics of rocket building and rocket selling were made available to these governments, “not all of them may have availed themselves of the opportunity to examine” the available information.

The audits now being carried out, which are scheduled to conclude in time for a March ESA decision on the aid package, will help in determining whether costs may be squeezed from the current Ariane 5 production cycle, thereby reducing the amount of annual cash aid required from ESA.

“Several nations said we should be able to make do with less,” d’Escatha said. “We said that’s fine with us, just show us how.”

One ultimate outcome of the current debate could be a change in Arianespace’s shareholder structure. D’Escatha said lots of options are being discussed, but that whatever is decided should end up with all ESA nations with a more direct ownership role in Arianespace.

“I don’t want our partners to be there just once a year when they have to write a check,” d’Escatha said. “I want them there and involved in a daily basis, which I think is justified given the strategic nature of launch vehicles and the coming decisions on future vehicles.”

Perhaps for the benefit of those nations who have not looked at Arianespace’s business but who will be asked to help finance it, d’Escatha gave what amounted to an Economics 101 course in his Jan. 26 remarks.

“The fact is that the price a launch can bring on the open, commercial market is not enough to cover the cost of production of the launcher,” d’Escatha said of Europe’s heavy-lift Ariane 5. “In some nations, the demand for launches by government customers is enough to saturate the production capacity. This is the case in the United States, where United Launch Alliance doesn’t even appear on the commercial market.”

United Launch Alliance (ULA) is the Denver-based joint venture between Lockheed Martin and Boeing that sells Delta and Atlas rockets to the U.S. government.

“In other nations, the commercial market is given launch vehicles for those vehicles’ marginal cost — 80 percent of the production is for the government, and the remaining rockets can be sold less expensively.”

D’Escatha said ULA charges more per launch than does Arianespace because Arianespace must match prevailing commercial-market prices. European governments, he said, benefit from this. “The prices charged by Arianespace are higher than the marginal cost of the launchers, but lower than they would be if Arianespace served only the government market. Even in supporting Arianespace [financially], we still pay less than governments elsewhere pay for launch vehicles.”