Avio Q&A: Powering the growth trajectory
TAMPA, Fla. — Italian rocket maker Avio is rushing to expand facilities to help Arianespace meet its share of a multibillion-dollar launch deal that Amazon announced in April, comprising up to 83 rockets for deploying its Project Kuiper broadband satellites.
The largest-ever commercial launch agreement includes 18 heavy-lift Ariane 6 rockets, which each use two or four of Avio’s P120 engines as strap-on boosters, depending on their configuration.
The P120 also serves as the first stage of Europe’s next-generation small launch vehicle Vega C, which like the upcoming Ariane 6 is set to ramp up production after a maiden launch this year.
Avio is Vega’s prime contractor and is a subcontractor for the Ariane 6.
Giulio Ranzo, Avio’s CEO, says Amazon’s colossal order helps expand the company’s capabilities to serve future demand as European startups seek to muscle in for market share.
Avio’s long-term growth prospects will help the company compete with these entrants for customers and employees, according to Ranzo.
The publicly listed company reported a 25% jump in revenue for the first three months of 2022 to 66 million euros ($71 million), compared with the same period last year.
However, adjusted EBITDA — or earnings before interest, taxes, depreciation, and amortization — fell 73% to 1.2 million euros as rising energy costs stemming from Russia’s war in Ukraine started taking their toll.
The war also raises questions about Avio’s ability to produce Vega C’s upper stage, which is powered by Attitude and Vernier Upper Module — or AVUM — engines that use a propulsion system sourced from Yuzhnoe and Yuzhmash in Ukraine.
SpaceNews interviewed Ranzo to learn more about Avio’s growth strategy weeks before Vega-C’s critical launch debut.
What are the key takeaways from Avio’s recent financial results?
The main message is we are paving the road for very robust future growth, which is pretty evident from the path we’re following in terms of acquiring new orders — both for Ariane and Vega — and for the development of new products and technologies.
This prospective growth was also clear maybe a year ago, but it was not as concrete because we didn’t have the orders. Now, the order book is completely full.
So we see a bright future ahead of us, considering market demand is growing so fast.
At the same time, we’ve suffered very high energy prices that are affecting near-term profitability.
But by nature this is a very long-term business so you don’t care much about what is happening in one quarter or the other; you’d rather look at the next decade or so.
How has Amazon’s order of 18 Ariane 6 launches for Project Kuiper affected demand for Avio’s P120 boosters?
It will enable us by 2025 to reach the maximum utilization of our production capacity, which in any industry is key to maximizing profits.
These boosters are also used on Vega — it’s the first time a family of rockets has been built by using the same booster for the first stage [but taking advantage of this requires] the ability to fully leverage the economy of scale, where the more you make the less they cost.
When you reach the maximum utilization of capacity, the profitability is at the maximum, and that will also be extremely important for maximizing quality.
How many P120s does Avio expect to produce this year, and what is your projection for 2025?
This year we’ll manufacture an equivalent of about 16 of them, and by 2025 we’ll be at 35 boosters per year.
Do you expect demand to stay that high after 2025?
Well, this we will see — what the commercial timeline suggests is that we might go beyond this level, in which case we’ll upgrade production capacity.
Now, we also need to go through the maiden flights of Vega C and Ariane 6. We need to demonstrate that the product works as we expect. If we achieve this, we might see enough demand to go to an even higher production rate.
As you ramp up production, how exposed is Avio to industry supply chain issues?
The European supply chain is very well tied into pan-European partnerships under the umbrella of European Space Agency projects. The available capacity and capability is very well monitored by ESA. Key supply chain partners are selected jointly with ESA, which assesses and controls the suppliers’ level of capacity, capability and quality.
So I think we are reasonably well equipped to embrace the challenge. The Vega supply chain team has been in place for over 10 years and delivering as expected.
Does the revenue boost and facility expansion enable Avio to consider opportunities that were perhaps out of reach before?
If we deliver — first and foremost by launching successfully Vega C in a matter of a few weeks from now [Arianespace says the first flight is slated for the first week of July], and subsequently by launching Ariane 6 before the end of the year — we will for sure access new opportunities that would not have been possible before we had this opportunity with Amazon.
It’s no doubt a crucial contract for which we need to thank Arianespace. They’ve done a great job from a commercial point of view, and now it’s time to execute.
What’s the latest on Vega C’s upcoming maiden flight?
We are on track to be ready by the end of June. I personally inspected the rocket’s fourth stage which will be integrated in the next 10 days or so. The first three stages of the rocket are already integrated. The launchpad and control bench are up and running. The payload is on its way to the launchpad. It’s going to be very exciting in the next few weeks.
Are you still on track for a total of three Vega C launches by the end of the year?
Yes, we have contracts for that. We will perform the second launch in the fall. In the winter we should be doing the third one. I don’t know yet whether it will be before the end of the year or immediately at the beginning of next year. It depends on the success of the maiden flight. But that’s the plan.
How is Vega C competing against a proliferation of European rocket startups?
First of all there is no other proven orbital vehicle [of this class] in Europe today other than Vega.
We will see how much time other vehicles will take to become fully functional to launch satellites to low Earth orbit, and to reach a payload capacity that enables the same level of capability as Vega C. Vega C is launched from Kourou, and this means it can do any orbital inclination and any type of mission, whereas many of these newly announced rockets are slated to launch from the Nordics. From there you can only launch north. Other anticipated rockets will be relatively smaller in size.
So I think there will be quite some time within which Vega C will face very limited competition in Europe.
Are Vega C and Ariane 6 picking up the slack following the embargo on Russian Soyuz rockets that Arianespace had been using?
Yes, this is the expectation. This is also by design, because some of the satellites that we used to launch with Soyuz from Kourou are meant to be launched by Ariane 6, namely the European Galileo satellites.
Some of the smaller payloads that Soyuz used to launch on a commercial basis can now be launched with Vega C. So I think there will be a positive effect on both European launchers in the years to come from the disappearance of Soyuz as a viable solution for non-Russia payloads.
Are there specific contracts you can talk about?
I can tell you we have plenty of demand, even from the U.S., because the number of payloads that are wishing to be launched is very substantial, and there’s not enough capacity yet available in the market for them.
We are now looking at launch opportunities by 2026, 2027 and 2028. So we have plenty of opportunity to grow also in flight rates — from three launches to four per year and then towards six launches annually in the next three to four years.
How challenging is it to expand your workforce to expand production?
We are looking for 200 smart engineers who want to come and join us. It’s a massive effort to recruit people, train them, and put them up work.
There is also a lot of job rotation from one company to the other. I think young people should look at which companies really have a robust plan for the future. A plan which is financially backed up by orders and funding.
There are plenty of startups that are portraying a future that they might not be able to execute on because they do not have the financial resources.
Luckily, we are financially very strong. We’re listed on a stock market, we are cash positive, we have a lot of order backlog — we’ll soon have a backlog exceeding a billion euros.
So it’s extremely important for young people to understand that to grow you have to have it in the backlog, or it will not happen. I think people will eventually go to companies that are stronger from the backlog perspective, and are not at risk of disappearing a few months later.
Vega C’s upper stage is powered by AVUM engines sourced from Ukraine. How many of those have already been delivered?
For security and commercial sensitivity reasons, we do not release the number we have. However, I shared with the public that we have enough strategic stock to not worry about it in the medium term.
After the war in 2014 for Crimea we understood the situation may have gone into some instability. We started in 2017 to pick up strategic stock to provide for deliveries until 2026, so we are today reasonably covered.
And by the way, as we speak the Ukrainian suppliers continue to work successfully. I can only praise them for the work they’re doing today, in the middle of a war, to continue this product as expected.
Are you doing anything else to mitigate the risk of the conflict in Ukraine affecting future supply? Are you looking at AVUM alternatives?
Yes, absolutely. On one side, we are preparing for the design of an innovative orbital propulsion system using green propellant that may be implemented in the next few years. It’s a new generation, storable orbital propulsion that will be used for new applications such as in-orbit servicing.
That may represent an alternative to AVUM, should production be interrupted. But I really hope AVUM production will not be interrupted, and I do count on the fact that the Ukrainian supplier is very, very resilient.
Secondly, we have recently fired, on ground, our liquid oxygen and methane engine. It’s an extremely powerful solution that will power the upper stage of Vega E by 2026.
So, in the in the 2026 timeframe, we may have more than one new upper stage solution available to us.
Could you accelerate the introduction of the next-generation Vega E rocket?
I think we can move the schedule forward by some time — not too much. We cannot cut it in half and make this happen by 2024.
But probably we can accelerate it up to maybe eight months or a year, considering that the first step on our engine development testing went extremely well.
If we see the need to make this happen, we will. For the time being, we want to take all the time we need to make this happen successfully.
Keep in mind that, between now and 2026, we have lots of other things to do. We have of course Vega C, but we also have Space Rider, our remotely piloted spaceplane. We need to be careful not to want to do too many things at the same time.
After Avio successfully performed its first M10 liquid oxygen and methane engine test for Vega E, what’s the next milestone for Vega C’s successor?
We will be performing more refining tests on the engine in the course of 2022, and then we will use that to perfect the stage. So the combination of the engine, plus the propellant tanks, the liquid propulsion system and all that goes with the engine.
Then we’ll have to use 2024 and 2025 to prepare the launchpad, which will need to be equipped for the ability to use any propellant, among other milestones we’ll have to go through to get to a first flight by 2026.
Now, we can put some of these things like the launchpad preparation in parallel.
But for the sequence of securing engine performance, then securing propulsion stage performance with tanks and all of that — and then doing the job at the level of the launch system — it’s an inadvisable roadmap that some of my announced competitors seem to have forgotten. Unfortunately, it’s a path you have to go through and you cannot skip any of these steps.
Vega E aims to have higher performance and reduced costs compared with Vega C. Can you quantify that?
Yes, today Vega C has a capacity of 2.3 metric tons to low Earth orbit, and in particular in sun-synchronous orbit. Vega E will have three tons of capacity. It’s another important increase in capacity that will let the cost per kilogram drop by quite a bit.
Also, between Vega C and Vega E, we reduce the number of stages by one. Three propulsion stages rather than four, so that simplifies the product as well.
And by 2026, we will also be manufacturing 35 or more P120s annually. This will make the first stage significantly cheaper — which by nature is the most expensive part for us.
You mentioned how the Russia-Ukraine conflict has helped raise energy prices that are affecting Avio’s profits. What are you doing to mitigate that issue?
That’s a tricky one. On one side we have a number of energy consumption reduction programs that we’re running that will help, but the problem is the price of natural gas is six times what it was a year ago. Our efforts in the short term will do little to the problem.
What we have done is engage with a new energy partner. We’ve entered into a joint venture with Italy’s largest power-generation company to try to work with renewable energy to optimize at least the cost of electricity.
But for a portion of the energy we use, which is thermal energy to generate steam, there’s unfortunately little we can do in the short term, because the steam we need can only be produced with gas. As long as gas stays at this price, it’s going to be hard.
At the same time, I think this is a problem that any citizen in Europe is facing.
How will Avio benefit from Europe’s planned sovereign broadband constellation?
I am not sure on how it will shape up, but definitely the European Commission is pushing this project ahead strongly, and I think it will primarily be an opportunity for Ariane 6 and marginally, maybe, for Vega.
What is also important is that the Italian government launched a billion-dollar project at the beginning of the year for a small Earth-observation constellation, which will entirely be launched by Vega.
Can you elaborate?
Europe has launched a campaign called the Recovery Plan for recovering post-pandemic. As part of this, Italy has decided to invest 2.3 billion euros in space — one billion of which is to create an Italian observation constellation to monitor the country.
Italy by nature is a peculiar country with a very long coastline. We have all sorts of issues with natural disasters including earthquakes, with immigration from Africa — we’ve got it all.
So we elected to create a network of optical radar satellites to monitor our country. Such a constellation will be made of some 34 satellites — we’ll see, but that’s another good stream of work that will come.
When is the first launch for Italy’s Iride Earth observation constellation?
Some of the first launches may be towards the end of 2024, beginning of 2025.
How else is Europe’s Recovery Plan helping Italy’s space industry?
Another good chunk of money from it is going toward developing rocket technology. We will use this funding to create a demonstrator of a new rocket using our liquid oxygen and methane engine.
And also to develop a new liquid oxygen and methane engine that will be six times more powerful. So that paves the road for the next generation launchers that we will likely have in the 2030s.
This interview has been edited for length and clarity