Editorial | No Harm Done. So Far

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Backing from government export credit agencies is fast becoming a regular feature of commercial satellite projects as the global economic recession drags on. In the last year, at least four communications satellite systems were placed under contract with help from low-interest loans that were available because governments were willing to underwrite the risk via agencies like Coface in France and the Export-Import Bank in the United States. Among these are at least two mobile satellite services projects that otherwise might have not have been able to secure financing: Globalstar’s next-generation constellation and startup O3B Networks’ initial system.

Governments use export credit agencies for the express purpose of helping their domestic companies better compete in the global marketplace. Globalstar’s Coface backing, for example, was tied to its award of the 48-satellite construction contract to Thales Alenia Space, whose primary satellite manufacturing facilities are in France. Similarly, O3B awarded its 16-satellite contract to Thales Alenia Space after winning Coface support. In some cases, ventures have been able to secure both Coface and Export-Import backing by agreeing to divide satellite construction and launch contracts between U.S. and French companies.

While Coface and the Export-Import Bank have been the most active of late, other governments, including China and Canada, have shown a willingness to help finance commercial satellite projects that benefit their industry.

Government loans and loan guarantees are a form of subsidy, but let’s face it: The space industry on both sides of the Atlantic — and the Pacific, for that matter — is infused with subsidies. Because space is viewed as a strategic capability, governments try to keep their domestic satellite and rocket companies flush with production and service contracts, research and development funding and infrastructure support. Export credit backing barely registers in comparison with these more direct forms of government support.

For some high-risk commercial ventures — Globalstar and O3B being notable examples — it can make the difference between moving forward and languishing, particularly in today’s tight credit markets. But even well-established companies with solid credit are getting into the game. SES, one of the world’s top two satellite operators, recently ordered four satellites using money it was able to borrow at below-market rates due to Coface backing.

It isn’t clear whether or how Coface involvement affected the outcome of the SES competition; it pitted Thales Alenia Space against Astrium Satellites — the eventual winner — which also has major facilities in France. But clearly export credit agencies are becoming an important factor in contract awards. Consider the example of mobile satellite services provider Iridium Communications, which has narrowed its choice of prime contractor on its $2.7 billion next-generation constellation to Thales Alenia Space and Lockheed Martin Commercial Space Systems of the United States. Matt Desch, Iridium’s chief executive, said late last year that Lockheed Martin and Thales Alenia Space were actively seeking government loan guarantees and that their success in those efforts — or lack thereof — would be a consideration in selecting a winner.

This is not necessarily a bad thing — provided both Coface and the Export-Import Bank either choose to support their respective industries on similar terms for any given project or both decline. Where it all gets murky is if one agency agrees to back a project and the other does not, and that factor, rather than best value, determines the outcome of the competition. One also can envision a scenario where one satellite project gets financing because of a loan guarantee, and this causes potential investors to shy away from a competing project that otherwise has a better chance of becoming a successful business.

Such are the dangers when national industrial policy rather than old-fashioned due diligence picks winners in the commercial space marketplace. This prospect, of course, will not stop commercial space companies from seeking government loan guarantees, but it is something policymakers will need to think about if the trend continues.