Editorial: For the Sake of Protesting

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It is not clear what International Launch Services (ILS) President Frank McKenna aims to accomplish by loudly protesting subsidies the European Space Agency (ESA) has agreed to provide to ILS’s main competitor in the commercial launch industry, Arianespace.

Mr. McKenna began his protest campaign following ESA’s announcement that it would provide approximately 240 million euros ($338 million) over two years to Arianespace, the French-led consortium that operates the European Ariane 5 heavy-lift rocket and also markets the Russian-built Soyuz vehicle. Arianespace, which draws the majority of its revenue from commercial business, lost money in each of the past two years despite the continued operational success of the workhorse Ariane 5.

The subsidy, which comes on the heels of a long-running price support program and likely will be extended beyond the next two years, was part of an agreement between France and Germany, ESA’s two biggest contributors, that also secured the agency’s support for the international space station through 2020. The space station program is a key German priority, whereas France is more heavily invested in the launch business. ILS’s protests overshadowed the unqualified good news about the ESA’s commitment to the space station, an orbital asset in which the international partners have invested some $100 billion.

In an industry as highly competitive as commercial launch, one would never expect a company to welcome news of subsidies to its main competition, and Mr. McKenna is certainly well within his rights to voice his displeasure at the Arianespace price supports. But his claim that this particular subsidy “dis-incentivizes cost reduction and efficiencies, prevents other launch providers from competing on a level playing field, deters new providers from entering the market and [is] detrimental to the long-term health of the commercial launch industry” is a bit specious.

In the first place, ILS’s parent company, Khrunichev State Research and Production Space Center, is owned by the Russian government, which has made clear it will do whatever is necessary to keep Khrunichev, one of its space industrial flagships, solvent. Khrunichev builds the Proton rocket, which ILS markets competitively but which also is a workhorse for the Russian government. Moreover, as Arianespace Chief Executive Jean-Yves Le Gall pointed out, ILS does not pay fees for the Russian government personnel that support Proton launch operations at the Baikonur Cosmodrome in Kazakhstan, whereas Arianespace pays the salaries of the technicians at Europe’s Guiana Space Center launch site.

Would finding ways to trim Ariane 5 production costs, as Mr. McKenna suggested, be preferable to paying subsidies to Arianespace? Absolutely — just ask ESA’s member states, or European taxpayers. But because of ESA’s geographic return policy designed to ensure that each member state sees economic benefits commensurate with its contribution to the agency, Arianespace’s hands are tied when it comes to rationalizing the Ariane 5 manufacturing base. This contrasts with the situation in Russia, which in recent years has taken steps to consolidate its space industrial base under the big production flagships like Khrunichev.

Equally as shaky as Mr. McKenna’s claims of unfair trade practices are his threats of recourse. ILS says it intends to file a complaint with the European Commission and is weighing “legal remedies” through the World Trade Organization. But it is far from clear whether either of these avenues is even open to a Russian-owned company, never mind whether ILS has a valid case given its own reliance on government support and the unique nature of the commercial launch industry.

Subsidies have long been a source of finger-pointing between commercial launch service providers but the fact is they all benefit from government largesse in one form or another. Sea Launch is an exception, at least from an operations standpoint, but it’s the exception that proves the rule: The company went bankrupt in 2009 and only recently emerged — under the ownership of RSC Energia, which is controlled by the Russian government.

Point taken, nonetheless: ILS has registered its disappointment; Arianespace has mounted its defense. Meanwhile, Sea Launch is out of bankruptcy with plans to resume launching satellites as soon as this year; Space Exploration Technologies has a deal to launch its first geostationary satellite provided it first demonstrates certain technical capabilities; China remains primarily on the outside, but only because of a U.S. policy the bars American hardware from launching on Chinese rockets; and Japan and India continue to harbor commercial launch ambitions. There’s a lot going on in the commercial launch industry — food fights over who’s getting what from which government are a mere distraction.