The European Space Agency (ESA) has created a task force to review the consequences of a merger of Europe’s two principal satellite builders and expects to report the conclusions to ESA governments in May, ESA Director-General Jean-Jacques Dordain said.
Dordain said ESA, Europe’s biggest satellite customer, has yet to fully weigh the pros and cons of having a de facto satellite monopoly in Europe. In an April 11 interview here, Dordain said a satellite monopoly would profoundly change ESA’s way of doing business.
“I have a problem with this ‘Airbus of satellites’ idea that people talk about,” Dordain said. “Most of our satellites are one-off. We aren’t making dozens of them. If we were faced with a monopoly, we would have to rely more heavily on contract monitoring and on a different kind of benchmarking. It would make our contract-oversight system much heavier, because today the benchmarking is done through competitive bids.”
The task force was created following disclosures that the owners of satellite builder EADS Astrium were seeking to sell the company to defense-electronics specialist Thales Group of France in exchange for an ownership stake in Thales at the same time as Alcatel was selling its satellite division to Thales.
Thales and Alcatel agreed April 4 to terms in which Alcatel’s space business, including its 67-percent ownership of satellite-builder Alcatel Alenia Space, would be sold to Thales.
Thales and Alcatel rejected the EADS Astrium proposal, but Thales said it would remain open to a possible EADS overture at some future date.
The French government has been backing the EADS bid for Thales for reasons that have more to do with defense-electronics industrial strategy than with satellite-industry concerns.
In the weeks preceding the Alcatel-Thales decision, no one called ESA to determine how Europe’s biggest satellite customer would view such a merger, Dordain said. The lack of customer input in the merger discussions was highlighted by Thales Chairman Denis Ranqu, who said he would not accept a merger without sounding out customer reaction.
Dordain said the Thales-Alcatel-EADS talks prompted ESA to create the special task force to examine in detail how ESA’s functioning would be affected by a possible consolidation that created a monopoly.
“Nothing is impossible,” Dordain said. “I am ready to adapt ESA to whatever situation we are faced with. We are used to dealing with competitive situations — we run competitions all the time. But we also have some experience with monopolies, such as Galileo Industries.”
Galileo Industries S.A. of Brussels is a consortium including Alcatel Alenia Space, EADS Astrium, Thales and other space-hardware builders that has been selected to manufacture the first stage of Europe’s Galileo satellite navigation system.
The company was formed after the European Union — which is co-financing the multibillion-dollar Galileo system with ESA — decided to merge two competing bidders in part because neither one had sufficient presence in all five big Galileo contributing countries — Germany, France, Italy, Britain and Spain.
The creation of Galileo Industries has forced ESA to spend an unusually large portion of its Galileo budget on contract oversight.
“I cannot work with a monopoly in the same way I work in a competitive environment,” Dordain said. “We would have very different procurement policies, and adopting the best-practices approach for contracts complicates our role. We would have to add more people to the procurement. It would add a heavy load on project teams.”
These concerns notwithstanding, Dordain said the normal benefits of competition only accrue if customers like ESA have two healthy suppliers battling for work. If one or both of them are unhealthy, he said, it distorts the bidding and leads to problems later on in the procurement.
“European satellite prime contractors cannot stay healthy living only on ESA and other European government programs,” Dordain said. “I know what level of resources I have now and am likely to have in the coming years. What I am not clear about is whether European primes’ success in the commercial world is sufficient to keep them healthy. This is what we need to study.”
The creation of a single large satellite builder in Europe likely would lead to the shutdown of several plants and the elimination of several thousand jobs. The resulting landscape of satellite-production facilities would have to be reconciled with ESA’s geographic-return principle, which requires the agency to contract with companies in strict proportion to their nations’ contribution to ESA programs.
Dordain said he hopes the task force he created in late March will be able to present ESA’s 17 member governments with an initial report in May.