Europe Faces More Government Financing for Galileo Program

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  Space News Business

Europe Faces More Government Financing for Galileo Program

By PETER B. de SELDING
Space News Staff Writer
posted: 14 March 2007
02:15 pm ET


MUNICH — E urope’s Galileo satellite navigation project is in a state of near-paralysis because of a series of interconnected problems afflicting its industrial team, financing structure and political support, according to European industry and government officials.

The dysfunctions will almost certainly lead to further delays in deployment of the planned satellite constellation and substantial new costs, these officials said. For the first time since Galileo was decided on nearly a decade ago, serious thought is being given to abandoning much of its commercial, privately financed approach in favor of a straightforward government procurement of the 30-satellite constellation.

Government negotiations with an industrial consortium over the planned private-sector management of Galileo — one of the project’s showcase features — have collapsed, in part because the consortium members cannot agree among themselves on the proposed company’s leadership and operating requirements — or even whether a profitable Galileo business exists.

A separate group of Galileo hardware builders, similarly thrown together at the demand of Galileo’s government backers as a Noah’s Ark of interests that did not want to work together, continues to struggle. Tasks that any one of its member companies could perform with no drama have proved difficult.

Complicating matters is the regular arrival of amended technical specifications from Galileo’s technical manager, the European Space Agency (ESA) — even as the first group of satellites is supposed to be under construction.

In public and private comments here March 6-8 at the Munich Satellite Navigation Summit, Galileo’s government and industry participants were candid in describing what they agree is a crisis in the project.

But ESA, the European Commission and members of the industrial consortia declined to say publicly what they agree on privately: that political interference in the project, sometimes by direct intervention of heads of state, is the source of most of Galileo’s problems. The countries they cited most included Germany, Italy and Spain.

Matthias Ruete, director-general for energy and transport at the European Commission, which is co-financing Galileo’s development stage with ESA, said political attention to Galileo was responsible for its early successes in getting financial backing. “We are now, perhaps, victims of this success,” Ruete said here March 5. But Ruete warned that the same political energy that gave birth to Galileo could intervene in the other direction.


“Political patience is very short,” Ruete said. “Negotiations have been going on since late 2005 and it is fair to ask: What have we to show for it? This is not acceptable.”

The industrial consortium negotiating terms and conditions of management of the project has been unable to incorporate a long-promised Galileo Operating Company to make decisions on the consortium’s behalf.

The head of the government body negotiating the 20-year Galileo concession contract with the eight-member consortium, Pedro Pedreira, placed the blame for the breakdown squarely on the shoulders of industry.

“Why are they blocking this? It is not for reasons related to technical or other risks. It is because some of the members of the consortium think that if they stall, they can get a better deal down the road,” Pedreira said in a March 7 interview. “We must be able to tell them: There will be no better deal, and we will not order any more satellites from you until our contract negotiations are settled.”

Pedreira is head of the GNSS (Global Navigation Satellite System) Supervisory Authority (GSA), which in January took over from its predecessor, the Galileo Joint Undertaking, in negotiating the Galileo concession contract with an industrial consortium that includes Europe’s largest aerospace companies. Pedreiro said the negotiations show no signs of restarting.

“We are offering industry here essentially a deal for life, as a monopoly operator of Galileo,” Pedreira said. “The contract values here are in the billions. Can you imagine an industrial company that would turn away from this?”

Ruete said European transport ministers, who are responsible for most of the European Commission’s Galileo funding, ordered the concession consortium to deliver a written explanation of its behavior before March 12. Transport ministers are scheduled to meet March 22 in Brussels and decide what to do next.

Ruete and Pedreira both said that if negotiations cannot be moved forward quickly, the European Commission will consider alternatives. They declined to go into details, but government officials said privately that having governments finance the capital costs of the Galileo system is becoming more likely.

Already, Pedreira said, any thought of having a concession contract signed in 2007 has been abandoned.

Concession impasse

Galileo’s current structure calls for ESA and the European Commission to finance the project’s research and early development, including part of the elaborate ground network and the first experimental Galileo satellites, including four spacecraft that would be part of the 30-satellite constellation.

The concession, once it signs a 20-year contract to operate Galileo as a business, would pay for two-thirds the cost of building and launching the remaining 26 satellites, the rest of the ground segment and the system’s running costs. The concession also would finance construction of a second-generation system.

Jean-Francois Bou, satellite navigation program manager at Thales Group and the designated representative of the consortium negotiating the contract, agreed that some consortium members are acting in their own individual interests at the expense of the negotiations.

Bou said here March 7 that the eight industrial members in the consortium often have divergent views of how to proceed.

“The consortium has some members whose roles are … in competition with other members,” Bou said in explaining the impasse. “There is, inside the consortium, a lack of a joint vision. There is a tendency of individual members to call on their national political authorities to intervene in the negotiations. There are individual companies and individual nations seeking their own interests instead of the common interest.”

Likely Cost Overrun

On a separate track, a company formed to build the Galileo system, European Satellite Navigation Industries (ESNI) of Ottobrunn, Germany and Rome — formerly called Galileo Industries — has been unable to overcome the difficulties of having competitors and company shareholders cobbled together on political demand.

ESNI signed a billion-euro ($1.3 billion) fixed-price In-Orbit Validation contract in December 2005 to build the initial Galileo ground segment and the first four satellites. It had been under separate contract to build an experimental satellite, called Giove-B. Scheduled for launch in 2005, Giove-B will not be ready before December, according to ESA and ESNI officials.

Government and industry officials said that ESNI has begun warning ESA and the European Commission that a major cost overrun is likely. Officials said ESA, which is overseeing this end of the Galileo program, has been told to expect a demand for an additional 200 million euros as soon as this autumn. That would exceed ESA’s legally permissible cost overrun and trigger an automatic review of the entire contract by ESA’s ruling council.

ESA Director-General Jean-Jacques Dordain had ordered three investigations into ESNI and the In-Orbit Validation contract and has set an end-March deadline for the conclusions.

Separating ESNI into two competing teams to bid on Galileo work is one option, but officials said the losing team members then would protest to their respective governments, who would then threaten to withhold financing.

“Don’t you think we would jump at this easy solution if it were available?” one ESA official said.

Juergen Ackermann, chief executive of ESNI, said technical specifications for Galileo, particularly its security-related aspects, continue to evolve, making it impossible for ESNI to proceed with a stable system design. But he agreed that the organization’s internal management procedures have “room to improve.”

Ruete agreed that inserting new technical specifications well into what is supposed to be the hardware-construction phase for ESNI creates problems. He also agreed that the European Commission cannot be held hostage to the current Galileo organizational structure.

“A negotiator always has to have alternatives to have a credible threat,” Ruete said. “There may be a Plan B, C or D. But a plan to stop Galileo is the most improbable one.”