European Transport Ministers Back Tough Stance on Galileo

PARIS — European transport ministers March 22 set themselves a deadline of June 7 to decide whether the current private-public co-financing scheme for the Galileo satellite navigation project can be salvaged or should be scrapped in favor of some other way of building the system.

Meeting in Brussels, the transport ministers backed what has suddenly become a tough negotiating posture on Galileo adopted by the European Commission. European Transport Commissioner Jacques Barrot had asked the transport ministers, who are responsible for half of Galileo’s government financing — the European Space Agency (ESA) provides the other half — for the political equivalent of a big stick with which to threaten the industrial consortium that is involved in negotiations with the commission for the contract to manage Galileo as a business.

On March 22, he got it.

In a March 22 statement, the transport ministers ordered the commission to “assess progress in the concession negotiations and to submit alternative scenarios, also assessed for costs, risks and affordability, for the forthcoming June council meeting.”

The ministers also ordered the eight-member industry consortium negotiating a 20-year Galileo concession contract to resume negotiations, which have been stalled since late 2006, with the commission’s GNSS (Global Navigation Satellite System) Supervisory Authority, immediately and to show demonstrable progress by May 10.

The council said it “expects substantial progress to be achieved in the negotiations, so that by June 2007 the council has adequate assurance that the concession negotiations are going ahead successfully.”

In response to the pressure applied by the commission and the council, the concession group on March 21 incorporated a Galileo Operating Co. in Toulouse, France. But the company still has no chief executive capable of making commitments on behalf of its eight shareholders, whose competing ambitions in the past have caused negotiations to run aground.

One European Commission official said it is far from clear whether Galileo’s basic business model can work. As currently planned, the Galileo Operating Co. will finance two-thirds of the $3.5 billion in capital expenses needed to deploy the Galileo constellation, complete its elaborate ground network and operate the system as a profit-making business for 20 years.

Galileo Operating Co. includes AENA, the Italian air-traffic control authority; Alcatel, EADS, Finmeccanica, Hispasat, Immarsat, Thales and a consortium of German companies, including the German space agency, called TeleOp; and Thales Group.

This consortium has been negotiating the Galileo operating contract since late 2005 with the GNSS Supervisory Authority and a predecessor agency, but the negotiations up to now have made little progress on the hard subjects including who assumes the design and market risk associated with Galileo.

“[T]he delay so far accumulated and the absence of any sign of progress on the negotiation of the concession contract must now be considered as risk for the delivery of the project in the timeline that we envisaged,” Barrot said in an unusually blunt letter sent to the transport ministers March 14. “Moreover, we have to fear significant cost increases which could go well beyond the foreseen budget.”

He gave the concession until May 10 to incorporate an operating company and select a chief executive, and set a Sept. 15 deadline to make sufficient progress to be made in negotiating the contract to permit a preliminary agreement to be signed.

On a parallel track coordinated with the European Commission, ESA agreed March 15 to intervene more heavily in the operation of another industry consortium that is building the first four Galileo test satellites and is favored to build the remaining 26 spacecraft.

This consortium, called European Satellite Navigation Industries (ESNI), is an assembly of European space-hardware companies that, like the Galileo Operating Co., has been forced to work together and has had trouble doing so, according to consortium members and ESA officials.

In particular, ESNI has left dozens of its subcontractors without payment despite signing a $1.3 billion contract with ESA in December 2005. ESNI member companies say ESA has not delivered a definitive set of technical specifications that would permit the consortium to begin building.

Didier Faivre, head of navigation programs at ESA, said the agency agreed March 15 to address both issues.

Faivre said March 16 that, effective immediately and until the non-payment issues have eased, ESNI will be obliged to pay subcontractors unaffiliated with ESNI shareholders on a priority basis.

In addition, Faivre said, ESA has agreed to freeze its technical specifications, permitting ESNI to make progress on its satellites. On June 7, around the same time as European transport ministers meet on Galileo, ESA will make its own proposals on how Galileo satellite production should proceed given the likely cost overruns and schedule delays.

ESA officials fear that, in the coming weeks, ESNI will deliver a demand for up to 200 million euros ($266 million) in overruns, in part due to ESA’s multiple rewrites of technical specifications, in part due to other causes. This would trigger an automatic review by ESA of the ESNI contract.

While ESA is managing the Galileo satellite development for now, the European Commission is financing half of the work and presumably would be required to pay for half the cost overruns. “This is one of the things Barrot is referring to when he warns of cost increases,” one European Commission official said.