Final Bids Are In To Run Galileo’s Navigation System

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BRUSSELS — The two consortia competing to run Europe’s Galileo satellite navigation system as a business submitted their final bids Jan. 25 with each bid carrying a total value of about 2 billion euros ($2.6 billion). Both bids also featured financing packages containing more than 80 percent debt.

The Galileo Joint Undertaking (GJU), the European government-appointed body evaluating the bids, is expected to recommend a winner to its board of advisors Feb. 15. The announcement of the winner is scheduled to be made by the end of the month, said Hans-Peter Marchlewski, a spokesman for GJU, which is based here.

Negotiations on the final contract terms are expected to be difficult and are scheduled to last until the end of 2005.

The competing consortia assembled long lists of partner banks and industrial backers in Europe, China, Russia and the United States. Boeing Co. is a member of both consortia, as is the Russian Federal Space Agency.

“This is a worldwide project,” said Jean-Francois Bou, Galileo program manager at Thales Group, which is a member of the iNavsat consortium. “It is only natural that we should include partners from outside Europe.” iNavsat also includes Inmarsat Ventures, EADS Space and ING Bank as principal partners.

The competing consortium, called Eurely, is led by Alcatel of France, Finmeccanica of Italy, Spanish satellite operator Hispasat S.A. and Aena, the Spanish civil-aviation authority. Deutsche Bank is Eurely’s main financial advisor.

Olivier Colaitis, an Alcatel vice president, said Eurely “is very open with our non-European members,” which include Chinese satellite operator Chinasat and U.S. navigation-services and digital-map provider Navteq of Chicago.

Galileo’s 1.1-billion-euro design and development phase is being financed equally by the European Space Agency and the European Union’s executive commission. Construction and deployment of the 30-satellite constellation, expected to cost around 2.1 billion euros, is intended to be two-thirds privately financed, with European governments paying the remaining third.

The European Commission has said that in addition to its already approved funding, it is willing to invest 500 million euros to help the Galileo operator in the early years of the constellation’s service, before the system becomes profitable.

How much government investment ultimately will be needed for Galileo is one of the issues to be discussed during the contract negotiations set to start once the winning operator has been selected. At least one Galileo market assessment has warned that the system would not be profitable for at least the first five or six years of operations.

The European Investment Bank is expected to be asked to provide low-interest loans to Galileo’s operating consortium, either directly or through the Galileo Supervisory Authority.

While European Commission documents continue to refer to Galileo’s in-service date as 2008, industry and government officials agree that the constellation is unlikely to be ready for commercial use before 2011.

Legal issues including contract liability, insurance, termination conditions and the credit worthiness of the government-appointed Galileo Supervisory Authority are at the heart of the bids submitted Jan. 25. The Supervisory Authority will be the legal owner of the Galileo system, and will assign operational management to the winning concession.

Current estimates are that Galileo will cost the system operator some 220 million euros per year to operate and maintain, including the costs of replacement satellites when needed.

Pier Francesco Guarguaglini, chairman of Finmeccanica of Italy, said Jan. 28 that he views Galileo as a 7-billion-euro revenue stream for industry when the operating charges are added in to the more than 3-billion-euro capital investment to build the system.

Jason D. Zibarras of ING Bank, whose company is backing the iNavsat consortium bid, said Galileo is a unique case in the history of public-private partnerships because the operator will be responsible for creating a market that does not currently exist. “This is extremely complicated,” he said. “The private sector is there to drive the development of the market.”

But Zibarras said ING views Galileo as no more risky than other private-public ventures such as those managing highways.