In less than three years after signing its anchor contract with the British Defence Ministry, EADS Space Services has proved its business model with the addition of smaller contracts with defense authorities in France, Portugal and The Netherlands, according to EADS Space President Francois Auque.
Business prospects for the EADS-owned Paradigm Secure Communications of England, which is running Britain’s multibillion-dollar satellite communications service, further improved in December with the signing of a two-year addition to the contract.
“We have a generally flat market in the space sector and the services business exemplified by Paradigm is one of our motors of growth,” Auque said. “We hope to extend the business by selling communications services to soldiers for personal communications with their families.”
Paradigm already sells British overseas troops access to satellite telephone services through the Ministry of Defence’s Operational Welfare Package, which gives soldiers some 20 minutes per week of free calls home. Prepaid phone cards may be purchased to increase the number of minutes.
Auque said expanding this kind of service beyond Britain is one of the goals of Paradigm as it seeks to position itself as the key industrial player for outsourced military satellite communications in Europe.
EADS Space is a wholly owned subsidiary of European Aeronautic, Defense and Space Co., which does not break down sales and profit figures for its individual divisions. But Auque said that by 2007, Paradigm will account for about 35 percent of EADS Space’s pretax earnings.
EADS Space is expected to report revenues of about 2.65 billion euros ($3.2 billion) and a small pretax profit. By 2007 or 2008, Auque said, pretax margins are expected to increase to between 5 percent and 6 percent of revenues.
EADS’s Paradigm unit signed its 3.6-billion euros , 15-year Skynet 5 satellite telecommunications services contract with the British Defence Ministry in October 2003. The contract called for Paradigm to take over operations of the aging Skynet 4 fleet and to add two large Skynet 5 satellites in 2006 and 2007.
Since then, Paradigm has won additional business with the NATO alliance as part of a three-nation team that includes the French and Italian governments, whose Syracuse 3 and Sicral satellites, respectively, are being added to the Skynet 5 spacecraft.
Alcatel Alenia Space of France and Italy is the prime contractor for the French Syracuse 3 and the Sicral spacecraft. So far, the French and Italian governments have not agreed to outsource satellite telecommunications services to the private sector.
Similarly, the German government is expected this summer to conclude a contract with EADS Space for the construction of two Satcom Bw military communications spacecraft, both to be owned by the German Defense Ministry.
The Spanish government has adopted a midway policy. It permitted the creation of Xtar LLC of Rockville, Md., a joint venture between Loral Space and Communications of New York and Hisdesat Servicios Estrategicos S.A. of Madrid, using Spanish military orbital slots. The Xtar venture recently booked capacity with the Royal Danish Navy aboard its Xtar-Eur satellite, in orbit since mid-2005.
The Spanish Defense Ministry’s Spainsat satellite is scheduled for launch in late February and will be located at 30 degrees east longitude, one degree away from Xtar-Eur. Xtar has leased capacity on Spainsat, with the Spanish Defense Ministry owning the rest. Spainsat will replace Spain’s aging Hispasat 1B satellite.
Once Spainsat is in orbit, Spain will have more military telecommunications capacity than it needs.
Through its EADS-CASA Espacio subsidiary, EADS Space is a minority shareholder in Xtar, but Spanish and EADS Space officials say there are no immediate plans to create a common venture with Paradigm.
In addition to its British and NATO base, separate contracts with the French, Portuguese and Dutch defense ministries, all for relatively small amounts of satellite capacity, have been added to the Paradigm backlog.
In December, Paradigm and British authorities agreed to extend the Paradigm services contract by two years, to 2020, under the same annual payment terms as those that apply to the yearly average in the initial contract.
In return for the two-year extension, and to save what would have been an enormous insurance premium, Paradigm and its suppliers — EADS Astrium for the satellites, the Arianespace commercial launch consortium for the rockets — agreed to build and launch a Skynet 5C satellite in 2008.
Paradigm Financial Director James Beazley said the company faced an unusually high insurance bill to insure the Skynet 5A and 5B missions because it was obliged to purchase coverage for a possible loss of business.
Beazley said Paradigm, unlike commercial satellite operators, is legally bound by the Skynet 5 services contract to provide a given amount of in-orbit capacity. A launch or in-orbit failure of the Skynet 5A or 5B would have cost Paradigm the equivalent of months of revenue, with the exact amount of the loss to depend on how quickly a replacement satellite could be launched.
Beazley said a policy like this would have exceeded the current insurance capacity of the space insurance market. The premium for covering the performance of the Skynet 5 satellites once in orbit, he said, would have been about 3.5 percent of the insured value.
Paradigm has now ordered the construction and launch of Skynet 5C from EADS Astrium and also ordered components of a Skynet 5D from the company.