OHB Joins Competition for Galileo Satellite Contract

PARIS
— OHB Technology has entered the competitive bidding to build all 26 Galileo navigation and positioning satellites in direct competition with a consortium of
Europe
‘s two largest satellite prime contractors, Astrium Satellites and ThalesAlenia Space, OHB Technology Chief Executive Marco R. Fuchs said Aug. 7.

In a conference call on the
Bremen
, Germany-based company’s half-year financial performance, Fuchs said he is confident that OHB “will get a share in this project.” A decision by the European Space Agency (ESA) and the European Union’s executive commission on who will build Galileo is expected by mid-2009. OHB is making a joint bid with Surrey Satellite Technology Ltd. of
Britain
for the Galileo work.

Fuchs said OHB’s order backlog, which stood at 406 million euros ($632 million) June 30, will be “much, much higher” by the end of the year as several promised contracts are formally signed.

These contracts include a large order for 35 Ariane 5 rockets, a contract that has been delayed as Ariane 5 prime contractor Astrium Space Transportation and the Arianespace commercial consortium of
Evry
,
France
,
negotiate how the final price should take account of future swings in the value of the U.S. dollar against the euro.

Arianespace Chief Executive Jean-Yves Le Gall has said the issues should be resolved in time for a contract to be signed this year. He also has said ESA governments might be asked to assume a limited financial liability in future Ariane 5 costs, with the level of ESA involvement depending on the dollar-euro exchange rates.

OHB’s
MT Aerospace division builds Ariane 5 boosters, bulkheads and fuel tanks. The company already has begun work on the 35 Ariane 5 rockets covered by the still-unsigned contract under limited liability contracts.

“Negotiations between MT Aerospace and Astrium are completed and there are no critical points remaining,” Kurt Melching, OHB Technology Chief Financial Officer, said during the conference call. “But discussions between Astrium and Arianespace have taken longer than expected, and one of the points still open is who takes responsibility for the exchange rate risk. The latest indication I have is that the contract should be signed by October.”

MT Aerospace’s Ariane 5 work weighs heavily in OHB’s financial results. The company’s cash and cash equivalents, which stood at 73 million euros Dec. 31, dropped to 48.8 million euros as of June 30 mainly because the 35-rocket Ariane 5 order has not been concluded. Once it is concluded, cash reserves should climb back to around 70 million euros, Fuchs said.

Other contracts that OHB is expecting by the end of the year include a supplemental ESA contract for design of ESA’s Small-GEO satellite platform for telecommunications satellites, and a final contract with Spanish satellite operator Hispasat to build the first commercial Small-GEO satellite, called Hispasat AG1, which is scheduled for launch in 2012.

OHB also is positioning itself for the next-generation SAR-Lupe radar reconnaissance system now that the fifth and last first-generation SAR-Lupe satellite has been launched. OHB is under contract to provide continuous SAR-Lupe availability for German military forces until 2017, but Fuchs said the company expects contracts totaling around 15 million euros to start design work on the next-generation system.

An ESA decision late this year to expand the size of a Mars rover mission called ExoMars would mean more contract work for OHB and its partner, ThalesAlenia Space France, on the rover’s carrier, Fuchs said.

OHB and Astrium Satellites’ German division both have been readying bids for
Germany
‘s planned lunar orbiter. But despite a sizable increase in
Germany
‘s space budget next year, the lunar orbiter has not been included in the planned spending. Fuchs said industry now would be pushing to have the mission included in the 2010 budget.

Fuchs said OHB has been frustrated by the decline in the stock price of
U.S.
satellite builder SpaceDev Inc. OHB purchased a 19 percent stake in Poway, Calif.-based SpaceDev in September 2007.

SpaceDev
built the Trailblazer satellite for the U.S. Department of Defense’s Operationally Responsive Space (ORS) office in what SpaceDev and OHB officials had hoped would be a demonstration of the kind of low-budget, quick-response satellite system that the ORS office wants. It was the first satellite ordered by the ORS office.

Trailblazer was aboard the Space Exploration Technologies’ Falcon 1 rocket that failed to reach orbit in an Aug. 2 launch.

“The failure had a negative impact because SpaceDev could not demonstrate what its satellite could do,” Fuchs said. “But the company’s order flow is good and we are not changing our strategy. We will remain a loyal shareholder of SpaceDev, keeping our ownership in the 19 percent range.”

For the first six months of 2008, OHB Technology reported revenue of 117 million euros, up 26 percent from a year earlier. When the effects of the late-2007 purchase of satellite builder Kayser-Threde are removed, the first-half 2008 revenue totaled around 98 million euros, up 5.4 percent. Earnings before interest and taxes were 13.8 million euros, up 32 percent.

Fuchs said the pretax profit margin for the company’s Space Systems and Security division was 12.3 percent – a record.