Reynald Seznec CEO, Thales Alenia Space

Reynald Seznec succeeded Pascale Sourisse as CEO of Thales Alenia Space in May 2008, taking over a company with a strong backlog that included the next-generation constellation for Globalstar. He quickly added an order from O3b to Thales’ projects, but as the global economy took a downturn, Seznec has had to cope with building the business at a time when spending on satellite projects may be slowing down.

Still, Thales has added some key contracts to its list in the first half of 2009. In February, the company captured a contract, along with Astrium, to build and deliver Arabsat 5C and Arabsat 6B to Arabsat, one of the Middle East’s top satellite operators. Astrium, the leading partner, will supply its Eurostar E3000 platforms and integrate the satellites, while Thales Alenia Space will design and build the communications payloads. Just 24 hours later, Thales announced a deal with Russian satellite operator Gazprom Space Systems to deliver two Yamal-400 new-generation communications satellites. As prime contractor, Thales will be responsible for design, manufacture, testing and turnkey delivery of Yamal-401 and Yamal-402 satellites as well as for the associated ground segment deployment for a scheduled 2011 launch.

In March, Thales won a deal with Eutelsat to manufacture its W3C satellite. Thales will be in charge of the design, manufacturing, test and delivery of the satellite. Planned for a launch third quarter 2011, W3C will provide broadcast and telecommunications services over Europe, the Middle East and Africa.

But perhaps the biggest win for Thales came in late March, when Coface, France’s export credit agency, said it would provide Globalstar $574 million that would be used to fund Globalstar’s next-generation satellite fleet being manufactured by Thales

Seznec is confident that Thales can maintain this momentum into the second half of the year and discusses his ambitions for the remainder of 2009 as well the key contracts the company is targeting.

VIA SATELLITE: We are in the middle of a global economic downturn. Do you think this will impact the number of satellite orders we will see in 2009?

SEZNEC: I wish I had a crystal ball. At this time, we are confident, but at the same time vigilant. So why are we confident? We think in real terms, the demand is still there. A first and obvious reason is that we are in the first part of a renewal cycle. Many of the satellites that are in orbit today need to be replaced and this is happening. This cycle is supposed to last until 2012. The second point is about the demand. The end-user demand is still there, because new applications such as HDTV or triple play are driving the market right now. Satellite is a must for these applications over large territories. New infrastructure needs exist from new operators and emerging nations. There are new commercial business models, which are being developed and appearing on the market. All of this sustains the demand.

VIA SATELLITE: What is the worst-case scenario in this economic climate?

SEZNEC: So where could the crisis come from? It could come from the difficulty to finance the projects. The weakest segments would be the smaller operators, possibly the constellations. That is why we are vigilant. In terms of the number of satellite orders in 2009, I think there is some kind of consensus between the players to say that this year, it will not decrease that much. Before the crisis became obvious, everyone would have bet on a solid 25-plus satellites. Now maybe it is somewhere between 20 and 25 satellites.

VIA SATELLITE: Do you expect 2009 to be a better year financially than 2008?
SEZNEC: We have had a very good start to the year. We are building on this. We are confident. I am rather cautious about my predictions, but I would expect 2009 would be at least as good a year as 2008.

VIA SATELLITE: In the Middle East we are seeing new operators such as SmartSat and Yahsat emerge. Will we see other new operators emerge during this time?

SEZNEC: The question just does not relate to the Middle East. We see new operators in many other regions. In Asia, you have ABS, which already operates one satellite and they want to purchase another one. ProtoStar is another one. You have ViaSat which has become a satellite owner. There is O3b, which is planning to offer new broadband services to that part of the world which is not being served by other means.

It is something healthy that there is the emergence of new operators in many places of the world. A question is will they find the right level of financing from the market. They will obviously need this to acquire space assets. We can maybe help. We play a role indirectly, because where there are credit export agencies such as Coface in France. This is a strong tool to help new entrants getting funded. This makes the banking system feel more secure, but we are using the existing systems to help facilitate the needs of our customers.

VIA SATELLITE: What is your take on Globalstar and how the operator secured its financing? How much influence did Thales Alenia Space have on this situation?

SEZNEC: Coface, which is the French export credit agency, is not a bank. It brings a guarantee, but beyond that, for financing to be secure, there is a need to have a bank. This is what is being put in the case specifically for Globalstar, but not only Globalstar. It is not a financing by the French government. It is a guarantee by a body, Coface, and then there is a loan brought by a bank on commercial terms.

So how can we help in these situations? We have a knowledge of how it works. We know how to structure files, how to help support it and so on. That is what we do. We can support the customer in terms of putting together his own financial engineering. Globalstar is not the only case. The Yamal satellite for Gazprom is of the same nature. We have the ability to put together a financing scheme to help us win contracts. This is why we are happily supporting customers to this effect.

We cannot do miracles, but we can support our customers. Most of the Globalstar activity we have done is in France. The sale of the Globalstar satellites is considered an export from France. It is Coface’s job to support export deals. The link is just that one. There is no other link.

VIA SATELLITE: What percentage of revenues will you derive from the telecoms and commercial market and how is this changing compared to previous years?

SEZNEC: It changes but not in a systematic way. We want to keep a balance in what we do in the institutional market and what we do on the commercial market. In 2008, on the commercial market, we generated 43 percent of our revenues. Defence and security were responsible for 20 percent of our revenues, and the institutional market was 35 percent. My wish is that we keep this kind of balance in the next few years.

This is maybe a difference between us and our U.S. competitors. We have to do well in both the commercial telecoms and institutional arenas. Success in the telecoms side is a driver for competitiveness for the institutional side. However, what we do in the institutional field is also a driver for innovation, research and development, which helps in developing the telecoms sector.

VIA SATELLITE: What impact will President Obama’s stimulus plan as well as the European Union Economic Recovery Plan have on the satellite industry?

SEZNEC: In terms of Europe, when I look at the Institutional market, the budget was decided at the Ministerial Conference which took place in November last year. The budget for the next three years has already been decided. The best support that the European authorities can give to the space industry in Europe is that they execute these budgets in a swift and timely manner, nothing more. That is the situation in Europe.

As I understand, in the United States, there is a renewed emphasis for meteorology and climate. This has been expressed by NOAA (the U.S. National Oceanic and Atmospheric Administration) and NASA. This will potentially allow us to propose payloads in the fields where we have assets such as altimetry. The other point is the intention to develop a strong broadband infrastructure across the United States. This would probably drive the demand in terms of services. This could benefit our own satellites, provided that their satellites are seen as infrastructures, the same as terrestrial infrastructure.

VIA SATELLITE: Are you expecting more orders for dedicated Ka-band satellites in 2009? Do you see this being a lucrative growth market for Thales Alenia Space over the next 12 months?

SEZNEC: My view is that these changes always slow, but there is a trend happening today. Today, we have a couple of opportunities in the pipe in a couple of regions such as North America and the Middle East. So we could see some satellite awards in the next month here, so broadband services will stimulate the need for capacity. We have the technologies and experiences in terms of payloads and system architectures to be used for broadband services. I think it could be a progressive move, and I think we will be part of it.

VIA SATELLITE: Do satellite manufacturers such as Thales Alenia Space have a competitive advantage over U.S. manufacturers due to the impact of the International Traffic in Arms Regulations (ITAR)?

SEZNEC: Any rule that is in place in the United States and would be applicable to us, we would totally respect the way we do today. If these rules change, we will adapt to them. That is purely on the U.S. side. Do we have a competitive advantage due to that? Frankly speaking, I am a little bit skeptical. In the last years, the competitive advantages of the different players changes quite fast, depending on other factors, such as currency, for example. Anyhow, when I am in the United States and talk to my U.S. suppliers and competitors, I hear that some of the vendors of equipment and components have to face difficulties when selling their stuff in Europe because of the ITAR rules. In fact, the point is, these ITAR rules are applicable to every industry, us and our own suppliers in Europe. There is some kind of malicious equalization of these export control systems, but I do not see this as a major driver in terms of competitiveness.

VIA SATELLITE: Is that situation likely to change?

SEZNEC: I am European. It is not for me to expect the rules to change. There is a renewed interest by many of the players involved in the industry to revisit the issues. There are a lot of discussions happening right now in the United States, but at the end of the day, they will decide.

VIA SATELLITE: Do you see the satellite manufacturing landscape changing over the next 12 months? What are the major challenges for Thales Alenia Space to grow the business?

SEZNEC: We have some key prospects in front of us. There are some high profile bids in place. Iridium is one. Meteosat, third generation, is another one. Galileo is another one. We have Sicral 2 in Italy and Athena Fidus, which are key prospects for us.

In terms of challenges, maintaining and increasing the level of research and development spending is a challenge. Increasing investment at a time of crisis is necessary and will be useful after the crisis. It is essential for us to develop the technology. Innovation is another challenge for us. We want to fulfill the needs of the market at an affordable cost. The market wants increased capabilities at affordable costs, and that is what we are trying to do. These demands are not only coming from the telecoms sector but also the institutional sector. Those are the key challenges. We need to sail through this crisis, keep our market share and keep the momentum in terms of growth. The growth maybe not up to the level of the last two years because the last two years, we had double-digit growth. But we hope to have some growth in 2009 and 2010 despite the crisis. I am confident we can deliver this, but we are cautious when we see what is happening on the financial markets.

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