Thales CEO Seznec: 2011 Presents Tough Climate After Exceptional Two-Year Growth Period (Part One)

[Satellite News 09-29-11] For the past two years, Thales Alenia Space has enjoyed success as one of the world’s top satellite manufacturing companies. But Thales Alenia Space CEO Reynald Seznec told Satellite News that 2011 might not live up to the success it enjoyed during the past two years — a time that many, including Seznec, consider to have been an “exceptional” boom for the satellite manufacturing industry.

            In the first of this two-part interview, Seznec explores the reasons why manufacturers are experiencing a leveling-out spurt in 2011. With major satellite orders thinning, Seznec shares his thoughts on whether or not the capital expenditure cycle has now reached its peak, as well as his thoughts on whether European debt issues will impact future satellite projects in the region.

 

Seznec: Market conditions are not as favorable this year as during the previous two years. 2009 and 2010 were truly exceptional in terms of quantity, with more than 30 satellites ordered per year. This year, we expect about 20 to 25 satellites to be ordered. The year has also started slowly, with only nine satellites ordered — less than half of the potential market. Remember that we are also a major payload supplier and have signed a few contracts since the beginning of the year, including for Kazsat 3, as well as for a number of satellites in Russia. There are other payload opportunities for us this year.

 

Seznec: The market is stable in terms of requiring a range of different size satellites. A few years ago we thought that satellites were going to become bigger and bigger, but this did not happen, at least not to the extent expected. To address the market, you need a range of different satellites. Within that range, there is still a demand for medium satellites, and while small satellites still exist, there is obviously a demand for larger satellites.

 

 

Seznec: The Ka-band market has definitely started. Not only are there quite a few major projects already in production, but also others are in the pipeline — up to four more, in fact. The Ka-band market is taking shape and I think we will win some of this new business.

 

Seznec: Even though we are facing a potential decrease this year, we don’t know how long this part of the cycle is going to last. I believe that what we are seeing this year is just offsetting the extra satellites, which were ordered in 2009 and 2010. What we hear from operators is that demand is still high and that the same factors are driving demand. It could be just a small compensation process taking place, or it could be a stabilization process taking place in the market. In another 12 months, we’ll have a better idea of the actual trends in 2011.

 

Seznec: There are actually two sides to this question — what the market allows us to do and what we want to do. We want to maintain a good balance between our commercial and government sales. This has proven to be feasible and is a good thing for us. We hope the market would allow us to maintain the same balance. When I look at the figures, the overall long-term growth rate in both markets is about the same, and we have been successful in both areas. Take, for instance, our main business wins in 2010 — namely Iridium, which is purely commercial, and Meteosat, which is governmental. While observers around the world are speculating as to whether defense expenditures will decrease or stabilize because of the crisis, certain niche markets remain quite active. This is essential and we want to maintain this balance.

I truly believe it is vital for us to be diversified in our approach to the commercial market and this is what we are doing. At the same time, we have been very active in the constellation and geostationary markets. We welcome partnerships and the opportunity to sell our payloads to other prime contractors. This diverse approach has been successful for us. On the other hand, the question in the government market is whether European countries will maintain their investments in civil space programs. So far, the answer has been ‘yes.’ The budgets approved at the last ESA ministerial-level conference are being executed as planned, but the future is still uncertain and we will see what happens next year.

 

Seznec: So far, it has not happened, but this is a concern and it could become more of a concern. European collaboration acts as a stabilizer. When countries work together and one of them is absent, the missing participant becomes very apparent. Space infrastructure spurs investment over the long run. The capital expenditure is high, but the operational expenditure is lower than it would be in other areas. In other words, it is almost a pure investment. I hope that our governments always realize this. In times of crisis, it is better to cut spending and not investment that is critical for the future, such as the public services provided by environmental and meteorological satellites. Nobody can imagine that these services will be terminated. That would be unacceptable.