EADS Astrium Looks To Diversify Revenue Base

EADS Astrium CEO Antoine Bouvier believes the number of commercial orders for satellites is unlikely to pick up significantly until 2005. However, the satellite manufacturer hopes to make up for the commercial shortfall by increasing revenues from the military space market, as well as gaining orders from new markets in Asia.

The satellite manufacturing industry remains a tough place to do business, with a number of players in the market fighting for very few orders. While senior executives in the industry believe consolidation is likely to happen, as yet there are no signs that this is imminent.

EADS Astrium has continually been linked with Alcatel Space, the other major European satellite manufacturer. Despite the two companies working together on a number of programs, they are still keen competitors.

In an exclusive interview with SATELLITE NEWS, EADS Astrium CEO Antoine Bouvier talks with International Editor Mark Holmes about how the company is going to build its business over the next 12 months and the prospects for the satellite manufacturing business as a whole.

Interspace: How many commercial satellite orders do you expect to see in 2003? Is it likely there will be under 10 commercial orders? How many orders do you expect in 2004?

Bouvier: Up to now, collectively this year, there have been close to 10 orders worldwide. We expect that there will be 12-15 orders by the end the year, which is slightly better than some of the assumptions we discussed a few months ago. Whether this is the first sign in terms of a recovery in the industry, I don’t know. The satellite manufacturing industry has seen some good signals from customers. We think the number of commercial orders will stay at the same level next year, so around 12-15 orders. Even if there is a collective assumption that things will improve, we are all slightly pessimistic about the time recovery will take – probably not before 2005. Beyond that, we think the medium- term forecast will be around 20 per year. Our own assessment is that a pure replacement market would be in the range of 12 satellites and if we assume a reasonable growth in business, then it could be more than 20 per year. This is quite an increase for which it is also important that the space industry recognizes the needs of new services and applications.

Interspace: What benefits does Astrium gain from having EADS fully in control? Has the integration process been smooth?

Bouvier: We have achieved very significant progress since the beginning of 2002. Now, EADS Astrium is focusing on satellites … Our launcher and space infrastructure activities have been transferred to EADS Space Transportation, and service activities for telecom have been transferred to EADS Space Services. So, now there is a clear picture in terms of responsibilities within EADS’ space activities. What we have done is to set-up an organization, which is acting internally and externally as a single company. We are now organized along our market and product areas. We are developing centers of excellence, and competence, for our key technologies. We are pooling resources and we are also integrating transnational activities such as IT and procurement, etc. The new organization is based on two main principles. Firstly, we want to better serve our business markets by product segmentation, and secondly [we need to] gain all the benefits of pooling common technologies and resources with EADS. This process has been very carefully monitored so that it will not disturb our overall programmes, but, on the contrary, it will improve the management of our varied projects.

Interspace: What percentage of your overall revenues comes from the military sector? Do you expect that to increase this year and next?

Bouvier: This year, revenues from the military sector will be slightly below 20 per cent. What we expect with the ramp-up of Skynet 5 is the proportion of our military activities to grow and to reach one third of our business in the coming years. We also think there is significant potential for new programs and applications and substantial growth on the military side. It will take time, but we are working very hard to prepare these new projects for the development of new technologies and new programs. We think there is considerable potential for growth in the medium term.

Interspace: What are the major opportunities and challenges in terms of how you are going to grow the business over the next couple of years? When do you expect to see the number of commercial satellite orders reach previous levels?

Bouvier: It is clearly a challenge to grow the business when the market is so depressed. The objective in the short-term is to protect and develop our market position. The second objective is to gear up for a market recovery, but we don’t expect this before 2005. The short-term objectives commercially are to expand our customer base – Telesat in Canada is a good example as it is a new customer to us. We have established our commercial position in North America. We have [bidding on a contract] in Japan, which is an indication of our strong technical and operational position in Asia. We want to extend our customer base in different regions. The second objective is to improve our offer, which means to reduce costs, to be in a position to propose to our customers a better product. We want to improve our performance, and even more importantly, the reliability of our program/products, which are already outstanding. Also, we want to gear up for a market recovery through the extension of our product line. We have the objectives of developing a fully integrated offer based on our Eurostar product line and improving the production process of our E3000 Spacecraft.

In the short-term, we want to consolidate our market position, both commercially and product-wise in terms of performance, reliability and cost. In the medium term, we want to be in a strong position to derive all the benefits from the market recovery and to capitalize on the improvements made, to emerge from this crisis as a clear leader in this market.

Interspace: Could you tell us the significance of the agreement with Alcatel for the development and joint marketing of satellites using the European AlphaBus platform to serve the high-power satellite market?

Bouvier: We have a joint initiative with Alcatel, which shows that this segment of the market will develop. This market is for satellites between 12 and 18 kW of payload power. This is not a new market segment because Boeing’s 702 has already significant in-orbit experience and an order backlog. This is not a futuristic market; it is an existing market, in which EADS Astrium is not currently present, but wishes to be part of, along with Alcatel. We have decided to pursue the AlphaBus project, which, as you know, is supported by ESA [European Space Agency] and CNES [Centre National d’Etudes Spatiales]. As a very important milestone, we have now signed an agreement with Alcatel. There is a commercial agreement, which provides for the joint marketing of this common product. But both companies will remain autonomous in terms of the marketing of their own products below the level of the AlphaBus. This is a project we think has the potential for long-term development. We will address a market that is not very active today, but one in which we can see the competition already has a strong position. The product will also lead to significant reduction in the cost per transponder of our satellites and it will also be well adapted to the evolving market for new broadband services.

This joint approach does not mean anything more in terms of a merger, or strategic co-operation between Alcatel and EADS Astrium. As you know, we are already cooperating on several programs, mainly institutional.

Interspace: Have you been surprised that there still has not been significant consolidation in the satellite manufacturing sector despite the view of most CEOs that such consolidation is inevitable?

Bouvier: Yes, it is a bit surprising because for many years business professionals have called for industry consolidation, including myself. I have said that industry consolidation is inevitable and will occur very quickly, but nothing has happened. I think the logic of industry consolidation still exists. Secondly, it doesn’t seem that a transatlantic merger is a realistic option. It is a remote possibility. There is strong logic in having consolidation on both sides of the Atlantic. Everybody has his or her own view, which explains why, despite all the strong arguments, nothing has happened! We can say that if [there remains] five main players, there will be a lot of changes in terms of the respective positions and strategy of the players. But, I cannot elaborate on this.

Interspace: Will EADS Astrium play an active role in industry consolidation? Do you expect it to happen with the U.S. satellite manufacturers first?

Bouvier: EADS Space is the leading space company in Europe. It is the only, fully European company in the space sector. It is active on the launcher, satellite service, as well as manufacturing side. Clearly, we will have a key role in any consolidation in Europe. My responsibility as the CEO of EADS Astrium is to make sure all the conditions are in place for this company to be successful in the market, to better serve its customers irrespective of consolidation. So, we are committed to making the company successful whatever happens. Our short-term priority is to improve the business and develop our customer base.

Interspace: What do you see as your competitive advantages over other satellite manufacturers right now?

Bouvier: Our key competitive advantages are linked to the reliability of our satellites – the Eurostar E2000 and E3000 products. We are significantly ahead of our colleagues in terms of the ratio of insurance claims versus total value. Reliability is an absolutely key requirement for our customers. Our second competitive advantage is our ability to give our customers access to the full technical data during the design and manufacture process and the operation of the satellite. We can have close co-operation with our customers, which is a clear asset. We also have a very mature product line enabling us to propose optimized solutions to improve our customers’ services. So, reliability, visibility, and modularity are the three key advantages of our product.

(Remi Roland, EADS Astrium, e-mail: [email protected])