Airbus Defence and Space’s long-held ambition to become the sole master of Europe’s rocket sector, which seemed within its grasp a few months ago, is now threatened by Airbus’ own missteps, according to European government and industry officials.

How Airbus, after its brilliant tour de force in 2014 — winning government and industry backing for an Airbus-backed next-generation Ariane 6 rocket against a competing European government design — found itself in such a messy struggle is a story still being played out.

As of mid-March, it appeared that the key strategic goal of building an Ariane 6 rocket on time and on budget had not yet been affected by the issues of tax liability, industrial influence and national pride that are creating roadblocks to Airbus’ proposed industrial reorganization around Airbus Safran Launchers (ASL), the Ariane 6 prime contractor.

Airbus Strategy Director Marwan Lahoud told journalists Feb. 24 that unless ASL’s status was cleared up by April, Airbus could no longer promise the Ariane 6 in-service date of 2020. Lahoud spoke just after Airbus Chief Executive Tom Enders publicly expressed frustration at how slow the ASL project was moving, and even left open the possibility that it might not happen.

Despite these remarks, government and industry officials say the Airbus and Safran Ariane 6 project teams have not been distracted by the noise, and that the Ariane 6 schedule is not imperiled — at least not yet.

But officials agree Europe’s rocket business can ill-afford to be sidetracked at a time when it must redress its competitiveness against companies in the United States, Russia, China, India and Japan.

“The SpaceX steamroller is stalled, but it’s coming,” said one European government official, referring to Hawthorne, California based SpaceX’s Falcon 9 rocket, Ariane 6’s main competitor. “Russia is investing in a new generation of rockets despite its economy. India is nibbling at the commercial launch market and China is, too, despite U.S. [government] sanctions. We don’t have time for intra-European battles like this.”

A battlefront it may not be, but it’s hardly one-for-all, all-for-one, either.

“The SpaceX steamroller is stalled, but it’s coming. Russia is investing in a new generation of rockets despite its economy.”

Some Ariane industrial partners have quietly threatened to cash out their shareholdings in the Arianespace launch consortium and start a new company to compete with Arianespace and Ariane 6 by selling Europe’s upgraded Vega small-satellite vehicle if ASL takes over Arianespace.

“We could have avoided all this with a little industrial diplomacy, and for some reason [Airbus] did not manage it that way,” said an industry official who supports Airbus’ maneuvers at Arianespace.

On the financial side, it looks likely that ASL will not become the party of equals that had been announced.

Created in late 2015 and intended as a 50-50 joint venture between Airbus and Safran, ASL was supposed to have moved to full integration by January of this year, with several thousand employees of the two companies coming together under a single corporate roof.
Multiple savings allegedly would accrue from combining the two companies, and still more by a broader rationalization of Europe’s rocket sector. This was the sine qua non of the August 2015 contract between the 22-nation European Space Agency and ASL for the Ariane 6 rocket.

The contract, valued at 2.4 billion euros ($2.6 billion), included an immediate disbursement of 680 million euros, with the remainder to follow a mid-2016 Program Implementation Review between ASL and ESA. The review will end with a formal pricing commitment by ASL, on behalf of its contracting team, to build the vehicle and sell it to the Arianespace commerciallaunch consortium.

As part of the agreement with ESA, ASL and its major industrial partners agreed to invest 400 million euros of their own funds into Ariane 6.

The review was agreed to as the last chance for European governments to intervene in a significant way in the Ariane 6 development, which is closely tied to development of new versions of the Italian-led Vega small-satellite launcher.

But in advance of the mid-year review with ESA, there were just a few minor matters to be settled.

The most obvious was the mismatch in the respective assets brought to ASL by Airbus and Safran. Especially when its French strategic missile work is factored in, Airbus is the far bigger player.

To reach the 50-50 joint venture the two companies had announced, Safran in 2015 agreed to pay Airbus 800 million euros in cash. Once that happened, ASL could come together as scheduled.

There was a second obstacle, then considered minor: ASL’s purchase of the French government’s 35-percent stake in Arianespace. Why Airbus was in such a hurry to conclude this purchase has never been clear, but company officials have repeatedly said it needed to happen as soon as possible.

Assigning a value to that 35-percent stake depended on whether you looked at Arianespace’s past financial performance, or a future that includes an upgraded Vega and the Ariane 6.

Airbus had said Arianespace, hobbled by a structural deficit requiring annual cash injections by ESA, was worth zero. The French space agency, CNES, which holds the French government shares, said if the company was worth nothing then CNES was in no hurry to sell.

CNES had a special interest in negotiating favorable terms because, in a peculiarity of French public accounting law, it is CNES — not the French treasury — that will pocket the proceeds from the transaction.

The two sides eventually agreed that ASL would pay 150 million euros for France’s stake, bringing ASL’s Arianespace ownership to 74 percent. The French government formally endorsed the deal in late January, leaving just one remaining obstacle: an antitrust review by the European Commission.

Meanwhile, the Safran cash transfer had not happened.

On Jan. 26, Airbus’ space division chief, Francois Auque, said the delay was due to French authorities’ ongoing analysis of the tax treatment for Airbus of Safran’s lump-sum payment of 800 million euros.

Auque went out of his way to say this was not a case of a slow-footed bureaucracy, but rather the consequence of the fact that Airbus had only recently thought to inquire about tax consequences.

European government and industry officials suggested another scenario: Airbus had been seeking, without success, a tax waiver of some kind. Without one, Safran’s payment would end up netting Airbus less than 400 million euros.

“From an Airbus point of view, the way to get a net 800 million euros from Safran was to have Safran pay 1.5 billion euros,” one industry official said. “This obviously was not going to happen.”

The idea of removing Vega from Arianespace’s portfolio and selling the vehicle separately through a VegaSpace company has been floated. The coming Vega upgrades are expected to create an overlap in the performance of the Vega and the Ariane 62 rocket.

The idea of removing Vega from Arianespace’s portfolio and selling the vehicle separately through a VegaSpace company has
been floated. The coming Vega upgrades are expected to create an overlap in the performance of the Vega and the Ariane 62 rocket.

Safran’s agreement to pay 800 million euros in cash for 50 percent of a rocket- and missile-production company had raised eyebrows in 2015.

Safran is now under new management, with a new chief executive and a new chief financial officer who may or may not share their predecessors’ judgment that the company had nothing better to do with 800 million euros than to invest in ASL.

On Feb. 25, Safran Chief Executive Philippe Petitcolin declined to confirm the 800-million- euro figure and said that “whatever” the amount, it would only be transferred once ASL is fully operational.

Government and industry officials now say the most likely scenario, especially given the tax considerations, is that Safran will pay a much lower amount for a minority stake in ASL.

What effect that will have on the European Commissions’ in-depth review of ASL’s purchase of the CNES Arianespace stake is unclear.

The commission had already approved the formation of ASL in 2014, with minor modifications relating to satellite electric propulsion. But in that decision the commission expressly said it was not signaling approval of an ASL takeover of Arianespace.

On Feb. 26 the commission announced it was proceeding with a more in-depth review of the ASL-Arianespace transaction after receiving testimony from Arianespace minority shareholders and Arianespace customers raising different concerns.

The commission now has until July 12 to make a decision after reviewing new ASL assurances, and eventual concessions, to address the antitrust issues.

The concerned companies include Ruag of Switzerland, which makes Ariane rocket components in occasional competition with CASA Espacio of Spain, which Airbus owns; OHB SE of Germany, whose MT Aerospace of Augsburg is a major builder of Ariane rocket structures; and Avio of Italy, an Ariane component builder that is also prime contractor for the Vega rocket.

Other concerns sent to the European Commission came from commercial satellite builders worried that an Airbus dominated Arianespace might favor Airbus-built satellites, either by giving them preferred treatment on the Ariane launch manifest or by leaking proprietary technology learned in preparation for the launch of non-Airbus-built satellites.

Industry officials said satellite fleet operator SES of Luxembourg, while not protesting publicly, has said privately that it has issues with Airbus being prime contractor for the OneWeb LLC constellation of 700-plus satellites in low Earth orbit. One Web has booked 21 launches with Arianespace aboard Russia’s Soyuz rocket, and has said it would be using Ariane as well.

SES, which declined to comment for this article, views OneWeb as a competitor and is keen on assuring that Airbus does not give OneWeb special launch treatment to the detriment of SES’s O3b broadband satellite constellation.

Notably absent among the companies expressing reservations to the European Commission is Thales Alenia Space, Airbus’ biggest European satellite competitor.

Thales Alenia Space Chief Executive Jean-Loic Galle had written the French government asking for guarantees that Airbus satellites would not get preferential treatment from the Airbus-owned Arianespace. ASL subsequently agreed to terms satisfactory to Thales Alenia Space.

Another satellite manufacturer said there is no certainty that the commitments to Thales Alenia Space extend to all other satellite builders.

“It’s all well and good that Thales has been reassured, but what does that mean for the rest of us?” an official with one satellite manufacturer said. “To my knowledge, none of us has seen the ASL-Thales agreement. Why not open it up and say it applies to everyone?”

Addressing the concerns of Arianespace’s principal minority shareholders — MT Aerospace (8.3%) percent, AVio SpA (3.4%), Ruag (5.4%) and Sabca of Belgium (2.7%) — is likely to be the toughest part of the commission’s antitrust assessment.

“What we don’t want is for Airbus to dictate everything,” said one of the shareholders. “As it is now, with no French government involvement, we would basically have no rights.”

Two industry officials said at least one of the minority shareholders has suggested that, without changes to the ASL takeover of Arianespace, it should be able to cash in its Arianespace stake under the same terms as CNES, which gave an implied value of about 429 million euros for Arianespace’s equity.

On solution could be to rewrite Arianespace’s bylaws to force all strategic decisions to clear an 85-percent threshold, meaning ASL plus at least two minority shareholders, an industry official said. “It’s not that difficult, and it was entirely predictable; why could this not have been put on the table beforehand by ASL?”

Italy is the most delicate point here. Vega is managed by ELV of Italy, which is owned 70 percent by Avio and 30 percent by the Italian Space Agency. At the time of ASL’s formation, Italian officials stressed they had no intention of allowing Vega’s prime contractor to become part of the ASL structure.

The idea of removing Vega from Arianespace’s portfolio and selling the vehicle separately through a VegaSpace company has been floated. Officials said the coming upgrades of Vega will create an overlap in the performance of the Vega and the Ariane 62 rocket, which will carry two strap-on boosters instead of the four to be used by the Ariane 64 model.

“We would like guarantees that, when they are out and about selling launch services, Arianespace does not sell Ariane 6 just a little bit harder than Vega for small satellite launches that could use either one,” an industry official said. “Because the future otherwise looks like every Arianespace employee thinking of his or her future will want to please only one master: Airbus.”

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