Ref. Ares(2014)72519 - 15/01/2014
Study
on
internationalisation
and
fragmentation of value chains and security
of supply
Within the Framework Contract of Sectoral Competitiveness
Studies ENTR/06/054
Case Study on Space
17 February 2012
Danish Technological Institute
In cooperation with
Ecorys
Cambridge Econometrics
Title: Study on internationalisation and fragmentation of value chains and
security of supply
This report has been prepared in 2011 for the European Commission, DG Enterprise
and Industry under the Framework Contract of Sectoral Competitiveness Studies
ENTR/06/054.
Abstract: The overall objective of the study is to analyse the degree and
consequences arising from the internationalisation, fragmentation and security of
supply of value chains for European industry. The focus is predominantly on the
supply side (i.e. upstream) as opposed to the demand, downstream, side. While
globalisation can indeed be a positive development for Europe, there are also risks
involved.
Key subjects: Value chains, supply chain management, risk mitigation, industrial
policy, competitiveness, globalisation, EU, aeronautics, electric vehicles, mobile
devices, semiconductors, space…
Publisher: European Commission, DG Enterprise and Industry
Performing organisations: Danish Technological Institute (Peter Bjørn Larsen,
Jeremy Millard, Kristian Pedersen, Benita Kidmose Rytz) with Ecorys (Jan Maarten
de Vet, Marc Vodovar (Decision), Paul Wymenga) and Cambridge Econometrics
(Graham Hay, Jon Stenning)
Project leader: Jeremy Millard, Danish Technological Institute
Email: [email protected], phone: (+45) 72 20 14 17
Kongsvang Alle 29, 8000 Århus C, Denmark,
Reference: Millard, Jeremy; Peter Bjørn Larsen, Kristian Pedersen, Benita Kidmose
Rytz, Jan Maarten de Vet, Marc Vodovar, Paul Wymenga, Graham Hay & Jon
Stenning (2012) Internationalisation and fragmentation of value chains and security
of supply. Published by the European Commission, DG Enterprise and Industry.
Framework contractor:
ECORYS SCS Group
P.O. Box 4175
3006 AD Rotterdam
Watermanweg 44
3067 GG Rotterdam
The Netherlands
T +31 (0)10 453 88 16
F +31 (0)10 453 07 68
E [email protected]
W www.ecorys.com
Registration no. 24316726
Table of contents
1 Case study Space
1.1 Introduction
1.2 The competitive situation of the value chain
1.2.1
Satellite manufacturing
1.2.2
Launch vehicles
1.2.3
Internationalisation
1.3 Critical factors
1.3.1
Justification of critical factors
1.3.2
Assessment of critical factors
1.3.3
Critical factor 1: input needs
1.3.4
Critical factor 2: socio-economic changes
1.4 Critical regulatory framework conditions
1.5 Strategic outlook
1.6 Annex 1: interviews
1.7 Annex 2: data issues
1.8 Annex 3: literature
5
5
7
8
9
13
16
16
17
17
22
29
29
32
32
35
1 Case study Space
1.1
Introduction
The space sector in principle encompasses all activities related to the manufacture of
spacecraft, launch vehicles, and ground facilities (upstream), systems launch and operation,
as well as space enabled services such as communications, Earth observation, and navigation
for use in scientific, public services and commercial applications (downstream).
However, there is no official space sector definition, and the concept of a space sector fits
poorly within standard statistical classification schemes. This is because these schemes on
the one hand distinguish sharply between manufacture of transport equipment,
telecommunication equipment, instrumentation, navigation systems, and several other parts,
but on the other hand generally do not distinguish clearly between the manufacture of
satellites, launch vehicles, and manned spaceships or even between the manufacture of
spacecraft and aircraft.
Brief overview of the selected value chain
Figure 10.1 outlines the space value chain from the downstream drivers of demand for
satellites and vehicles to launch them into orbit in space enabled services and applications, to
the manufacture of these by primes (tier 1 suppliers) with the help of subsystem suppliers
(tier 2 suppliers) and components and materials suppliers (tier 3 suppliers). The figure also
outlines the importance at various stages of supporting specialist functions such as systems
engineering, design and research and development services provided on a contract basis for
upstream manufacturing, and insurance and financial services in relation to launch events.
In addition, Figure 1.1 highlights the primary focus of the present case study on the
manufacture of satellites and launch vehicles and not on manned spaceships or ground
facilities (or downstream satellite operators and space enabled services).
5
Figure 1.1:
Outline of space value chain
Source: DTI
Sources regularly surveying the industry estimate the value of the entire global space
industry and related institutional activity at around $240-280 bn in 2010 (possible
combinations of Euroconsult, Satellite Industry Association and Space Foundation
estimates). This figure includes some $70-90 bn of public spending, approximately half of
which comes from military coffers (Euroconsult and Space Foundation estimates), and $100
bn derived from downstream satellite services as shown in Figure 1.2.
Of the remaining $70-90 bn of the global industry in 2010, the European space industry is
estimated to account for $8 bn (Eurospace Facts and figures 2011) or close to 10%. This is
down from approximately 25% of the upstream industry a decade ago and from 37% in
1996, reflecting the current increases in countries and regions with ambitions in space rather
than reduced European activity. Satellite application systems (satellite manufacturing and
ground stations) is the largest European subsector in monetary terms contributing almost
60% of the $8 bn upstream turnover in 2010, whereas launcher systems contribute somewhat
less than 20%. Despite their lower share of turnover, the critical importance of launcher
systems to the whole of the value chain as an essential enabler for deploying space hardware
and related downstream services is, however, clear.
6
Figure 1.2:
Global space industry value
Source: European Space Policy Institute (ESPI) Space policies, issues and trends 2005/2006-2010/2011, European
Space Agency (ESA) The European space sector in a global perspective 2003-2005, Satellite Industry
Association/Futron Corporation (SIA) State of the satellite industry 2001-2011
1.2
The competitive situation of the value chain
The space economy is distinctly different from most other sectors. The sheer impracticability
of operating in space and the stress of launching to space give rise to demanding reliability
requirements that challenge known technology and are extremely expensive to satisfy.
Moreover, development time is long, but production runs typically short. This implies
significant technological and financial risks difficult to assume for most individual
companies.
At the same time, space systems are commonly viewed as strategic assets and usually have
been, and still are, developed with extensive government funding. This implies that trade in
space products and space technology tends to be heavily regulated,1 that commercial prices
rarely reflect the full costs of development, and that significant national industrial legacies
and interests exist in the structure of the sector. Further, the perceived strategic value of
space systems tends to make non-dependence on other countries or regions for necessary
industry capabilities a political priority.
Overall, the above factors result in a manufacturing industry characterised by high
concentration rates and substantial barriers to entry, and where the continuation of some
quasi-monopolies and inefficient allocations of resources are accepted to preserve the
industry. Especially the European market for launch vehicles comes close to the conditions
of a natural monopoly under which duplicate infrastructures and consequently competing
suppliers are unsustainable with existing demand and development costs, and the need for a
minimum number of launches to maintain a reliable system. In addition, at least in an
1
Also because of ‘dual-use’, i.e. technology which can be used for both military as well as non-military purposes.
7
exploratory research context, some redundancy can be fully justified given the difficulty of
picking future technology winners.2
1.2.1
Satellite manufacturing
In 2009, there were about 20-30 companies and/or organisations worldwide with the
capabilities to assemble, integrate and test satellites – nine of which competed internationally
for orders for geostationary (GEO) satellites (Euroconsult data). These nine companies
included four American (Space Systems/Loral (SS/L), Boeing Satellite Systems, Lockheed
Martin, and Orbital Sciences Corporation), two European (EADS Astrium Satellites and
Thales Alenia Space), one Japanese (Mitsubishi Electric Corporation (MELCO)), one
Chinese (China Academy of Space Technology (CAST)), and one Russian company (ISSReshetnev). In addition, seven other companies competed domestically for orders for GEO
satellites in 2009, including European OHB System, and one Israelite (Israel Aircraft
Industry (IAI)) and one Indian company (Indian Space Research Organisation (ISRO)).
Numerous instances of horizontal and vertical integration exist in this subsector, with
mergers and acquisitions to spread the cost of new technology development, and
manufacturers providing both launch and satellite capabilities. Large system primes also are
known to integrate key subsystem suppliers to prevent their acquisition by competitors.
Hence, the EADS Astrium and Thales company groups alone employed 59% of all
employees in the European space industry in 2010 (ASD-Eurospace data). However,
consolidation is not equally present in all parts of the satellite manufacturing value chain.
The limited infrastructure and costs required to produce capable small, micro and nano
satellites have encouraged an increasing number of academic institutions and research
centres to develop their own satellites for scientific and educational purposes, often relying
on standard off-the-shelf components. About one in ten satellites launched between 2006 and
2010 were built by a university, engineering college or research centre (FAA data). Also
satellite subsystem suppliers appear less integrated with over a 100 such European
companies in 2010 (Futron data). However, this figure may conceal a significant number of
smaller space units wholly or partially owned by system primes.
At a global scale, the satellite manufacturing industry produced 91 satellites in 2010
(counting launched satellites, Futron data). Of these 91 satellites, European primes accounted
for 26 equal to 28%, with American (21%), Russian (18%) and Chinese (14%) primes in the
following places. All Chinese and Russian manufactured satellites and half (47%) of US
manufactured satellites were purchased through government programmes, however. Thus, in
the commercial market with 26 satellites launched in 2010, the market share of European
companies was 62%.
Viewed over the last five years to even out yearly variations in production, these shares
change somewhat. The aggregated European market share from 2006 to 2010 was 18%
overall and 40% in the commercial market, while American primes manufactured 33% and
48% respectively and Chinese primes just 8% and 3% (FAA data). But the trend compared to
the previous five years from 2001 to 2005 is clear with European primes gaining market
2
Note that from a seller’s perspective, the space manufacturing industry also may viewed as facing a quasi-monopsony, given the
strong reliance on government demand in all areas except telecommunications.
8
share, especially in the commercial market (up from 27%). This increase is based on
successfully capturing orders in emerging markets in the Middle East, Asia, Africa and South
America as shown in Table 1.1 (showing changes in GEO satellite market shares only).
Commercial
Domestic
Europe
USA
Russia
Japan
China
India
Canada
Asia and Oceania
Middle East
Africa
Central and
South America
Changes in market shares for GEO satellites from period 2001-2005 to period 2006-2010
Overall
Table 1.1:
4
12
-3
-7
-4
-8
0
-8
0
42
42
67
75
50
-11
-13
-8
7
4
0
-43
-20
0
-42
-50
-39
0
25
Russia
-4
-6
-5
0
0
8
0
0
0
0
8
0
0
0
Japan
4
1
7
0
0
0
43
0
0
0
0
0
0
0
China
8
5
12
0
0
0
0
28
0
0
0
0
25
25
India
-3
0
-3
0
0
0
0
0
0
0
0
0
0
0
Other
0
1
1
0
0
0
0
0
0
0
0
-28
0
0
Market
size
67
63
28
24
4
9
11
3
3
8
6
3
3
Change
-1
-9
-4
-11
-5
3
7
-3
0
4
4
3
3
Europe
USA
Source: Federal Aviation Administration (FAA) Commercial space transportation year in review 2001-2010,
Jonathan’s space report (satellite catalog). Figure shows changes in market shares for GEO satellites across market
types and regions comparing the market shares of satellite manufacturers in particular countries aggregated over
the period 2006-2010 to their market shares aggregated over the period 2001-2005. Thus, the top row shows first
the overall change in market share of European satellite manufacturers regarding GEO satellites (+4 percentage
points), the change in the market share of European satellite manufacturers regarding commercial GEO satellites
(+12 percentage points), and the change in the market share of European satellite manufacturers regarding
domestic GEO satellites, i.e. GEO satellites ordered by companies located in the same country/region as the
satellite manufacturer(s) (-3 percentage points). Next, the top row shows the change in market share of European
satellite manufacturers across regional markets starting with satellite producing countries/regions (e.g., -7
percentage points in Europe) and ending with emerging markets grouped by region (e.g., +42 percentage points in
Asia and Oceania). The two bottom rows shows first the relative size of each market aggregated over the period
2006-2010 (e.g., the commercial market accounted for 67% of all GEO satellites) and secondly the change in the
relative size of each market compared to the period 2001-2005 (e.g., the commercial market accounted for 1%
percentage point less of all GEO satellites in the latter period compared to the former). Absolute figures are included
in Annex 2.
1.2.2
Launch vehicles
Only six countries or regions had domestic GEO launch capabilities in 2009 (Euroconsult
data). These were Europe, USA, Russia, Japan, China and India. In addition, three other
countries had or were in the process of developing non-GEO capabilities in 2009, namely
Israel, Brazil and South Korea. The industry consists of four key players, which are:
• Arianespace (offering manifests on Ariane 5 and soon Soyuz and Vega launched from
Kourou)
• International Launch Services (a subsidiary of Russian Khrunichev State Research and
Production Space Center offering manifests on the Proton-M rocket launched from
Baikonur)
• Sea Launch (owned by Russian RSC Energia and run with input from Boeing,
Norwegian Kvaerner ASA, and Ukrainian SDO-Yuzhmash/PO-Yuzhmash offering
manifests on the Zenith 3SL rocket launched from a converted oilrig in the Pacific
Ocean)
9
•
United Launch Alliance (a joint venture between American companies Lockheed Martin
and Boeing offering manifests on the Atlas V and Delta IV rockets launched from Cape
Canaveral and Vandenberg).
Upcoming players in the commercial market include:
• Mitsubishi Heavy Industries (Japan, offering manifests on the HII-A and HII-B rockets
launched from Tanegashima)
• China Great Wall Industry Corporation (the commercial wing of the China Aerospace
Science and Technology Corporation (CASC) offering manifests on the Long March
rocket series launched from Xichang)
• Antrix Corporation (the commercial wing of the Indian Space Research Organisation
(ISRO) offering manifests on the PLSV and GLSV rockets launched from Satish
Dhawan)
• Space Exploration Technologies Corporation (SpaceX (US), offering manifests on the
Falcon 1 rocket and soon the Falcon 9 rocket launched from Omalek Island and Cape
Canaveral respectively).
As elsewhere, systems integrators have undergone a process of consolidation in Europe over
the past decade. However, the equipment and subsystem supplier layers are still relatively
fragmented – at least in part reinforced by the ‘fair return’ rules of European Space Agency
(ESA) programmes, by which industrial contracts are distributed geographically in
proportion to Member State contributions to Agency programmes. While this rule of
geographical return has provided a powerful investment incentive for nations, a recent
independent audit of the Ariane 5 supply chain concludes that the policy also has curbed the
realization of cost-savings in terms of specialization and rationalizations.3
In 2010, 74 launches into orbit were executed globally (this number is lower than the number
of satellites launched because some launch vehicles including Ariane 5 can carry more than
one satellite) with Russian companies accounting for 31 launches, and American and
Chinese companies performing 15 launches each. European Arianespace was responsible for
only six launches in 2010, all of them commercial in stark contrast to the composition of
launches by companies in other countries with greater government and military space
activity. This makes the financial footing of Arianespace more volatile than that of most
competitors with the possible exceptions of ILS and Sea Launch, which also operate
exclusively or primarily in the commercial launch market, but with leaner cost structures
(Sea Launch declared bankruptcy in 2010 and re-emerged in 2011 after reorganization and
shedding of debt).
As shown in Figure 1.3, the value of the commercial launch market over the last two decades
has gone through sustained periods of growth and decline with the market currently being at
the top of what appears to be a new growth cycle. This pattern largely reflects the expansion
and replacement phases of the major satellite telecommunications operators such as Eutelsat,
Inmarsat, Intelsat and SES in Europe and DirectTV, EchoStar, Globalstar, Iridium and
Orbcomm in the US, which constitute the main players in the commercial launch market on
the customer side.
3
http://www.spacenews.com/launch/110621-esa-policy-limits-ariane-savings.html
10
Figure 1.3:
Commercial launch market
Source: Federal Aviation Administration (FAA) Commercial space transportation year in review 1998-2010.
Even with a significant share of the commercial launch market, the limited launch rate of
Arianespace (further constrained by enduring launch pad problems in Kourou) severely
stresses the financial ability of the company to sustain its activities and threatens the
maintenance of reliability requirements. It might also impede investments in new launchers
seen necessary to remain competitive in future with Russian companies offering their
services at low prices, and also China and India increasingly making their way into the
commercial launcher market with their government-developed vehicles.4
The increasing role of Russian, Chinese and Indian companies is strongly enabled by the
heavy investments in space made by their national governments in recent years. Albeit
publically available estimates (Euroconsult, Space Foundation) suggest that each budget is
still nominally smaller than ESA and European national public space budgets combined, the
public space budgets of Russia, China and India have increased more in both absolute and
relative terms than the public space budgets of any other country between 2006 and 2010, as
evidenced by comparisons between Figure 1.4 (2010 expenditures) and Figure 1.5 (2006
expenditures). Moreover, these numbers are prone to underestimate the real sizes of Russian
and Chinese public space budgets given the difficulties of assessing military budgets in those
countries (India and Japan only recently acquired a military space budget). Nor do the
coloured circles in Figure 1.4 and Figure 1.5 account for differences in purchasing power
further increasing the real impact of these budgets. Thus, in purchasing power parity terms
(indicated by the size of enclosing circles), the budgets of China and Russia are about twice
as big as in unadjusted nominal terms, and the budget of India almost thrice as big, even
without accounting for indeterminate additional military budgets.
4
http://www.aviationweek.com/aw/generic/story.jsp?id=news/awst/2010/10/18/AW_10_18_2010_p31-261632.xml&channel=space
and http://www.aviationweek.com/aw/generic/story.jsp?id=news/awst/2010/11/22/AW_11_22_2010_p37270783.xml&channel=defense, cf. the “Fillon” report, 2009
11
Figure 1.4:
National/regional public space budgets in 2010
Source: European Space Policy Institute (ESPI) Space policies, issues and trends 2010/2011 (based on
Euroconsult data), Eurostat. Figure shows absolute and relative size of national/regional space budgets. Size (area)
of coloured circles denotes absolute size of national/regional public space budgets in nominal terms (see guide to
interpretation in bottom right part of chart). Size of enclosing circles denotes absolute size of national/regional public
space budgets adjusted for purchasing power.
Figure 1.5:
National/regional public space budgets in 2006
Source: European Space Policy Institute (ESPI) Space policies, issues and trends 2006/2007 (based on
Euroconsult data), Eurostat. Figure shows absolute and relative size of national/regional space budgets. Size (area)
of coloured circles denotes absolute size of national/regional public space budgets in nominal terms (see guide to
interpretation in bottom right part of chart). Size of enclosing circles denotes absolute size of national/regional public
space budgets adjusted for purchasing power.
12
Increased interest in the commercial launcher market is expected from American companies
as well with the recent changes in US government space policy. But at least in principle these
policy changes entail an opening up for the launch of US government and military payloads
with foreign vehicles too. It remains to be seen, however, whether export restrictions in
practice will curtail this potential widening of the commercial market. Furthermore, if
American companies can transfer their substantial institutional experience to the commercial
market, it is questionable whether this opening is sufficient to counterbalance the impact of
their entry on the commercial launcher market on a larger scale.
It should be noted that, while governments may be partial to selecting national/regional
launch vehicles for strategic reasons, increased competition for launch vehicles is a
development welcomed and even boosted by commercial satellite operators with no such
preferences.5 Also satellite service providers further down the value chain are first and
foremost interested in the business case made to justify each investment. These purely
economic sentiments imply that the European launch vehicle industry cannot rely on
commercial business from European companies simply because of shared regional identity
without also offering competitive prices and high reliability. However, these sentiments also
imply that commercial business from satellite operators and service providers in other
regions is not closed to the European launch vehicle industry if able to make a competitive
offer.
1.2.3
Internationalisation
There is a large degree of inertia in all space-related value chains due to the costs of
obtaining re-qualification (“space-approval”) for the introduction of new materials and
processes as well as suppliers. Moreover, satellite primes are very risk adverse and prefer to
keep all mission-specific manufacturing in-house because of the huge penalties associated
with delays compared to guaranteed availability dates where satellites are supposed to be up
and running and fully functional. Thus satellite primes only outsource stable designs, of
which there are not many in the highly bespoke satellite manufacturing. The many instances
of vertical integration around large system primes also should be seen in this light.
Nevertheless, European satellite manufacturers have traditionally imported many
components from the US due to better technology (which enables less redundancy and
consequently lower weight) and the absence of a business case to develop them in Europe
(because of the small size of the European market). Recent estimates suggest that
components and equipment procured outside of Europe make up as much as 60% of every
European satellite and account for even more in terms of value. Yet these components also
are associated with delays and administrative burdens due to export restrictions, which can
prove a problem for European space production. Furthermore, European Thales Alenia Space
has shown that there is potential business in developing satellites free of US components that
can be sold (and launched) in otherwise confined markets such as China.
5
http://www.aviationweek.com/aw/generic/story.jsp?channel=space&id=news/awst/2011/03/21/AW_03_21_2011_p24297637.xml&headline=null&next=10
13
Figure 1.6:
Use of European parts in European manufactured spacecraft
Source: European Space Agency.
At the same time, developments in the semiconductor industry with accelerating product life
cycles in time with the speed of technological change, and consolidation and delocalisation
of production to Asia following the migration of consumer goods production (see the
separate case study on the semiconductor industry) are causing upstream concerns about the
general availability of microelectronic components qualified for use in space. The limited
size of the space market for microelectronics (estimated at about €m 300 in 2009 by TesatSpacecom) compared to other industries implies that space requirements are not a driving
force of global semiconductor manufacturing standards and processes, which rather focus on
demand from larger and more lucrative markets such as computers and mobile telephony.
This, combined with the costs associated with obtaining space approval, results in pervasive
issues of single sourcing for specific microelectronic components, as well as in design
obsolescence as commercial components are continuously upgraded or phased out with little
regard for demands in the space industry. In short, the space market by itself is relatively
unattractive for some microelectronic suppliers with their main activities in other markets
and continuing business opportunities in those markets as well.
With regards to launch vehicles, these are largely produced nationally/regionally. Given that
they are publically funded, governments essentially demand that the industry remains in the
country/region. Moreover, the choice of national/regional suppliers may be important for
strategic reasons. This is also reflected in sporadic and generally very low trade statistics
values for the import and export of launch vehicles and parts of launch vehicles in and out of
the EU. Thus, imports of spacecraft and parts of spacecraft accounted for nearly 90% of all
EU27 extra imports of space related products in the period from 2006 to 2010 (31% and 57%
respectively), while exports of spacecraft and parts of spacecraft accounted for almost 100%
of all EU27 extra space related exports (78% and 21% respectively). Likewise, the value of
EU27 extra trade in launch vehicles and parts of launch vehicles generally is dwarfed by the
14
value of EU27 intra trade in indication of the largely European supply chain for these
products as shown in Table 10.2.
In contrast, the value of EU27 extra trade in spacecraft and parts of spacecraft, while still
smaller than the value of EU27 intra trade, is more substantial and notably increasing in
relative terms over time with regards to parts of spacecraft. Supporting the developments in
regional satellite market shares noted in Table 1.1 above, Table 1.2 similarly evidences a
substantial export market for European manufactured spacecraft in Asia and Oceania as well
as increasing export market shares in the Middle East and Central and South America.
Moreover, Table 10.2 suggests that Russia has taken over USA as the second largest export
market for European manufactured spacecraft in terms of value.
A very slow trend towards globalisation in terms of partnerships can also be seen. Since
markets are mainly institutional, export sometimes requires partial production in buyer
country to gain access. European EADS Astrium, for instance, has proclaimed that the
company is willing to accept that 20 % of its contracts’ values for the manufacture of
satellites go to transferring technology to customer nations, even if it ultimately may
undermine future company business.6 However, Europe arguably has more difficulties
coordinating supporting political agreements such as those recently witnessed between
Japanese and Turkish, and Chinese and Nigerian governments to the benefit of national
(European) industries.7
Table 1.2:
Relative importance of EU27 extra space related trade partners
Spacecraft
Import
Parts of spacecraft
Export
Import
Launch vehicles
Export
Import
Parts of launch vehicles
Export
Import
Export
2001- 2006- 2001- 2006- 2001- 2006- 2001- 2006- 2001- 2006- 2001- 2006- 2001- 2006- 2001- 20062005 2010 2005 2010 2005 2010 2005 2010 2005 2010 2005 2010 2005 2010 2005 2010
USA
60
100
35
17
78
87
68
63
93
3
100
47
45
26
58
35
Russia
16
0
19
Japan
0
0
0
21
2
0
13
2
5
11
0
0
0
0
3
28
24
22
5
12
2
0
0
0
0
1
0
12
18
China
0
0
4
9
0
0
1
3
0
0
0
0
0
0
0
0
India
0
0
0
1
0
0
1
4
0
0
0
2
0
0
1
2
Canada
0
0
3
0
1
0
7
0
1
0
0
23
0
0
0
0
Asia and
Oceania
0
0
38
32
0
0
5
5
0
3
0
1
0
30
0
6
Middle East
0
0
0
9
1
1
1
2
0
0
0
27
0
0
0
1
Africa
0
0
0
1
0
0
0
0
0
0
0
0
8
7
2
1
Central and
South America
0
0
0
5
0
0
0
2
6
93
0
0
0
0
2
7
Unknown
24
0
0
6
5
4
0
7
0
0
0
0
43
9
0
8
Share of EU27
extra trade
53
31
77
78
45
57
22
21
0
0
0
0
2
12
1
1
Share of EU27
intra trade
125
77
347
267
23
68
42
63
999+
32
0
0
2
14
13
4
.5
.5
2.4
4.0
.5
1.0
.7
1.1
.0
.0
.0
.1
.3
.05
.05
Value (€bn)
6
7
http://www.spacenews.com/earth_observation/tech-transfer-seen-cost-winning-business.html
http://www.spacenews.com/satellite_telecom/110308-melco-sat-contract-turkey.html
15
.0
Source: Eurostat COMEXT. Trade with Norway and Switzerland for present purposes included in EU27 intra trade.
Production value for each of the four product groups unknown. Figure shows shares of imports to and exports from
the EU27 coming from and going to particular countries and regions outside the EU27 (e.g., 60% of imported
spacecraft in the period 2001-2005 from outside the EU27 came from the US). The last three rows respectively
show the relative size of imports to and exports from the EU27 compared across the four product categories (e.g.,
import of spacecraft accounted for 53% of all space-related imports in the period 2001-2005), the relative size of
imports to and exports from the EU27 compared to imports or exports between EU27 countries within each product
category (e.g., import of spacecraft from outside the EU27 represented 125% of the value of imports from other
countries in the EU27 in the period 2001-2005), and the value of imports to and exports from the EU27 (e.g., the
import of spacecraft from outside the EU27 in the period 2001-2005 was worth approximately €0.5 bn).
1.3
1.3.1
Critical factors
Justification of critical factors
The critical factors for the space value chain have been selected based on a literature review
and discussions with DG ENTR. It has also been important to try to select different critical
factors for the five different cases.
In the space value chain, a number of critical factors were available. An overview is
presented in Table 1.3 of the critical factors identified. It can be seen that the two critical
factors examined in more detail in this case study relate to the generic critical factors of input
needs (technological dependence on critical technologies), and socio-political changes (in all
space faring nations, space is a highly subsidised sector, but the EU institutional market is
comparatively small forcing greater reliance on commercial market for sustainability). In
addition security is an overlapping issue. These have been chosen because they are broadly
perceived to be the most significant challenges to the viability of the European space
industry.
Table 1.3:
Overview of critical factors identified in space value chain
Generic critical factor
Input needs
Problems identified in literature
Selected for
further study
Resources
Technology
Dependence on critical technologies, particularly from
USA
9
Single sourcing and obsolescence management
Supply chain
configuration
Structure
Inefficiencies caused by “fair return” rule in ESA
programmes
Relations
“Localised”
risks,
Natural
Socio-political
high density
problems
Important institutional markets and significant public
funding implies that space industry is sensitive to
government and policy changes
9
Strategic aspects of space activities also implies
restrictions on export and even academic
collaboration
Security
Strategic concerns in relation to technology transfer
and weapons of mass destruction
16
Selected for
further study
Generic critical factor
Problems identified in literature
“Global” risks,
ubiquitous
problems
Changing currency rates a problem since
deliverances paid in USD, but costs paid in Euros (or
Roubles)
Macroeconomic
Global governance
Competitive
1.3.2
Emergence of SpaceX offering launch services at
prices significantly below those of current competitors
Assessment of critical factors
Table 1.4 presents an overview of the selected critical factors and their associated risks and
impacts, the identified mitigation strategies and the possible role that governments at national
or EU level could play in mitigating the risk. The critical factors are analysed in more detail
below.
1.3.3
Critical factor 1: input needs
Technological dependence on critical technologies is an important issue in the European
space value chain because access to these technologies from sources located outside of
Europe is uncertain and volatile. It is contingent, for instance, on the interpretation and
application of export restrictions such as the US International Traffic in Arms Regulation
(ITAR) to components and customers on a case by case basis. This technological dependence
stems from a technological gap closely related to the lack of attractive commercial
opportunities and an accompanying business case for development in Europe.
Table 1.4:
Overview of critical factor risks and impacts, mitigation strategies and government role
Generic
critical
factor
Input
needs:
technology
Risk
- Difficulties
accessing critical
technologies not
available from
European suppliers
- Unpredictability of
supply or increased
component cost
and/or less efficient
solutions
- Obsolescence of
designs and delays
Sociopolitical
- Increasing
institutional markets in
Russia, China and
India enable
increasing
international
competition in
Impact
Mitigation
- Unpredictability
manageable,
especially if ITAR
streamlined (but
lifting of ITAR may
imply surge in
competition and loss
of market share in
emerging markets)
- Delays may put
European
programmes such
as Galileo at risk,
although delays also
associated with
failing of industrial
partnership and
political indecision
about funding
- Increasing
international
competition in
commercial market
challenges ability of
European launch
vehicle industry to
17
Government role
- Monitoring of
developments in
Washington
- European
Component
Initiative (ECI)
-Coordination to ensure
focused use of available
European resources
- European
Qualified and
Preferred Parts
Lists (QPL/EPPL)
- Industry R&D
technology roadmap
identifying dependencies
and opportunities for
world leadership
- Investigation of
potential for use of
commercial-off-the-shelf
(COTS) and modular
designs
- Upgrade of lift
capability of Ariane 5 to
match market
developments towards
heavier satellites
- Increased range of
launch vehicles to better
- EC-ESA-EDA joint
task force on
prioritising
technology
development
- EC mandate to
CEN, CENELEC
and ETSI to
develop space
industry standards
- European
Guaranteed Access
to Space (EGAS)
- Future Launcher
Preparatory
Programme (FLPP)
Generic
critical
factor
Risk
commercial market
- Changes in US
space policy to
revitalize private
industry incl. research
in generic technology,
public-private
partnerships,
outsourcing of
government space
activities and partial
lifting of export
restrictions also entail
increasing
international
competition in
commercial market
Impact
stay afloat with little
chance of re-entry
Mitigation
Government role
match institutional
demand for launch of
small and medium sized
satellites
- Stimulation of
institutional demand
through Galileo and
GMES programmes
- Planning of next
generation launcher
(Ariane 6?)
- Export-credits
agencies
- Consolidation and
improvement of
production processes
a) Risks:
Technological dependence on critical technologies from abroad, such as space-approved
microelectronic components, creates potential competitive disadvantages in the form of
submission to export restrictions, single sourcing, delays and obsolescence, which at
minimum induces additional costs and at most completely halts production. These
disadvantages in particular relate to the manufacturing of satellites, which is highly bespoke
and relies on the import of many components from outside the EU. However, these
disadvantages may also threaten the downstream business case of satellite services premised
on being first, or among the first, to provide a particular facility in order to capture market
shares.
With regards to export restrictions, all space goods, including commercial satellites, have
been placed on the US Munitions Lists since 1999 and consequently are subject to the
International Trade in Arms Regulation (ITAR), which prohibits export from the US of
goods and technologies presumed to threaten national security. This implies that space items
are given the same treatment as defence goods, and in some cases even may require a
Congressional Notification before export is allowed. Moreover, ITAR also applies to all
services throughout the life cycle of satellite development and requires a “Technology
Transfer Control Plan” if the satellite is to be launched by a non-NATO country.
Beyond the extensive proofs necessary, the main problem for European satellite
manufacturers is the unpredictability of the export licensing process, which may take
anything from a month to a half year and is decided on a case by case basis. This makes
planning very difficult, and may incur huge delay of delivery penalties and/or redesign costs.
Also some orders may have to be forfeited because the end customer is located in a country
not approved under ITAR.
However, the alternative to relying on state-of-the-art US components is either building the
components in-house, which implies a development period of up to five years in the case of
certain microelectronics and significantly increases component costs (since US
manufacturers typically have incurred their development costs in the institutional market), or
forced reliance on less than state-of-the-art components, which are bigger and heavier and
reduce the efficient utilization of satellite space.
18
At the same time, there are some indications that ITAR has been as much of an impediment
to US manufacturers as to European manufacturers. Rather than preserving American global
leadership in space technologies and concomitantly supporting the competitiveness of the
indigenous industry, ITAR has facilitated the development of competing technologies in
other countries, including in India and China as well as in Europe, where satellite
manufacturers are using “ITAR-free” almost as a trademark to attract customers in emerging
markets. Furthermore, ITAR has limited participation of foreign companies in US projects
due to uncertainty about the ability to use again technologies applied in the projects. It is
estimated that the transfer of all space goods from the dual-use items Commercial Control
List (CCL) under the jurisdiction of the Department of Commerce to the US Munitions Lists
under the Department of Defense costs the American space industry approximately $m 600
per year in lost revenues plus an additional $m 50 per year in compliance costs (CSIS 2008).
This has led to ITAR recently coming under review by US officials in order to examine
whether the rules are applied too strictly and whether the process may be simplified. A
consequence of this process may be a surge in American suppliers offering their products
and know-how to end customers and European primes. An interim report to Congress
produced by the Departments of State and Defense tentatively concludes that most US
commercial communications satellites and related components could be transferred back to
the CCL with the introduction of some additional special export controls to supplement
existing Export Administration Regulation (EAR, the commercial counterpart to ITAR)
applicable to the CCL (DoD & DoS 2011). However, this does not at first sight include
radiation-hardened microelectronics, nor satellite apogee engines and thruster propellants,
which are to remain on the US Munitions Lists (together with launch vehicles, which for the
purposes of export control are listed separately from satellites and associated components,
rather grouped with missiles, rockets, torpedoes and bombs). Moreover, it is still unclear
whether and when any of these changes will be implemented at all, given contradictory
interests in Congress, which first has to ratify the final recommendations.
With regards to single sourcing and obsolescence issues induced by broader developments in
the semiconductor industry, the risks are twofold. On the one hand, single sourcing reduces
design possibilities and buying power while concomitantly increasing the vulnerability of the
supply chain to phenomena such as natural disasters, economic crises or political instability.
On the other hand, single sourcing exacerbates the problems with obsolescence of previously
approved and integrated components as the future availability of these components becomes
entirely dependent on the business decisions of one company only.
b) Impact:
Interviews suggest that on balance increased competition from American companies
following ITAR reform may be the bigger problem for European satellite manufacturers –
especially if the export license process is also streamlined. In that case European companies
will lose the ability to market their satellites ITAR-free, which may result in loss of market
shares in emerging markets. If the ITAR process is streamlined, it is felt that the impediment
of having to obtain a license is manageable. However, current examples of the impact of
ITAR include a two year delay in production in one case due to the need for development of
a new custom component, and in another case costs exceeding €200,000 to adapt system
19
design for integration of a comparable part from a different supplier (ESA presentation
ESCCON 2011).
A current example of the impact of obsolescence involves a one year delay and significant
costs to re-design and re-verify the second of two identical spacecraft due to the phasing out
of several key components from a particular supplier during the five years in between
production rounds (ESA presentation ESCCON 2011). Moreover, the increasing rate of
obsolescence causes concerns with counterfeit sub-quality electronic parts acquired through
replacement channels.
c) Mitigation:
All leading European space companies as well as ESA have staff in Washington monitoring
ITAR and Export Administration Regulation (EAR, the DoC dual-use corollary to ITAR)
developments in order to plan around and possibly influence the interpretation of the
regulations.
Furthermore, the European space industry at a more general level is broadly engaged in a
number of activities with the aim of aligning industry efforts with the initiatives of ESA,
EDA and the EU so as to avoid duplicate use of the comparatively limited funding available
in Europe for space research and development (estimated at around €500 m per year in a
2011 positioning paper by Eurospace). This involves coordination to support public actions
in the following areas (among others):
• Electrical, electronic and electro-mechanical (EEE) components, to coordinate industry
views with those of ESA within the framework of the European Space Components
Coordination (ESCC) initiative
• Standardisation, to contribute to work in various forums, including the European
Cooperation on Space Standardisation (ECSS, ESA and national space agencies), ASD
(the aerospace and defence industry) and CEN (the European Committee for
Standardisation)
• Research and technology, to develop and promote a consensual strategy for space
research and technology including technology policy as well as technology
harmonisation efforts aligned with the European Space Technology Platform (ESTP) and
the European space technology harmonisation process under ESA auspices
Key milestones of this work have been the 2008 Eurospace R&D Technology Roadmap
(which provides a plan for the development of competitive European capabilities in critical
technologies where Europe could become a world leader) and the 2010 EC-ESA-EDA Joint
Task Force List of Urgent Actions regarding Critical Space Technologies for European
Strategic Non-dependence (which identifies a prioritised list of space technologies that
should be developed within Europe in the near future to achieve non-dependence).
Industry also is looking into, on the one hand, greater use of commercially available off-theshelf (COTS) products, and, on the other hand, greater use of modular satellite and payload
designs. Both of these alternatives to current manufacturing processes are seen to potentially
ease dependence on critical technologies although not without problems of their own.
Greater use of COTS products would remove export regulation barriers, alleviate issues with
obsolescence and single sourcing, and in some cases provide access to cheaper and/or higher
performance components than otherwise available. However, with current methods, it takes
20
significant time and resources to screen and select for reliability and radiation behaviour,
which dramatically increases the costs of such components. Meanwhile, greater use of
modular designs would allow for re-use of solutions and consequently create better returnon-investment perspectives for private investments in technology development compared to
the current single shot prototyping model of satellite manufacturing.8 However, this approach
too for the time being is associated with unsolved issues concerning technical performance
and size, which impedes the economic attractiveness of the solution.
d) Government role:
To help reduce dependence on critical technologies, ESA in 2004 launched the European
Component Initiative (ECI), which aims to establish manufacturing capabilities where
lacking within Europe in response to identified market needs and strategic gaps. The first
focus area of this initiative has been electrical, electronic and electro-mechanical (EEE)
components, but in future phases the initiative will turn to enabling technologies.
Components developed through the ECI, and which qualify for space use, are formally added
to the European Qualified Parts List (QPL) maintained by the ESCC Executive (staffed by
ESA). Together with the European Preferred Parts List (EPPL) maintained by the ESCC
Space Component Steering Board (consisting of representatives for national space agencies,
manufacturers and suppliers), the QPL is intended to rationalise the diversity of components
for space use by directing manufacturers to a limited number of component types and
suppliers. The overriding idea is to avoid duplication and achieve type reduction thereby
increasing production volumes and lowering unit costs for the remaining components – all
the while giving preference to European components offering competitive performance and
costs, or minimally ensuring that components are freely available on a commercial basis to
European manufacturers without let or hindrance (e.g., being subject to export control).
However, while the first phase of the ECI, running from 2004 to 2009, resulted in the
development of 31 components based on Galileo and other ESA projects and programme
needs, some critique exists that available funding (€21.5 m from ESA for the first and
second phase ending in 2011 combined, complemented by €14 m and €11 m respectively
from the French and German national space agencies as well as by €40 m from the EC
through the FP7 Programme) is altogether insufficient to address all the needs of the
industry.
Moreover, it should be noted that while usage of the QPL and EPPL when selecting
components for procurement is strongly recommended, their use is not mandatory, not even
within the non-commercial space programs run by ESA and national space agencies. This
makes committing individual manufacturers to use the newly developed components a
challenge that potentially endangers the viability of the envisioned market as manufacturers
look for differentiation first and/or prefer to rely on familiar solutions. Compared to the other
major space power, Europe is essentially lacking the legal means to enforce priority use of
domestic space assets and space technologies for all programmatic needs.
8
One estimate suggests that design and non-recurrent fabrication costs account for 90+% of the overall budget for the manufacture
of a nano- or microsatellite (Reyneri et al., 2010).
21
This approach of coordination to address the issue of technological non-dependence also is
reflected in the related actions of the European Commission to establish a joint task force
with ESA and EDA in 2008 with the aim to define on an on-going basis common priorities
and critical components, as well as to mandate CEN, CENELEC and ETSI in 2011 to
develop space industry standards in a number of areas under the scope of the European Space
Policy.
1.3.4
Critical factor 2: socio-economic changes
In all space faring nations, space is a highly subsidised sector, but the EU institutional market
is comparatively small forcing greater reliance on the commercial market for sustainability.
This is an important issue in the European space value chain because the commercial market
is less predictable, cyclical and by definition more competitive putting European industry at
a significant disadvantage. Moreover, these conditions require careful long-term planning.
a) Risks:
Given the limited size of national commercial markets, politics and institutional demand play
a significant role in the preservation of competences and development of comparative
manufacturing advantages. This is true not least regarding development of new launch
vehicles due to long development time and the associated expenses, which are too high to be
borne by any private companies. Globally, there are no examples of new developments for
access to space which have been founded without massive public support except perhaps the
Falcon rockets produced by American newcomer Space Exploration Technologies
Corporation (SpaceX).9
However, the launch vehicle industry – essential to maintain European non-dependence –
faces a flat (short term) to decreasing (medium term) market trend , and once the market is
exited, it is almost impossible to regain entry due to the technological and human resource
capabilities needed to develop and manufacture a working and reliable launch vehicle. Thus,
both government agencies and satellite television and telephone operators are at the start of
replacement or expansion phases that are expected to last for the next three or four years (the
spike in the forecast of commercial LEO communication satellite constellations in 2015 is
associated with the Iridium NEXT contract mentioned in footnote 122), where after activity
levels will decrease again to the levels of three or four years back.
Moreover, as evident from Figure 1.7 and Figure 1.8, the recent global surge in the numbers
of launches and satellites launched per year is primarily due to increased numbers of
government satellites and not so much increased numbers of commercial satellites. In other
words, the increased numbers of launches and satellites launched predominantly reflect
9
SpaceX is a private company, founded in 2002 by Elon Musk (co-founder of PayPal and also the primary investor in Tesla Motors)
and owned by management and employees, with minority investments from a number of venture capital funds. The company
claims to have developed two rockets, Falcon 1 and Falcon 9, and a reusable transport module, Dragon (currently under testing),
as well as built the necessary manufacturing and launch facilities for less than $800 m through fiscal year 2010. While the company
is broadly recognized as a pioneer of commercial spaceflight, it has nevertheless been engaged in a public-private “pay for
performance” partnership with NASA since 2006 about delivery of cargo to the International Space Station (ISS) under the
Commercial Orbital Transportation Services (COTS) programme worth $278 m. On average, this contract – referred to as ‘seed
money’ – has paid $50 m per year upon completion of various development stages. In addition, SpaceX has been awarded launch
services contracts with both the US Air Force and NASA potentially worth $1.1 bn depending on the number of actual missions
within the contract frameworks. SpaceX is not solely reliant on government contracts, though. For instance, SpaceX signed a
contract with Iridium in 2010 worth $492 m to place an undisclosed number of Iridium’s 72 next-generation satellites into LEO
between 2015 and 2017 (based on the total available budget for launch services and insurance, the contract amounts to the launch
of 44 satellites for an average price of $11 m per spacecraft).
22
orders typically preserved for domestic launch service providers, and of which Europe
historically has had relatively few, even counting upcoming launches related to Galileo and
GMES.
Figure 1.7:
Satellite market trends by market and purpose
Source: BBC Jonathan Amos Spaceman blog entry 8 Sep 2010 (based on Euroconsult data). Figure shows actual
numbers of satellites launched by market (institutional or commercial) and purpose (military, civil, satellite phone
services (LEO) or other telecommunications (GEO)) until 2010 and the corresponding estimated numbers from 2011
onwards.
Figure 1.8:
Commercial launch market trends by orbit
Source: Federal Aviation Administration (FAA) 2011 Commercial Space Transportation Forecasts, May edition.
Figure shows actual number of annual launches to geostationary (GSO) and non-geostationary (NGSO) orbits until
2010 and the corresponding estimated numbers from 2011 onwards.
European companies need to get a significant share of the commercial market to maintain
access to space, but do not compete on a level playing field with other space powers. On the
one hand, companies in other countries have preferential access to much larger institutional
markets that can counterweigh fluctuations in commercial demand. On the other hand,
23
competition is increasing dramatically in the commercial market as Russian, Chinese and
Indian companies take their services developed in the institutional market and offer them in
the commercial markets closer to marginal costs.
Although heavily focused on satisfying national demand, China Aerospace Science and
Technology Corporation (CASC) thus has the declared goal of concomitantly acquiring a
10% market share in the communications satellite market and a 15% market share in the
commercial launch market by 2015. To this end, China is actively pursuing package deals
(satellite and launch) with governments in emerging markets, using access to space on
favourable conditions, including state loans and even barter, to further diplomatic influence
and access to domestic consumer goods markets as well as raw materials. Moreover, China
Great Wall Industries Corporation has recently placed a bulk order for rockets and satellite
platforms with the aim of shortening the time between the signing of a contract and the
delivery of a satellite into orbit.10
Similarly, Indian ISRO has the declared goal of capturing 10% of the global commercial
markets for launch vehicles and satellites by 2020 as part of their overall strategy to
commercialize space technologies for the benefit of Indian citizens. Partnering with Western
companies is facilitated by English-heritage legal property right regimes, and India is on
significantly better footing with the US than China as evidenced by the recent partial easing
of US technology export restrictions although not yet extended to the launch of commercial
satellites containing US components.11 India has further plans to increase the lifting
capability of its relatively small GLSV rocket from 2.5 tons to four tons in the short term and
to six tons in the medium term.
Russia has been restoring its entire space infrastructure at a rapid pace over the past decade
backed by strong high level political support and budgetary commitment. Among other
things this has included the rebuilding of contractor networks shattered during the collapse of
the Soviet Union, and government-led consolidation of the industry around a number of
vertically integrated system primes (including ISS Reshetnev (application satellites),
Krunichev State Research and Production Space Center (launch vehicles and spacecraft) and
RSC Energia (manned spacecraft)). The restoration of the space infrastructure also includes
the development of a new launch vehicle series, Angara, which will bring Russian rockets
closer to European and US standards. On this background, there is no reason to expect that
Russia will lose its current position in the commercial launch market.
In addition to the above three countries, Japan is also planning a more decisive entry into the
commercial market. For instance, MELCO has the declared goal of doubling its annual
satellite-related revenue by 2021, and is investing in new satellite production and test
facilities to reduce costs and shorten delivery time. This follows the introduction of the Basic
Space Law in 2008 signifying a shift in focus from research spacecraft to commercial and
applications-focused satellites and entailing an opening up for military space activities and
launch of Japanese rockets from Tanegashima year round.
10
11
http://www.spacenews.com/contracts/101117-china-great-wall-bulk-order.html
http://www.spacenews.com/policy/110124eases-export-restrictions-isro-divisions.html
24
These trends in the commercial market are only set to increase as the new US government
space policy prioritises the development of commercial crew transport and less strict use of
ITAR regulations to advance the private space sector in America. Not least, this change in
policy involves the allocation of $800+ m to research in generic technologies with the aim to
achieve step-change advances in the efficiency and costs of access to space. Moreover, the
new policy states a readiness to assume part of the investment risks required to develop
commercial infrastructures through public-private partnerships, while refraining from
developing future rival government infrastructures. Finally, it is the intention to commit to
long-term contracts with private companies for government space operations. In the long
term these will provide American companies with opportunities to offer better and cheaper
solutions in commercial market as well. One example of this approach is the 2010 signing of
a $7.3 bn, 10-year services contract for the provision of satellite images between the National
Geospatial-Intelligence Agency and the two companies GeoEye and DigitalGlobe allowing
them to sell high-resolution data to other customers at a marginal cost.12
The relative improvement of the competitiveness of the space industries in Russia, China,
Japan and India described above also is evident in the developments in the Futron Space
competitiveness index between 2008 and 2011 (covering the years 2007-2010), as evidenced
in Table 1.5. The worsening position of the US in this table reflects the transition phase that
the US space policy is currently in and the timidity about the size and allocation of space
budgets this has entailed.
Space competitiveness index
Russia
China
Japan
India
Canada
South
Korea
Israel
Brazil
Relative change since 2008
Europe
2011
index
score
USA
Table 1.5:
USA
87.8
0.0
-2.8
-7.7
-8.5
-10.1
-4.8
-2.6
-4.1
-3.7
-6.4
Europe
47.2
2.8
0.0
-4.9
-5.7
-7.3
-1.9
0.2
-1.3
-0.9
-3.6
Russia
38.1
7.7
4.9
0.0
-0.8
-2.5
2.9
5.0
3.6
4.0
1.3
China
22.7
8.5
5.7
0.8
0.0
-1.6
3.7
5.9
4.4
4.8
2.1
Japan
20.9
10.1
7.3
2.5
1.6
0.0
5.4
7.5
6.1
6.4
3.7
India
18.6
4.8
1.9
-2.9
-3.7
-5.4
0.0
2.1
0.7
1.0
-1.7
Canada
15.9
2.6
-0.2
-5.0
-5.9
-7.5
-2.1
0.0
-1.5
-1.1
-3.8
South Korea
9.3
4.1
1.3
-3.6
-4.4
-6.1
-0.7
1.5
0.0
0.4
-2.3
Israel
8.4
3.7
0.9
-4.0
-4.8
-6.4
-1.0
1.1
-0.4
0.0
-2.7
Brazil
7.7
6.4
3.6
-1.3
-2.1
-3.7
1.7
3.8
2.3
2.7
0.0
Source: Futron Corporation (2011) Space competitiveness index. Figure shows calculated space competitiveness
score based on aggregation of 42 indicators across three component areas, namely government, human capital and
industry. The relative change since 2008 shows the difference in scores between the 2008 and 2011 indices
adjusting for the movement of the adversary country also (e.g., USA has lost 2.8 index points in competitiveness
compared to Europe from 2008 to 2011 in terms of the difference between the differences between the two
countries’ scores in each of those years, and conversely Europe has gained 2.8 index points in competitiveness
over the period compared to the US).
12
http://www.spacenews.com/earth_observation/enhancedview-awards-carefully-structured.html
25
b) Impact:
The potential impact on the European space industry of these policy developments, and in
particular of the declared changes to US government space policy, as they resonate through
the commercial market is profound.
While the hardware reliability of the Indian GSLV launch vehicle is questionable at the
moment and Japan arguably lacks visibility as well as production capacity to grow, China
already has a launch vehicle approved by the international insurance industry and a proven
ability to gain market shares in emerging markets. Nevertheless, most established
commercial satellite operators are likely to continue to be off limits for Chinese business as
China looks to remain on the US list of banned countries for export of space technology. No
such restrictions apply to US launchers, however, provided that the interference of national
launch obligations does not persist.
Moreover, SpaceX at the moment is pitching launch manifest prices that not even the
Chinese can compete with. These prices ostensibly are based on a highly vertically integrated
production process manufacturing virtually everything in-house, and heavy reliance on
proven technology and modularity of design. Thus, a NASA review of the SpaceX
development cost structure concludes that the comparative NASA costs would more than
double those of SpaceX (NASA 2011). Still, questions remain about the sustainability of the
advertised prices given the early stages of development and some evidence of price increases
over time for launches of the Falcon 1 rocket. Yet even allowing for price adjustments, as are
expected by the industry, SpaceX would stay competitive with most other companies.
Given that the European launch industry is already working on the margins of profit and that
there are huge difficulties associated with re-entry to the launcher market, Europe could be
faced with losing the entire industry and consequently independent access to space if nothing
is done to prepare the industry for this surge in commercial competition.
Importantly, any downscaling of industry capacity to match decreased market shares is not
an option as it might be in other sectors given the need for a minimum number of launches to
maintain reliability; and since there has historically been limited international trade in parts
for launch vehicles, it is unlikely that the European supplier base will be able to vie for spots
in American, Russian or Chinese value chains.
Only limited parts of the launch vehicle supplier base are engaged exclusively in the space
market, however, and this might curb any potential reverberations up the value chain in
terms of company closures and lessen the costs of re-entry. On the other hand, it is unlikely
that any of these suppliers would simply maintain the capability with no market. Indeed for
some, space is already such a small part of their activities and with such limited profits that
they would probably have few qualms in leaving the market.
A further consequence of loss of the European launch vehicle industry besides loss of
independent access to space would probably be increased launch manifest prices for
(European) satellite operators, as was the case in the months after the bankruptcy of Sea
Launch. Despite increasing commercial competition and an increased number of proven
global players, strategic considerations about where to launch as well as about what to launch
26
for whom in reality are likely to constrain the options available to European companies and
government agencies at any given point.
It should be noted as well that the European launch vehicle industry in the short to medium
term, in practice, is secured a number of institutional launches in relation to the deployment
of the Galileo 30 satellite constellation, and the five GMES Sentinel missions already
planned for the period 2011 to 2019.
c) Mitigation:
To remain competitive, the European launch vehicle industry, as noted in the introduction,
has undergone a process of consolidation over the past decade, at least at the level of systems
integrators.
In addition, the industry is working closely with ESA, EC and national space agencies to
ensure upgrades to the existing Ariane 5 (the Midlife Evolution, ME, or ECB), an expansion
of the portfolio of launch vehicles besides Ariane 5 (the Vega and Soyuz rockets), and a
future replacement for Ariane 5 (the Ariane 6?).
Each of these strategies seeks to accommodate the permanent trend in the size of satellites
towards increasingly heavy satellites, driven by the incentive of satellite operators to fit more
payloads on each satellite and constrained by the availability of two launch service
alternatives with the necessary minimum lift capability.13 As the commercial launch service
provider with the largest present lift capability, but with little room for further improvement
within current technological limits, this trend makes it ever more difficult for Arianespace to
match two satellites for launch together that fit within the overall lift capability of the Ariane
5and have the same launch window. This is especially so because the share of large satellites
requiring launch at the same time is expected to increase over the next decade at the cost of
the mid-sized satellites most suitable for manifest with a large satellite on Ariane 5.
Consequently, to sustain the business case of the European launch industry, the upgrades to
the existing Ariane 5 with a new engine and/or upper body would significantly increase the
rocket’s lift capability. At the same time, the expansion of the portfolio of launch vehicles
besides Ariane 5 in the short term is set to capture some of the smaller government
(scientific) satellites and mid-sized satellites intended for non-geostationary orbits that do not
fit easily at competitive prices on the Ariane 5. Thus, Soyuz presents a proven technology for
medium-sized payloads, and the entirely new Vega rocket is specifically designed for smaller
payloads, although the average size of all other small satellites than the microsized is
increasing too. Both are expected to launch from Kourou (Soyuz in October 2011 and Vega
in 2012).
Talks also have long since begun concerning the development of the next generation launch
vehicle (NGL) to displace the Ariane 5, and possibly Soyuz, by 2020 or 2025. These talks
involve several different designs, including a larger version of Ariane 5 (maintaining the
double manifest business model), a modular version of Ariane closer to the Proton M capable
13
http://www.spacenews.com/launch/110708-arianespace-rethinking-dual-launch-strategy.html
27
of accommodating both mid-sized and large satellites (shifting to a single manifest business
model), and an upgrade of the Vega rocket to accommodate also mid-sized satellites.
For the purposes of increasing the launch capacity of the Ariane 5 to better meet future
demand in the short term as well as to improve production and launch processes,
Arianespace has recently asked its shareholders, which include its main suppliers, for a
capital injection. However, Arianespace like all other launch service providers has
difficulties shouldering the total costs of developing a new launcher and is looking to ESA
and national space agencies for support. The previously mentioned independent audit of the
Ariane 5 supply chain should be seen in this light as part of a due diligence process before
future decisions about the continued support for Arianespace at the ESA Council meeting in
2012.
d) Government role:
Government is already heavily involved in the mitigation strategies for sustaining European
launch capabilities through various ESA programmes as well as through the Galileo and
GMES programmes generating institutional demand.
For instance, the European Guaranteed Access to Space (EGAS) programme since 2004 has
covered some of the fixed production costs of Ariane 5, and a replacement support
programme appears to be under way (the ESA Council in March 2011 approved a two-year
support extension worth $318 m for 2011 and 2012 with further decisions to come at the
ESA Council in 2012).
Moreover, the Vega launch vehicle is developed with ESA support, and development of the
next generation launcher is also supported through the Future Launcher Preparatory
Programme (FLPP).
In addition, national governments are also trying to alleviate the impact of the financial and
economic crises as well as of fluctuating currency rates through the backing of orders with
export credits. As many as one third of all satellite projects in the past three years have been
supported with export-credit agency financing, amounting to more than $6 bn in loans and
loan guarantees (which has made some analysts warn of an increasing risk of default).14
However, government support activities through European organisations and national space
agencies are heavily influenced by national industrial interests, which at times suspend
decisions and/or make for inefficient use of resources. For instance, much debate has
recently centred on whether to proceed with the proposed Midlife Evolution programme for
Ariane 5 or to immediately commence development of a successor to Ariane 5. Similarly,
there seems to be apprehension in some corners against providing further financial support to
Arianespace, while at the same time there is a refusal to loosen the protocols regarding use of
the industrial base established by ESA in the early years in order to let Arianespace operate
as a private company.
14
http://www.spacenews.com/satellite_telecom/111014-analysts-warn-financing-bubble.html
28
1.4
Critical regulatory framework conditions
European export control regimes. Complex regulation of the export of military sensitive and
dual use items is not only a trait of the American trade system. European export control too
may have unintended effects and put too many burdens on the industry. Despite efforts for
EU harmonisation, considerable variations still exist in the wording and interpretation of
national policies with regards to export of space-related products and technology that may
lead to counterproductive situations (Aranzamendi, 2011). For instance, export controls
implementation in the EU and by Russia has been the cause of some of the delays in the
schedules for the launch of the Vega and Soyuz rockets at Kourou. Since only cooperation
under public contract is clearly exempt from export restrictions, one potential consequence of
the current status is an unintended reinforcement of the industry’s reliance on public
technology development initiatives (Aranzamendi, 2011).
Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH). The
implementation of REACH could mean that the European space industry will face significant
adaptation costs and time-to-market problems, not least with regards to tolerable (green)
rocket propellants. These costs are exacerbated compared to other sectors and industries by
the extreme costs of re-qualification even if the smallest changes are introduced to
components and/or processes. Moreover, since the space industry constitutes a niche market
where the production of some components relies as much on goodwill from suppliers with
their main activities in related markets as on profits, there is concern that REACH may cause
some suppliers to evaluate their portfolio and decide to discontinue their supply for the space
market. This also will incur significant re-qualification costs even if relatively minor
components.
Restriction of Hazardous Substances (RoSH). Like with the implementation of REACH, the
implementation of RoSH could mean that the European space industry will face significant
adaption costs and time-to-market problems, as the industry looks for replacements for the
use of lead and five other substances in all electronic components. And likewise, these costs
are exacerbated by the extreme costs of re-qualification, while some suppliers might evaluate
their portfolio and decide to discontinue their supply for the space market.
1.5
Strategic outlook
The different actors have different objectives:
• The objective of companies is profit: large corporations looking closely at quarterly
profits and shareholder satisfaction while, at the other end, small companies look for
cash and survival;
• The EC and Member States, despite the pressure of short-term events, look at the
development of Europe (and states) with longer-term objectives of growth, employment,
welfare, etc.
This is the reason for attempting to rank the various risks, in terms of probability as well as
in terms of impact from a time perspective, as summarized in Figure 1.9.
29
Figure 1.9:
Impact and probability of risk
Source: DTI. ST = Short Term (within three years). LT = Long Term (three to ten years).
It is extremely difficult to quantify both the probabilities and the impact value. It is easier to
determine whether, over time, the probability of a risk to happen and the cost of it happening
is increasing or decreasing. This graph is thus not intended to give any ‘real’ value impact of
the various risks but only to rank them in the short-term and longer-term as well as show
how the probability might evolve.
Input needs: The likelihood of dependence on critical technologies from abroad is relatively
constant as it is already reality and likely will remain an issue for the European industry for
the foreseeable future even if mitigation strategies are well under way. On the other hand, the
impact seems likely to increase somewhat as the effect of ECI is still uncertain and
obsolescence issues set to increase although mitigated by manufacturers eventually learning
to work with commercial off-the-shelf products.
Socio-political: The likelihood of greater commercial focus in government space policy is
estimated to increase over time as the implications of recent high level documents gets
worked through the systems and as the ramifications of financial crisis for public budgets
intensify. Likewise, the impact seems likely to increase substantially as all significant space
powers turn to the commercial market and with lingering uncertainty about the choice of
mitigation strategies.
The ‘best’ risk is the one of which the probability and the cost are decreasing. The ‘worst’
one is the one of which the probability and the cost are increasing. If we follow this
assumption, the risk that should be tackled most urgently is the socio-political risk.
To strengthen the European space value chain and increase its competitiveness the following
is suggested:
30
EU/ESA and Member State level:
• Continue and if possible increase support for research and development in critical space
technologies and components identified through joint harmonisation process
• Continue standardisation efforts at all levels including through CEN, CENELEC and
ETSI as well as through European Qualified and Preferred Parts Lists
• Consider enforcing use of components on the European Qualified and Preferred Parts
Lists in public procurement to increase demand and realize business case and associated
efficiency gains, unless other concerns weigh heavily against
• Consider streamlining European export control regimes further
• Consider whether the functions of Arianespace as launch service provider are better and
more efficiently served by incorporating the company structure into ESA, the
institutional overseer, or into EADS Astrium, the prime contractor for Ariane 5
• Consider improvements to the transparency of Arianespace financial management and
price setting
• Consider alternative payment structures that let satellite operators and service providers
assume some of the development costs associated with provision of reliable launch
services
• Consider easing access to financing, for instance through availability of export credits
(albeit beware of market distortion and default risk)
• Consider supporting industry relationships in emerging markets through government
collaboration, especially in Middle East and Africa where Europe has historically strong
ties
Company level:
• Consider establishing greater industry visibility in microelectronics market through
collaboration with other industries in similar circumstances
SWOT
A SWOT on the key issues is presented in Table 1.6.
Table 1.6:
SWOT for European space value chain
Strengths
Weaknesses
Opportunities
Threats
- Rich environment of
space-oriented
university programs
- Comparatively low
European demand for
institutional launches
- Non-dependence
strategy
- Complex decision making
process within ESA and between
ESA and EC
- Strong customerorientation in design
phase
- Difficulty ensuring
European commercial
demand
- Relatively low space
budget
- Strong relationships
with growing Middle
Eastern and African
markets
- Cooperation with
other sectors facing
similar constraints
(defence, aeronautics,
automotive?)
- Suppliers of especially
microelectronics are located in
USA and do not have space as
core business, may increasingly
focus on other sectors with higher
profit margins
- Less control of supply chain and
reliability of technologies
- Increasing pressure in
commercial market from traditional
as well as new space powers
- Reduced government
willingness/capacity to fund space
activities
31
1.6
Annex 1: interviews
Name
1.7
Title
Organisation
Country
Eric Guilmet
Head of Industrial
Relations Division
ESA
European agency
Franck Huiban
Advisor to the CEO
EADS
European prime company
Olivier Lemaitre
Head of Brussels office
Eurospace
European industry
Association
Pierre Lionnet
Director of Research
Eurospace
European industry
Association
Geoff Sawyer
Secretary General
EARSC
European industry
Association
Annex 2: data issues
Data related to the manufacture of the main structural and engine parts for spacecraft and
launch vehicles are encompassed within the broad NACE (Rev.2)/ISIC (Rev.4) code of
economic activity 30.30 ‘Manufacture of air and spacecraft and related machinery’, and
only the combined production value of spacecraft and launch vehicles for civil use, and of
parts thereof, may be obtained from the associated production codes in PRODCOM (2010),
specifically 30.30.40 ‘Spacecraft (including satellites) and spacecraft launch vehicles’ and
30.30.50 ‘Other parts of aircraft and spacecraft’. Interestingly, though, trade statistics
distinguish between the import and export value of spacecraft and launch vehicles, and of
parts for either product, using the Combined Nomenclature (CN 2010) codes 88.02.60.10
‘Spacecraft (including satellites)’, 88.02.60.90 ‘Suborbital and spacecraft launch vehicles’,
88.03.90.20 ‘Parts of spacecraft (including satellites)’ and 88.03.90.30 ‘Parts of suborbital
and spacecraft launch vehicles’. However, unlike product statistics in PRODCOM, trade
statistics include both civil and military purchases.
Further NACE (Rev.2) codes of interest include 51.12 ‘Space transport’, 61.30 ‘Satellite
telecommunications activities’ and 62.01 ‘Computer programming activities’ (note that
PRODCOM only concerns physical products related to mining, quarrying and manufacturing
and not services).
Relevant Data Used
Primary data sources for this case study were:
PRODCOM
Eurostat’s PRODCOM database contains data on total production in current price Euros by
just under 3900 product codes, giving some scope to identify detailed products which form
part of the Space sector, over the period 1995-2009 (although often there is missing data for
some years). In this case study we have identified the following products as being relevant;
This data provides detailed production for the EU (at an individual member state level)
although does not include any non-EU countries. With respect to the Space case study, the
data for spacecraft, satellites and launchers (considered as one joint category) includes only
civil use, not military, and despite the detailed categories available many PRODCOM
categories for intermediate products include aircraft and other final uses alongside space,
32
making it impossible to separate out the production of products only for the space supply
chain.
COMEXT
Eurostat’s COMEXT database contains data on trade (imports and exports) between EU
member states and major trading partners, by value and volume, on a country by country
basis across 1995-2010 (although some data points are missing), with data split across over
28,000 product codes. This data, unlike PRODCOM, does include military as well as civil
aeronautics. The following product codes were used in the case study;
The COMEXT data captures on a (relatively) consistent basis the trade between various
states (and, more significantly, between the EU27 and major trading partners) across detailed
product codes. However the product codes are not always specific to the final use in space
and it is not possible to separate out the trade in a product that relates only to the space sector
(as the categories also include aircraft). The gaps in the data also lead to some
inconsistencies, with certain years including some product codes but not others, which is not
always apparent in the final aggregated data.
UN COMTRADE
UN COMTRADE includes data on imports and exports in value (US dollars) and volume
(kgs) terms on a product-by-product basis, and provides a similar level of detail to the
COMEXT database (albeit on a different classification system, which presents an issue of
having to map from PRODCOM or Combined Nomenclature codes to the SITC or HS
system used by UN COMTRADE) for non-EU countries, so helping to complete the global
picture/comparison. However, data is only available for a very limited number of years
(2007-2009).
European Space Policy Institute, European Space Agency, Satellite Industry Association
Data was collected from these three industry bodies on the global size of various parts of the
space value chain (measured in current price US dollars) over the period 1996-2010 and
compared against institutional budgets. ESPI also provide data on the size (relative to GDP
and absolute in US dollars) of country-by-country public space budgets in 2005 and 2010.
The ESA provide data on the degree to which spacecraft parts used in the EU space sector
are sourced from European manufacturers, as a percentage of total over 1996-2009.
Federal Aviation Administration
Data on the change in market share for GEO satellites between 2001-2005 and 2006-2010
was taken from the FAA. Further data on the size and changing nature of the commercial
launch market (measured in current US dollars over the period 1994-2010) was also
analysed.
Data gaps and requirements
There are several issues identified in the data sourced for the study above; Space is a
relatively small sector, and as such many products which are necessary inputs to final
production in this sector are not separated out from the myriad of other final uses. A
fundamental issue with all published data is that it covers only the civil aspects of the space
sector, which is a minor part of the overall sector dominated by national and supra-national
33
public bodies. Our work has also highlighted the fact that while there are several (largely
overlapping) sources of data on the Space sector, they often differ in methodology and there
is a lack of a single consolidated data source.
Data on changes in market share for GEO satellites
Absolute data used in section 1.2.1, Table 1.1.
Commercial
Domestic
Europe
USA
Russia
Japan
China
India
Canada
Asia and
Oceania
Middle East
Africa
Central and
South America
Number of GEO satellites launched during period 2006-2010 by regional satellite manufacturers across market
types and regions
Overall
Table 1.7
Europe
48
42
26
26
1
0
0
2
0
3
5
6
3
2
USA
71
53
37
19
37
0
6
0
0
1
6
1
0
1
Russia
8
4
7
0
0
7
0
0
0
0
1
0
0
0
Japan
8
1
8
0
0
0
8
0
0
0
0
0
0
0
China
17
5
15
0
0
0
0
15
0
0
0
0
1
1
India
5
0
5
0
0
0
0
0
5
0
0
0
0
0
Other
2
1
2
0
0
0
0
0
0
0
0
2
0
0
159
106
100
45
38
7
14
17
5
4
12
9
4
4
Market
size
Source: Federal Aviation Administration (FAA) Commercial space transportation year in review 2006-2010.
Commercial
Domestic
Europe
USA
Russia
Japan
China
India
Canada
Asia and
Oceania
Middle East
Africa
Central and
South America
Number of GEO satellites launched during period 2006-2010 by regional satellite manufacturers across market
types and regions
Overall
Table 1.8
Europe
32
23
26
26
3
1
0
1
0
1
0
0
0
0
USA
71
53
40
14
40
0
6
1
0
2
4
1
0
1
Russia
11
8
11
0
0
11
0
0
0
0
0
0
0
0
Japan
1
0
1
0
0
0
1
0
0
0
0
0
0
0
China
3
0
3
0
0
0
0
3
0
0
0
0
0
0
India
7
0
7
0
0
0
0
0
7
0
0
0
0
0
Other
1
0
1
0
0
0
0
0
0
0
0
1
0
0
124
84
89
40
43
12
7
5
7
3
4
2
0
1
Market
size
Source: Federal Aviation Administration (FAA) Commercial space transportation year in review 2001-2005,
Jonathan’s space report (satellite catalog).
34
1.8
Annex 3: literature
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35
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Space News (2010) Germany wants answers on Ariane 5 successor. Space News 21 July
2010
Space News (2010) EnhancedView contract awards carefully structured, NGA says.
Space News 10 Sep 2010
Space News (2010) More satellites getting built with export credit backing. Space News
13 Sep 2010
Space News (2010) Hurdles to European Soyuz were higher than expected. Space News
8 Oct 2010
Space News (2010) Europeans struggle for consensus on launcher development strategy.
Space News 22 Oct 2010
Space News (2010) France, Germany battle over directorship of European space policy.
Space News 29 Oct 2010
Space News (2010) SpaceX raises another $50 million. Space News 10 Nov 2010
Space News (2010) China Great Wall places bulk order for rockets, satellites. Space
News 17 Nov 2010
Space News (2010) Former officials urge ‘radical’ overhaul of European launch industry.
Space News 19 Nov 2010
Space News (2010) Astrium view technology transfer as a cost of winning business.
Space News 26 Nov 2010
Space News (2010) Bolivia orders Chinese telecom satellite. Space News 14 Dec 2010
Space News (2010) Sarkozy: Satellite operators should support European launch sector.
Space News 20 Dec 2010
Space News (2011) Arianespace needs aid to avoid loss in 2010. Space News 4 Jan 2011
Space News (2011) ESA putting Arianespace finances under the microscope. Space
News 14 Jan 2011
Space News (2011) Arianespace shareholders agree to offset Consortium’s losses. Space
News 26 Jan 2011
Space News (2011) Japan plans launcher upgrades to attract commercial customers.
Space News 7 March 2011
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Space News (2011) Melco lands two-satellite contract with Turkey. Space News 8 March
2011
Space News (2011) ILS threatens protest of Arianespace subsidy. Space News 17 March
2011
Space News (2011) Interim report: Most telecom sats could be removed from USML.
Space News 10 May 2011
Space News (2011) Melco expansion aimed at doubling satellite revenue. Space News 6
June 2011
Space News (2011) ESA industrial policy limits Ariane 5 cost-saving potential. Space
News 21 June 2011
Space News (2011) Arianespace is rethinking its dual-launch strategy. Space News 8
July 2011
Veclani, Sartori & Rosanelli (2011) The challenges for European policy on access to
space. Istituto Affari Internazionali (IAI) Working Papers 11
Workshop presentations for the Future of space research and technology in Europe
workshop 2008. ASD-Eurospace
Workshop presentations for the European Space Components Conference (ESCCON)
2011. European Space Components Information Exchange System
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