[Satellite News – 4-8-08] In a major piece of consolidation in the European satellite industry, EADS Astrium has reached an agreement to acquire small satellite manufacturer Surrey Satellite Technology Limited (SSTL) from the University of Surrey, the two companies announced April 7.
    The deal is a significant for Astrium, as the company will now be able to offer customers a more complete range of solutions.
    Colin Paynter, CEO of Astrium in the United Kingdom, discussed the reasons behind the deal with Satellite News Associate Editor Mark Holmes.

Satellite News: How does Astrium benefit from this acquisition?

Paynter: It is a very attractive deal for us, as SSTL has a substantially complementary product range to ours, which means it enhances our product range as an overall group of companies. We can now offer our customers around the world a complete product range from nano- and microsatellites through to what Astrium is best known for, which is some of the largest, most sophisticated [telecommunications] satellites and Earth observation satellites in the world. So it now gives our customers the opportunity to select from a complete range of products and services within Astrium.
SSTL has a very different approach to the economics of space, which is particularly attractive to us. They build partnerships with what I call emerging nations, those countries who are just getting the idea of having a small satellite, or with the universities in those countries getting some space research under way. SSTL has a really good model of working with those countries and delivering small satellites to them. That is a very different approach to Astrium, which has much more commercial, large institutional and major government customers.

Satellite News: Is the acquisition of SSTL an acknowledgement that smaller satellites are going to be more important in the commercial arena going forward?

Paynter: There is a recognition that small satellites will play an important part in some markets. There will still be a strong demand for large telecoms satellites and multi-sensor satellites, but small microsatellites can be useful in offering a range of technology demonstrators. They can also add discrete functionality to certain missions by sitting alongside larger satellites. In certain areas, where the functionality could be changing over a three-to-five-year period, a small low-cost platform offers advantages. There is a recognition that it is not an alternative market to the more traditional large, highly-complex and multifunctional satellites, but it is really complementary to that market, particularly for emerging technology such as demonstrators and early missions.

Satellite News: What skills does SSTL add to Astrium?

Paynter: In terms of skills, we appreciate that SSTL and its relationship with Surrey University gives it access to their leading-edge research and it has a track record of bringing that leading edge research through to early, or reasonably early, low-cost demonstrator and early missions for customers. That is attractive to us, because we find there is a need for early demonstrators, and our research work does not go back to the type of university research in many of our satellite areas. So it is complementary to getting that leading-edge research brought through to some of the more major missions that we would undertake.

Satellite News: Have you been surprised by the success of SSTL in recent years?

Paynter: I don’t think it is a surprise. It exists in the overall economic cycle of the satellite industry, where there are customers who want to get a limited functionality spacecraft for a certain cost. There is then a continuous spectrum of moving up to higher value, more highly complex, longer-life satellites, which are the bread and butter of the major [telecommunications] operators, governments and institutions. There has always been a continuum. What we are seeing is a number of small companies, or emerging space nations entering at this small satellite level, which is extremely encouraging for the future of SSTL. That market will continue to grow. This is extremely encouraging for the whole space sector because those entities and those emerging governments entering the space market — I hope they will grow and look at more complex satellites and products in the future.

Satellite News: SSTL had wanted to be more of a force in the United States. Will you be able to help them?

Paynter: Our aim here is recognizing that SSTL needs stronger financial support to undertake the next stage of its development, which is about accessing a number of new markets for export. If that means us introducing more financial backing or helping them take on larger contracts than perhaps an educational establishment could and offering the financial and parental backing for that, then it is in our minds to do that as business cases come from SSTL up to the board in the future.

Satellite News: Could SSTL not make this move on its own?

Paynter: I think it would be difficult for SSTL to realize its long-term potential without having a stronger financial backer or a stronger industrial player. While the company was tremendously successful under university ownership, and it is a very positive spinout from the university point of view, it does need that stronger financial backing [and]that knowledge that Astrium can give it so that it can realize its potential and grow in various markets around the world.

Satellite News: Has SSTL changed the economics of space in terms of fast delivery of satellites even though they are perhaps operating in different areas?

Paynter: That is a complex question. Astrium and SSTL both operate in the satellite industry, but they operate in very different positions in that industry. SSTL has definitely punched above their weight and that is part of their attractiveness. Why they have done that is linked to them offering a different economic approach. They offer their customers a low-cost, cost-effective access point to certain functionalities, but that comes with its own risk profile that the customer can choose to take. We take on a lot more risk – or guarantees if you like — and offer a more complex, and hence higher value offering.
It is not that every customer is changing to the SSTL approach. It will be suitable for a range of customers and certainly at this point in time, that is a small niche in the market. Astrium in Europe did 3.5 billion euros ($5.5 billion) last year. It is a very different situation. But [SSTL] is punching above its weight and is attractive to customers who want to enter the market with a low-cost proposition. It is very complementary to us. I hope some of those customers would then look at increasingly complex satellites, and then that would allow us to offer more complex products.

Satellite News: SSTL will remain as an independent company. Will you be bidding for the same contracts in some cases?

Paynter: I think it would be unlikely, but I would never say it would not happen. We want to offer the customers choice. I don’t think we would both offer the customer the same solution. In those cases, I would be happy for SSTL and Astrium to maintain separate bids if that was required, as we would be offering different things at different price points. So you would have a performance and price differential between two bids. I think it is rare that would happen, but we would not be competing on the same field.

Satellite News: Were there other interested parties?

Paynter: It was a competitive process. We were chosen for the last period of time to go into an exclusive negotiation because our bid was the strongest in terms of offering SSTL and the university what they were looking for going forward. We were extremely pleased to complete the exclusive negotiation process.