The Galileo satellite navigation project, which is supposed to be built though a combination of public and private funding, is teetering on the abyss after industry players failed to satisfy political demands that they resolve differences and move the project forward by May 10.

"The industries did not meet the deadline the Commission and the Council have set," Michele Cercone, spokesperson for European Union transport commissioner Jacques Barrot, said. "They have moved on their own organization, but even this does not seem to be sufficient. The consequence of this insufficient progress is that the public-private partnership as it was envisaged at the start, entails irretrievable delays for the Galileo project, as well as unacceptable risks for the public finances."

The industry players EADS, Thales, Inmarsat, Alcatel-Lucent, Finmeccanica, AENA, Hispasat and TeleOp were directed to provide a structure for the company that would run Galileo but could not reach agreement on how to operate the program, according to a source familiar with the situation.

"It is a very complicated situation," the source said. "There are deep-rooted political issues and serious economic issues. Every country wants to maximize the return in their country, even if it does not make sense. For example, there are three control centers. Two could be understandable, but three does not make economic sense at all. But this is down to political issues. Some countries have been unreasonable wanting a lot of the work, even if the economic value of what they were putting in the project is a lot less. Things have not been handled in a sensible and pragmatic way."

"Galileo is a clear case of too many cooks having lots of opportunities to spoil the stew," said Andrea Maleter, technical director of Futron Corp. "Establishing agreement among the dozens of governments and private concession participants involved in this program was always understood to be a challenge of the highest order. This is not to say that the program will not get off the ground; the demand for positioning services is unquestioned. The outstanding issue is how much control governments are willing to share and how much funding they’re willing to bring to the table."

Barrot plans to make new proposal for getting Galileo back on track, said Cercone. "The scenario which at this moment seems to guarantee best the possibility to take control again both of the deadlines and of the costs would be a review of the [public-private partnership] and a clear distinction between the construction phase of the infrastructure (which could be completely public) and the exploitation phase (which could be entrusted to the private sector). This would require the advance payment of part of the public resources in order to consecrate this to the construction phase of the infrastructure."

Cost Rising

Putting the program under the control of multiple companies rather than choosing a single competitor to oversee the project "is not working," said Benoit Denis, a satellite analyst at Frost & Sullivan. He does not believe the situation will improve soon.

"I think the issues surrounding Galileo will not change very much in the next 12 months," Denis said. "Budgets are allocated. We will continue to see things being delayed. The project will not be dead. However, ultimately you could have two options, you could fund the project and then put it on the market or abandon it. Every delay and discussion implies increased budgets reducing the possibility of a positive return on investment."

New plans to get Galileo moving again could mean that European taxpayers would carry more of the funding burden for the program, but it would be a better deal in the long run, Cercone said. "It would be the same difference as when you buy a car with cash and when you lease a car," he said. "When you lease a car you pay less at the start, but it turns out more expensive in the end. With the cash, you have to come up with the money sooner but overall the car will cost less. If you apply this example to Galileo, it is less expensive to take on the entire construction of the infrastructure than to guarantee for 100 percent a private loan at market value, as is the plan of the consortium, who requires public money to guarantee the risks and the debts of the Galileo project. So the taxpayers would pay earlier in the process, but this would be the best value for the money. So this scenario will not require more money from the taxpayers, but, on the contrary, this would be the scenario that would protect them best."

Political Changes

Europe conceived Galileo as an alternative to the United States’ GPS constellation, providing satellite navigation services to the public that would not be under control of the military. Recent changes in the political climate in Europe could mean some countries may change their views on this, said Denis. "You have had the recent elections in France with a new president that is more likely to cooperate with the U.K. and the U.S.," he said. "One of the big reasoning behind Galileo was an alternative to GPS. France may be less defensive than it was under the presidency of Jacques Chirac. I think the attitude towards putting public money into Galileo may very well change."

Richard North, an independent political analyst based in the U.K., also sees some of the reasons behind Galileo as no longer valid. "One of the main drivers of Galileo was arms sales to China," he said. "That was largely French-driven by the desire or imperative to sell high-tech guided weapons to China using GPS targeting and navigation, knowing that without an independent system – ie, a system independent from the Americans – there would be no sales, because the Americans could close them down. That was one of the main drivers. That is where the real financial gains are."

North also highlighted other previously compelling reasons closer to home which have not panned out. "The [European Union was] hoping to tap into the revenue streams of national road-charging systems and having a uniform European road-charging [system] based on Galileo which they could then abstract and levy [to] fund the system. That is beginning to fall apart. The only country that has got a satellite-based road-charging system up and running is Germany. There are rumors about enforcement difficulties and lower- than-expected revenue streams from this system."

The forecasted aviation revenue stream also is facing difficulties, and this adds up to a very grave situation for Galileo. "Any business case that did exist for Galileo five to 10 years ago no longer exists," North said. "The only rationale for it has become national [and] European prestige. That is going to be interesting. It is a question of whether prestige alone is enough to convince the member states that the project should go ahead. However, the EU has a reputation of pulling things back from the brink. It would not surprise me if they put together a creative accounting package for the next six months to keep it going until the next crisis, and so on. At the moment, it is certainly in the balance."

–Mark Holmes