Chris Bulloch on how French space industry turmoil lead to the formation of Astrium and EADS

On July 10 this year, shares in EADS, the European Aeronautic Defence and Space company, were simultaneously offered for sale on the stockmarkets of Frankfurt, Madrid and Paris. Two months before, on May 17, the new Astrium space company was formally launched.

These two steps marked the conclusion, for now, of a period of unprecedented upheaval in the aerospace and defence industries, first of France and then of Western Europe as a whole. They have also involved an unheard-of degree of privatisation in France, for long committed to state ownership of the ‘commanding heights’ of the economy. The prime objective was to adopt a competitive stance vis-a-vis US industry which has been going through a similar wave of merger-mania throughout the 1990s: witness the fusion of Lockheed and Martin Marietta, followed by Boeing’s absorption of Rockwell and McDonnell Douglas, and most recently of Hughes’ Communications & Space satellite unit.

The first stage in the most recent process was purely Franco-French. This, accomplished in the summer of 1998, entailed the creation of a satellite company 51 per cent owned by privately-held Alcatel and 49 per cent held by state-owned Thomson-CSF; 30 per cent of the latter’s shares were transferred to the private sector. This was accompanied by the transfer of what had been Aerospatiale’s satellite plant at Cannes to the new Alcatel Space Division. This therefore acquired total satellite-building capability, platforms as well as payloads.

But long before this, in 1989-90, the other part of the French satellite industry, the Matra Espace component of the private-sector Lagardere group, had begun its own move towards trans-nationalisation. It did a deal with UK-owned GEC (General Electric Company) to merge its operations with those of Marconi Space Systems, of Portsmouth – primarily a payload company. Initial ownership gave 51 per cent of the new Matra Marconi Space to the French partner; share split was later equalised.

MMS then turned its attention to British Aerospace’s space activities. These had shrunk from the early days when BAe primed the first generation of Eutelsat and Inmarsat satellites. In those days BAe and Matra had a joint marketing venture called Satcom International, founded in 1980. Now BAe sought to reduce its dependence on “non-core” activities, and sold off its various space-service operations, notably Maxat, which was bought by France Telecom and later turned into Globecast Northern Europe. Besides these disposals, BaeSpace Systems laid off about half its staff in the early 1990s, making the space unit more attractive for purchase by MMS, at a bargain pounds51 million. About the same time (mid-1994), MSS also acquired Ferranti International.

When British Aerospace decided in late-1998 to buy GEC’s Marconi defence electronics businesses, the share in MMS came with it. Thus BAE Systems (to give it its new name) re- acquired the unit it had disposed of not quite six years earlier. But in the meantime the unit had been changed out of all recognition.

In May 1997, Armand Carlier, CEO of MMS, announced his intention of creating a further joint venture with Germany’s DaimlerChrysler Aerospace (Dasa). This was to be accomplished “within the year”. In fact it took three years (see Astrium, below).

This was not MMS’s fault: bigger movements were in the pipeline. The most crucial of these was the total merger of all remaining Aerospatiale units with those of Matra Hautes Technologies (its aerospace/defence unit, which included MMS). This was accompanied by the sale of 19 per cent of combined Aerospatiale Matra stock to the public and employees, leaving the French state with only 48 per cent of the total merged company; (Lagardere Group retained 33 per cent).

The same 1999 Paris Air Show which first saw the combined Aerospatiale Matra also witnessed the first announcement of a merger between Dasa and Spain’s Construcciones Aeronauticas SA (CASA), which was state-owned at the time but also destined for privatisation. It should be pointed out that Dasa itself was the product of mergers (and privatisations) of several smaller companies, in 1989-90.

These moves were merely preliminary to the “Big Bang”, otherwise the creation of EADS. Two months after a Green Light from the European Commission (with only minor revisions to ensure competivity), this event was signalled by the simultaneous tri-national stock offering. All the partners had to liquidate themselves, in the case of Aerospatiale Matra after one of the shortest corporate careers on record.

EADS is of course a broad-spectrum aerospace/defence entity; “Space” products account for only 11.16 per cent of its pro-forma (back-calculated) turnover for 1999. The biggest line item (56 per cent of last year’s turnover) is of course Airbus Industrie, with a turnover of E12.64 billion, 56 per cent of the total. Airbus is now becoming an Integrated Company, 80 per cent owned by EADS. The remaining 20 per cent is held by BAE Systems.

Astrium

Carlier’s space company was finally launched formally on May 17. As presently constituted, it is owned 50 per cent by both the former Aerospatiale Matra and BAE Systems (25 per cent each), and 50 per cent by the former Dasa. Total EADS shareholding is thus 75 per cent. The German component has two equal shareholders (25 per cent each): the Space Infrastructure unit based on Bremen, and the former Dornier-Satellitensysteme, of Friedrichshafen. Last year there were some legal problems over the residual shareholding of the Dornier family, which were resolved to the satisfaction of Satellitensysteme.

Astrium’s product line is broadly divided into three segments: Communications and Navigation (primarily satellites, also ground and control stations); Earth Observation and Space Science, and Space Infrastructures. The latter group includes launcher activities as well as Space Station components, microgravity experiments and in-space operations.

One effect of this grouping has been to transfer top-level management of the former Matra’s SPOT and Helios optical-sensor programmes to Friedrichshafen. However, work on these will still be performed at Toulouse. The ex-Dornier unit has always been responsible for radar satellites and most scientific spacecraft.

For legal and taxation reasons, national sub-units (Astrium SA/Ltd/GmbH) are located in their respective countries, reporting to a holding company in Amsterdam (Astrium NV), as was the case with the former MMS. Senior executives responsible for both the ‘business’ and ‘geographical’ units are: Chris Chant (Communications and Navigation, Astrium Ltd, Stevenage); Klaus Ensslin (Earth Observation and Science, Astrium GmbH, Friedrichshafen), and Josef Kind (Space Infrasructures, Astrium GmbH, Bremen). At first sight, this would seem to leave Astrium SA, France (Carlier’s HQ) without a specific product responsibility apart from supervising everyone else.

EADS space activities are not identical to those of Astrium. To begin with, Astrium does not include the French contribution to Ariane as prime contractor, now the responsibility of EADS Launch Vehicle Division. Nor does it include the combined 22.6 per cent share in Arianespace (total of former Aerospatiale Matra, Dasa and CASA shares), nor the original (pre-1998) Aerospatiale’s holdings in operational ventures such as Nahuelsat and Eurasiasat. CASA, which has space competence in composite structures and antennas, is not included in Astrium.

On the other hand, the Bremen unit – which has plenty of launcher involvement including complete responsibility for the upper stage of Ariane 5 (plus the Eurockot and future Leolink programmes) is a part of Astrium. So also are those parts of the former MMS responsible for building Ariane elements such as the avionics bay. There are reports that it may prove necessary to create a new partnership company as an interface.

Looking to Italy

Astrium is not yet completed, however. It has long been its intention to include the principal Italian space integrator Alenia Spazio. Some time ago, there was understood to be a tussle between Alcatel Space and the soon-to-be-Astrium as to which would attract the Italian partner. Although nothing emerged in public, it was understood that Alcatel was chiefly interested in Alenia’s satellite capabilities, whereas MMS wanted its ‘space infrastructure’ product lines as well.

Alenia (Aero)spazio was also the result of a merger, like most other elements of the European aerospace scene. In this case it took place in 1990, between Aeritalia and Selenia. The former was primarily an airframe builder whose space business consisted chiefly of making pressurised structures (Ariane rocket tanks as well as space structures such as the shell of the Spacelab laboratory). Selenia was mainly an electronics manufacturer whose principal space business lay in communications satellites such as Italsat.

Unconfirmed reports say that the delay in bringing Alenia aboard Astrium can be in part attributed to problems over the valuation of the Italian unit. But in preparation, Alenia Spazio has split itself off (once again) from its parent Aerospazio unit and in May this year became a separate company with a capital of E285 million. Spazio is currently 100 per cent owned by the Finmeccanica group, which in June was largely privatised. Officially the Italian state holding is 30 per cent, but there are suggestions that it may actually be somewhat less. Alenia/Finmeccanica is pursuing its own complex path towards at least a partial involvement is EADS (especially Airbus), but also has a joint venture in missiles with BAE Systems.

Astrium’s pro-forma consolidated turnover for 1999, with double-counting of sales between units stripped out, was “just over E2 billion”. Employment was “over 7500 people”. EADS corresponding space turnover for 1999 was just under E2.52 billion. Its space order book fell slightly from 1998 to 1999, from E4.8 billion to 4.4 billion.

Carlier has said recently that “the creation of Astrium should result in annual scale economies of Euros 220 million over the next five years.” He has not indicated, however, where there is existing duplication to strip out. It can be assumed that the Stevenage and Toulouse operations involving communications satellites (which have been running for ten years) are already redundancy-proof. The former ex-MMS Bristol plant is set to close, if it has not already done so. Possibly there is unnecessary capacity at the old MBB Ottobrunn plant managed from Friedrichshafen, though capacity has been reduced here already. All other units appear to be unduplicated standalones.