OHB Uses Galileo Bid to Send a Message to Competitors

by Peter B. de Selding, GLASGOW, Scotland, Space News Staff Writer

Date: 13 October 2008 Time: 06:37 AM ET

OHB Technology is bidding against a much larger consortium to build 28 Galileo navigation satellites as a signal to European governments that the company should be viewed as a prime contractor, OHB Chief Executive Marco Fuchs said.

But while the Bremen, Germany-based company intends to pursue the Galileo competition to the end, it is concerned that its bid may be used simply to prevent the competing consortium, led by Astrium Satellites, from bidding an overly high price.

"Obviously we are the outsider, that's clear," Fuchs said here Oct. 1 at the International Astronautical Congress. "The biggest concern we have is: Are we really just a rabbit to help get a lower price from Astrium?"

OHB has teamed with Surrey Satellite Technology Ltd. of Britain in its bid to build 28 Galileo satellites.

The European Space Agency (ESA) and the European Commission are financing Galileo and have set a budget of 3.4 billion euros ($4.7 billion) as total system costs from 2007 through 2013, when the full constellation is expected to be in orbit.

Government and industry officials say some of the Galileo satellite launches likely will slip into 2014, if only because that is when the European Commission will have fresh financing available in the event the system cannot meet the budget target.

Astrium, teamed with Thales Alenia Space of France and Italy, is building the four in-orbit validation Galileo satellites to be launched in 2010. The consortium was established after long negotiations with European governments on the roles of different component builders, a way of assuring that ESA government contributors could be guaranteed a return on their investment through work for their domestic industries.

ESA and the European Commission have said they want competitive bids wherever possible on Galileo, but they also say a case can be made for selecting only one contractor for the entire constellation.

"If ESA has to oversee two industrial teams building satellites, it adds costs," said one government official involved in Galileo. "Having two teams also means you reduce your chance of getting economies of scale that you would expect if you gave one team all 28 satellites."

Fuchs agreed that, to defend its chances, OHB will have to persuade ESA that whatever additional costs there are in selecting two contractors, there also will be long-term savings.

"In the short term, having two teams costs more but dual sourcing is much more attractive to the taxpayers in the long term," Fuchs said. "Also, having a redundancy built into the system with two prime contractors has an advantage, as we have seen with the two experimental satellites."

Surrey Satellite Technology and the Astrium-led consortium each built one experimental Galileo satellite. Surrey's was finished first and permitted Europe to preserve Galileo signal frequencies with international regulators. Both satellites now are operating in medium Earth orbit.

OHB and Astrium are scheduled to present preliminary bids by Nov. 7, with ESA then managing an increasingly detailed series of negotiations with both teams — ESA uses the term "competitive dialogue" to describe the process — until selecting the winner in mid-2009.

How far apart the OHB and Astrium proposals will be in price is unclear. Because of the limited supplier base in Europe, the two teams will be soliciting bids from many of the same component manufacturers, which presumably will submit the same prices to both the prime contractor teams.

OHB has been growing its space business by making acquisitions in recent years and, with Galileo, finds itself in a situation similar to where it was in 2001 with a German Defense Ministry contract to build five identical SAR-Lupe radar reconnaissance satellites.

OHB was a clear underdog in the competition, facing off against a well-proven Astrium team. But the company won the contract and since has overseen the successful construction and launch of the SAR-Lupe constellation. More recently, OHB has secured German government backing to promote an ESA program, called Small-GEO, to design a small commercial telecommunications satellite platform, bringing OHB squarely into the commercial satellite market. Satellite-fleet operator Hispasat is the first customer for the Small-GEO platform.

For Galileo, Fuchs said the company will be spending perhaps 2 million euros on preparing the bid documentation and negotiating with ESA and with component suppliers.

"We will stay in the race until the end," Fuchs said. "The risk for us is not that high: If we don't get any of the work, we have still made an investment that will serve us in the future. The goal here is to position ourselves in Europe to be viewed by ESA as a prime contractor. This is strategic for us."