OHB Uses Galileo Bid to Send a Message to Competitors

OHB Technology is biddingagainst a much larger consortium to build 28 Galileo navigation satellites as asignal to European governments that the company should be viewed as a primecontractor, OHB Chief Executive Marco Fuchs said.

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

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

OHB has teamed withSurrey Satellite Technology Ltd. of Britain in its bid to build 28 Galileosatellites.

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

Government and industryofficials say some of the Galileo satellite launches likely will slip into2014, if only because that is when the European Commission will have freshfinancing available in the event the system cannot meet the budget target.

Astrium, teamed withThales Alenia Space of France and Italy, is building the four in-orbitvalidation Galileo satellites to be launched in 2010. The consortium wasestablished after long negotiations with European governments on the roles ofdifferent component builders, a way of assuring that ESA governmentcontributors could be guaranteed a return on their investment through work fortheir domestic industries.

ESA and the EuropeanCommission 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 theentire constellation.

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

Fuchs agreed that, todefend its chances, OHB will have to persuade ESA that whatever additionalcosts there are in selecting two contractors, there also will be long-termsavings.

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

Surrey SatelliteTechnology and the Astrium-led consortium each built one experimental Galileosatellite. Surrey's was finished first and permitted Europe to preserve Galileosignal frequencies with international regulators. Both satellites now areoperating in medium Earth orbit.

OHB and Astrium arescheduled to present preliminary bids by Nov. 7, with ESA then managing anincreasingly detailed series of negotiations with both teams — ESA uses theterm "competitive dialogue" to describe the process — until selectingthe winner in mid-2009.

How far apart the OHB andAstrium proposals will be in price is unclear. Because of the limited supplierbase in Europe, the two teams will be soliciting bids from many of the samecomponent manufacturers, which presumably will submit the same prices to boththe prime contractor teams.

OHB has been growing itsspace business by making acquisitions in recent years and, with Galileo, findsitself in a situation similar to where it was in 2001 with a German DefenseMinistry contract to build five identical SAR-Lupe radar reconnaissancesatellites.

OHB was a clear underdogin the competition, facing off against a well-proven Astrium team. But thecompany won the contract and since has overseen the successful construction andlaunch of the SAR-Lupe constellation. More recently, OHB has secured Germangovernment backing to promote an ESA program, called Small-GEO, to design asmall commercial telecommunications satellite platform, bringing OHB squarelyinto the commercial satellite market. Satellite-fleet operator Hispasat is thefirst customer for the Small-GEO platform.

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

"We willstay in the race until the end," Fuchs said. "The risk for us is notthat high: If we don't get any of the work, we have still made an investmentthat 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."

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