The Structure and Dynamics of the European Space Industry Base E S P I 55 PERSPECTIVES The Structure and Dynamics of the European Space Industry Base Keith HAY WARD , Head of Research, Royal Aeronautical Society, United Kingdom The European space industry is a niche sector in the total European aerospace field, but it is a qualitatively important contributor to the European economy. Space is generally heavily dependent on public funding, but European companies have achieved an impressive share of accessible world markets for satellites and launcher services. Future competitiveness will depend on continuing support from national governments and European institutions. In this respect, it will be vital for the EU to formulate effective space industrial and technological policies that reflect the special characteristics of the space business and its market. 1. Introduction represented 90% of the total. The workforce is highly skilled with a higher than average level of The space industry comprises the “upstream” graduates (53%) and with 77% of space industry development and manufacturing sector and employees possessing technical qualifications. space operations, and the “downstream” element - a much wider and diffuse set of The space sector is research intensive. In the business activities. 1 While the value of the case of satellites and ground systems, the downstream segment considerably outweighs proportion of industry R&D funding is between that of the manufacturing element, there are 40% and 50%. Around 10% of industry revenue important technological and commercial links is R&D, including some 3.5% of self-funded between the two. Space equipment development R&D. This compares with 5% and 2.6% for the and manufacturing helps to diffuse awareness of US.3 opportunities and to stimulate novel applications; and market sensitivity helps to guide investment An Industry Defined by Its Market choices on the part of upstream actors. The evolution of the European Space 2. The European Space Industry Technological and Industrial Base (ESTIB) reflects wider structural trends in European The European space industry contributes about aerospace, characterised by several large ten percent of the European aerospace effort. In transnational companies. It is a dual technology 2009 the European space manufacturing sector sector, with strong links between military and earned € 5.47 billion and employed 32,851 civil activity. people. 2 The six largest ESA members, France (13,017), Germany (5,065), Italy (5,100), UK The Role of Government and Public (3,186), Spain (1,971) and Belgium (1,123), Institutions The space business is deeply influenced by 1 “Downstream” space services include for example satellite governments and other political actors. While positioning and navigation and satellite delivered television. commercial space has grown rapidly over the 2 “Space Industry Facts and Figures 2009”. ASD-Eurospace last decade, over 80% of world space activity Aug. 2010. These figures may understate the actual size of the European space industry by a factor of two to three. For involves public institutions as investors, and example, a UK government-sponsored report at gives 2009 operators. Market access and space technology UK employment in space manufacturing as 7,301 compared to the ASD figure of 3,186. 3 http://www.bis.gov.uk/assets/bispartners/ukspaceagency/do European Space Agency (ESA). European Space Industry cs/10-1195-size-and-health-uk-space-industry-2010 Survey 2003-7. Doc. 21070/07/NL/HE July 2009. ESPI Perspectives No. 55 December 2011 1 The Structure and Dynamics of the European Space Industry Base transfers are also directly affected by expensive and subject to risk of total failure. government controls. Margins for error are tiny. Consequently, space companies have high fixed costs, including The space business is deeply influenced investment in specialised test and fabrication by governments and other political actors. facilities. Reliability and reputation is a dominant consideration in the selection of suppliers, which is often best guaranteed by direct control. The sheer size of US government investment, as well as the growing power of other national Companies also have to cope with spasmodic investments in space, is a key element in orders and low volume production. In general, determining the long-term effectiveness of the these fundamental characteristics create high ESTIB. The US space budget is nearly 10 times 4 barriers to entry, reinforcing a natural tendency the size of European institutional spending. The towards vertically integrated space enterprises. size of the American market, largely closed to non-US suppliers, gives the US space industry a There are some important efficiency advantages massive advantage. Technology developed for generated by batch production of launchers and military programmes has often formed the basis satellites. Commercial satellite production, of US commercial space applications while the based on a basic “bus” also enables some reverse tends to apply in Europe. economies of scale. Similarly, standardisation of components helps to reduce costs. European National Interests and National Preferences The fundamental characteristics of the The European institutional context is space business create high barriers to complicated by the relationship between national entry, reinforcing a natural tendency and international institutions shaping space towards vertically integrated space policy and funding space programmes. National enterprises. funding accounts for over 40% of the European total institutional spending on space. Most of the Moving up the value chain to exploit an after rest is channelled through ESA. market is largely denied to space prime contractors. Similarly, they are reluctant to Most of Europe’s security-related satellite compete directly with primary customers by programmes have been based either on national moving into commercial space operations. Still, or government-to-government collaboration. space manufacturers have begun to develop This has led to duplication and fragmentation. specialised space services. There is also more Similarly, European national preferences can scope for space manufacturers to launch Earth influence contract selection and continue directly Observation (EO) services’ operations where or indirectly to help define European space there is less established commercial activity. technology priorities. A stronger, more integrated European-wide consensus or vision about the Limited Globalisation direction of future space investments would be an important step forward in maintaining the The globalisation of supply chains and competitiveness of the ESTIB. ownership that is increasingly characteristic of the aerospace sector is generally less evident in The Space Environment as a Determinant of the space sector. Even in Europe, where the Industrial Activity major European firms are multinational in operation, there are varying degrees of intra-firm The unique characteristics of space operations rationalisation. also shape the structure and performance of the ESTIB. In particular, they help to create the The international trade in space products is “critical mass” requirement of space prime constrained by political issues, notably by the contractors and major suppliers, as well as US International Trade in Armaments Regulation creating barriers to entry that encourage vertical (ITAR). This has led Europe to reduce integrated industrial enterprises. dependence on US sourced components, which has increased costs. On the other hand, it has Space represents a challenging environment, enabled European companies to offer ITAR free characterised by extremes of temperature, satellites to a number of customers. radiation and isolation. Getting there is 4 3. ESTIB Structure Follows Context Organisation for Economic Co-operation and Development. The Space Economy at a Glance 2011. Paris: OECD The European space industry is necessarily Publishing 2011: 50. ESPI Perspectives No. 55 December 2011 2 The Structure and Dynamics of the European Space Industry Base highly concentrated, with a high degree of increase their share of European institutional vertical integration. Four multinational funding. companies (EADS Astrium, ThalesAleniaSpace, Finmeccanica and Safran) are responsible for Policies designed to encourage SME more than 70% of the total European space participation in the space sector, while perhaps employment. As a result, four European desirable for wider socio-political reasons, may companies are in the world space industry top have limited value in improving the ten and 14 in the top fifty. competitiveness of the European space industry. Increasing significantly the volume of European Concentration is particularly evident in the space production could support a larger number launcher sector: EADS Astrium Space of space suppliers by improving the business Transportation is the prime contractor for Ariane, case for investment in the space sector. with Safran leading development of the propulsion system. There are some 40 other Policies designed to encourage SME European suppliers involved, with a number (25) participation in the space sector may have highly dependent on Ariane business. The Italian a limited impact on improving European company Avio is prime contractor for the smaller space industry’s competitiveness. Vega launcher. The Ariane competes in a global market, where non-market factors have a big impact on price and entry. Generally, the European Commission