Jul 29, 2011

Astrium Profits Weighed Down by Services Division

Estimated Article Reading Time: 3 min.

PARIS — Europe’s EADS aerospace giant on July 29 said its Astrium space division reported higher sales but lower pretax profit for the first six months of 2011 and said revenue from its Astrium Services division fell by 26 percent compared to the same period a year ago.

Astrium Services, which in recent years has distinguished itself as the fastest growing and most profitable of EADS’s space businesses, reported a 26 percent drop in revenue, to 378.3 million euros ($544.4 million), for the six months ending June 30, EADS said in a conference call with investors.

Because Astrium Services is the biggest profit engine at Astrium, any sales decline in this division has a disproportionate effect on the profitability of Astrium as a whole. Astrium pretax earnings fell by 3 percent for the period, and were equivalent to 4.4 percent of revenue, compared to 5 percent of revenue a year earlier.

Astrium’s two other divisions — Astrium Satellites and Astrium Space Transportation — focus on the manufacture of satellites, Ariane 5 launch vehicles, space-station hardware and French ballistic missiles. Revenue from the satellite and launcher divisions rose during the quarter. When added with Astrium Services, the total Astrium revenue for the first six months of 2011 was 2.35 billion euros, up 11 percent from the same period a year ago despite the services decline.

EADS Chief Executive Louis Gallois attributed the drop in Astrium Services revenue to two factors relating to the division’s principal business lines — Earth observation services and telecommunications services.

For Earth observation, Gallois said, Astrium Services’ Geo-Information division, which includes the former Spot Image optical and Infoterra radar Earth observation satellite services businesses, saw a drop in revenue due in part to launch vehicle delays.

The Pleiades high-resolution optical satellite, developed by the French government for military and commercial customers, is scheduled for launch aboard a Europeanized Soyuz rocket from Europe’s Guiana Space Center in French Guiana. The inaugural Soyuz flight from Europe’s spaceport has been delayed repeatedly and is now expected to occur in October, carrying two European navigation satellites.

The first of two Pleiades launches will be on the second European Soyuz launch, tentatively scheduled for late this year. The second, identical Pleiades satellite will be on a Soyuz to be launched sometime in 2013.

“Soyuz is late, so we don’t have the revenue from that satellite that we expected in 2011,” Gallois said during the conference call.

More generally, he said, the sale of Earth observation satellite data “has been a bit disappointing.”

Eric Beranger, chief executive of Astrium Services, said in mid-June that the company is suffering a short-term delay in contract awards from governments that are taking more time than usual to proceed with contract signatures in a difficult budget environment. But he said the contracts in question are still likely to be signed, meaning their revenue will be delayed but ultimately will be booked.

A second factor in Astrium Services’ revenue drop has to do with military satellite telecommunications. The company’s biggest contract is a multiyear deal with the British Defence Ministry to provide beyond-line-of-sight telecommunications for the British military, in part through the Skynet 5 satellites that Astrium owns and operates.

“The performance is still good,” Gallois said of the telecommunications services business. “We have seen a bit lower performance because the U.K. government is trying to reduce the volume of military telecommunications to save money. We have seen a slight reduction in telecommunications traffic through our Skynet system.”

Astrium Services booked a large milestone contract award in early 2010 relating to its delivery of Germany’s two-satellite Satcom Bw military telecommunications satellite system, a one-time cash award that could make the company’s 2011 performance look worse than it is.

Gallois stressed that EADS continues to believe that the services business is a long-term winner for the company.

“We consider that it is a field of growth and we are ready to invest in it,” Gallois said.

Astrium Services is already investing 300 million euros of its resources to build and launch two medium-resolution optical satellites, called Spot 6 and Spot 7, to succeed the current Spot 5 spacecraft, which was paid for by the French government.

The company is also negotiating with the German government on a follow-on radar Earth observation satellite. The German Aerospace Center, DLR, has said that, given the unexpectedly soft demand for radar imagery, it is willing to reconsider its previous position that the private sector should pay 100 percent of the next generation of civil and commercial radar satellites. Germany paid the majority of the costs of the current TerraSAR-X and TanDem-X spacecraft, both in orbit, with Astrium paying a minority share.

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