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Is SpaceX Rival Ariane Cutting Launch Prices?

By Rich Smith - Oct 13, 2019 at 9:13AM

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And if so, why would Ariane do that if it's already struggling to make a profit?

Easy come, easy go -- SpaceX has lost the Ovzon contract.

In its earnings report for the first half of 2019, released in August, Swedish satellite telecommunications start-up Ovzon announced that the Legion-class Geostationary Orbit (GEO) satellite that Maxar Technologies is building for it will not be launched by SpaceX, as initially contracted, but by SpaceX rival (and local European space champion) Arianespace instead. 

The loss of this contract could mean as much as a $90 million revenue hit for America's most prolific satellite launcher. Although SpaceX's ability to reuse its rockets has enabled it to offer Falcon 9 service at prices as low as $50 million, Ovzon's satellite was to fly aboard SpaceX's new Falcon Heavy rocket, which still costs more. 

This comes as a blow to SpaceX, which has only flown the Falcon Heavy three times to date, and could have used the Ovzon flight as another chance to burnish its reputation and further prove the reliability of its platform. But the bigger import of this news may not be for SpaceX at all, but for the company that beat it to the contract.

Artist's depiction of Ariane 6 rocket leaving Earth

Image source: Arianespace.

A tale of two contracts

Ovzon first announced its contract to have SpaceX heave its satellite into orbit a year ago. At the time, Ovzon praised SpaceX for offering "a very competitive solution with the Falcon Heavy launch vehicle," and an attractive launch date as early as Q4 2020. 

But now Ovzon has changed its tune.

In the course of giving its August earnings report, Ovzon explained that "Arianespace ... won our confidence to serve Ovzon for this first launch" aboard an expendable Ariane 5 rocket, which despite lacking the liftoff "oomph" of the Falcon Heavy, will nevertheless easily be able to put the 1,500 kilogram Ovzon-3 satellite into GEO orbit. Subsequently, Ovzon CEO Magnus René explained to that he got "a better deal in cost and time and so on from Ariane." 

Ariane's price rollback

That sounds logical. I mean, why else would Ovzon switch carriers, if not to get a better deal? But here's the thing: Ariane won't launch Ovzon's satellite until sometime in the second half of 2021 -- as much as a year later than the launch date that SpaceX had offered. 

It makes sense that if Ariane's new offer to Ovzon was "a better deal in cost and time," but the "time" element was worse than what SpaceX had offered, then the "cost" element must have been better. A lot better.

We know this because at the time of the original contract award to SpaceX, the price SpaceX offered to launch Ovzon's satellite was below the price then offered by Ariane. (Which stands to reason -- Ariane has admitted in the past that it cannot compete with SpaceX on price.)

Now, we do not know exactly what price Ariane offered to Ovzon this time. But in order to beat SpaceX's initial price -- while at the same time offsetting the revenue Ovzon will lose by having to wait an extra year to put its satellite into service -- Ariane would have had to drop its price by quite a lot. It would have had to drop its price to match SpaceX's (which, as we already know, Ariane cannot do while earning a profit). Then Ariane would have had to drop its price even more to beat SpaceX's price. And then it would probably have had to drop its price even more to compensate Ovzon for delayed services revenue from its satellite.

Conclusion: Ariane almost certainly dropped its price so low that it's going to lose money on this launch.

Ariane's endgame

So why would Ariane cut its prices, and launch Ovzon's satellite at a loss?

Well, we already know that profitability is not the driving concern for Ariane. ArianeGroup CEO Alain Charmeau has stated he's more interested in keeping his rocket factories at full employment than in cutting costs to compete with cheaper launchers. Moreover, in an interview with Der Spiegel last year, Charmeau warned that unless Ariane wins more business from local European companies, SpaceX could "kick Europe out of space." Given that worry, Ariane may be more concerned with simply generating cash flow from performing launches than with earning a profit off those launches.

Of course, this is not great news for Ariane's owners, Europe's Airbus and Safran, or for their shareholders. (Both Airbus and Safran are publicly traded companies.) But it may still be necessary to bridge the gap between the operation of Arianespace's too-expensive Ariane 5 rocket and the introduction of its bigger, cheaper Ariane 6 in 2020 (expected to begin service around the same time as the Ovzon launch takes place).

Whether Ariane 6 will be cheap enough to compete with the Falcon Heavy remains to be seen. But taking a loss on one of its final Ariane 5 missions should at least help Ariane to preserve market share for one more year, and give it a chance to compete with SpaceX in years to come.

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