WASHINGTON – Airbus will take on a nearly $1 billion burden for poor cost and planning of a variety of satellite programs and will evaluate strategic options for its space operations.
The company announced after markets in Europe closed on June 24 that it was revising its 2024 guidance due to both space program issues and a reduction in commercial aircraft deliveries. That included a charge of 900 million euros ($965 million) that the company will book in the second quarter for its Space Systems business.
In a statement, Airbus said the charges came after a new Space Systems management team “conducted a comprehensive technical review of all programs, identifying further commercial and technical challenges” related to satellite programs. “These primarily relate to updated assumptions about schedules, workloads, sourcing, risks and costs over the life of certain telecommunications, navigation and observation programs.”
The statement did not identify which programs are causing the problems, and company executives did not go into details in a call with analysts. However, they indicated that this mainly concerned projects for the construction of communications and navigation satellites.
“It mainly concerned a business line that we call telecom and navigation. That’s where we have our problems. These are programs of a similar nature using similar resources and similar suppliers,” said Guillaume Faury, CEO of Airbus. Cost overruns in Earth observation, he said, were related to bottlenecks in testing facilities and “interdependencies” with telecommunications and navigation. “This is mainly telecom and navigation.”
The €900 million cost reflects updates to competitive estimates for those programs, adding up the expected impacts over the life of those programs, which span several years. Airbus Chief Financial Officer Thomas Toepfer said the cost impact on cash flow this year will be around 300 million euros.
The executives suggested that the company had not properly evaluated the technological risks of those programs, leading to the charges. Faury said the company was implementing a “highly selective bid/no-bid strategy” for future programs that will emphasize technology maturation. There were also problems with suppliers not delivering, he said, forcing Airbus to reconsider its make-or-buy decisions.
“Many businesses have been done with ambitions and challenges in terms of the technologies to be developed, and the assumptions made about the organization’s ability to meet these challenges in different programs simultaneously lead to this accumulation of difficulties. ,” he said.
These changes in technology and suppliers have been reflected in some more recent contacts, executives said. “We are now really suffering the consequences of contracts entered into in the years 2018 through 2021,” Toepfer said.
The new levy comes four months after the company said it would charge a separate 600 million euros levy in 2023 over problems with satellite programs. The new charge was the result of what Faury called a “complete bottom-up review” of those programs, as well as the risks identified last year that have since materialized.
He noted that the company was “evaluating all strategic options” for its space unit. This includes restructuring as well as merger and acquisition options. He did not say how long that evaluation of strategic options would take.
“We have to process this,” he concluded. “It will take time and be painful, but we want to face today’s reality and get to the bottom of what it means to get those programs started.” He did not rule out additional costs or other impacts on the space sector as analysis of those programs continues.
“That doesn’t mean that aerospace is a bad thing, or that everything in aerospace at Airbus is in trouble,” he said. “These are a few programs, but important programs, and that’s basically the situation we’re in.”