PARIS — Europe’s Vega small-satellite launcher, which recently conducted its 10th successful launch in 10 attempts, does not have the history of India’s PSLV or Russia’s Soyuz in launching small satellites.
But Vega’s prime contractor, Avio SpA, thinks its moment is coming as small-satellite owners begin to ask for more than to be dropped off wherever the launch’s main customer wants to go.
Avio CEO Giulio Ranzo says the company’s prospects are bright enough to have proceeded with a stock-market introduction in April. Avios is now the only pure-play launch-service provider to have publicly traded stock.
Some people might say you’re mad to take a launch-service provider public.
Why do you say that?
No one makes much money in launchers.
Well, yes and no. You question why we went public with a rocket business. But you have to compare to what we were before. We were under private-equity ownership, with some debt, and we had pressure every day to find a new owner.
Was it better to stay with maybe another P-E?
How about a strategic investor? There were companies interested in Avio.
There were tons of companies, but this is a strategic asset for Italy, which has invested a lot of money in the ESA [European Space Agency] system. They were not about to let it go easily, perhaps to some country without a launch capability.
I was thinking about a European or U.S. company.
Yes, but in the end, the Italian government would say: We have put maybe a billion euros of investment into this capability. We will not let it go. In fact there is actually a law that prevents the sale to a strategic investor unless it is a non-hostile takeover. It would need to be judged by the Prime Minister’s office.
In any event, perhaps I am mad because nobody else in the rocket launch industry segment has ever embraced the capital markets. They use venture capital and so on.
But if we were sitting here some years ago, you would not think a venture capitalist would put money in a rocket maker. The whole business was government-funded, in the U.S., Europe and elsewhere. Then you had SpaceX and Blue Origin with venture capital, and Planet and the constellations. It all went through largely venture capital and entrepreneurial investment.
But what’s hidden behind this? Not one of them can do it only on private resources. So today you need a blend of private capital, coming from whatever source you can get, including the stock market, along with government resources. All players work like this.
What is fascinating about this business today is that it is approached with an entrepreneurial spirit, where everything will be managed by costs and revenues. But it inevitably requires government support.
Wouldn’t you do the same as these U.S. companies if you had the U.S. Air Force as a major customer?
Of course. But as of today, we have no more debt. We have cash in the bank if we want to make an acquisition. We have many investors and no controlling shareholder — a crucial point. The biggest shareholder, Leonardo, has a 25% stake. But it’s not a controlling shareholder.
So maybe we are doubly mad: Not only did we list on the stock market, we also made it a public company.
What is your float?
Two-thirds of the capital — 67% — is listed. Four percent is us — myself and my colleagues. Management has two directors on the board. We may be a bunch of Mad Men but we do manage our business and we need to satisfy investors. For me it’s not so different from making private-equity investors satisfied. The difference is that we have no debt.
Since your April IPO the stock has seen a big jump in value and then settled down to be fairly steady.
It goes go up and down. If investors see a new business coming, the stock value might improve. But I agree we are taking more risk than others, no doubt about it. An event could cause them to sell off. But the investors are excited today. They realize that something cool will happen in space in the next few years.
Cool in space isn’t really launching is it?
We enable the cool part to happen. The demand for satellites and services is going up, with constellations being proposed and broadband communications growing, while the geostationary orbit is not growing like it used to.
The growth in LEO is being stimulated by many initiatives in low Earth orbit. But how do you actually make it work? Either you can deploy all these things in multiple orbital planes, or it’s not going to happen. We have some capabilities there.
Don’t you need to diversify beyond rockets?
That’s certainly a possibility. We are a vertical, integrated pure player in small rocket systems. We may want to look beyond rockets to grow. At the same time we do not want to become a conglomerate. We cannot buy a satellite business and be successful, but something that couples well with what we do. We can survive very well without necessarily diversifying.
Do you have the liquidity to do that now?
We have the liquidity. We did a 70-million-euro capital raise. When we listed on April 10, our net financial position was virtually zero. We were already nearly debt-free. We added a 70-million-euro increase in working capital, which remains in the bank.
This is not needed for upcoming capex?
No. The ordinary capex is paid from operating cash flow. So there is free cash available for investment. Will it be an acquisition, or organic growth? I don’t know. I agree that diversification might be a smart move.
I have a new board and we will see what they want to do. We will define a strategy with them.
And you have prepared them for a day when the TV news about Vega is a failure?
Look what happened to Orbital ATK after the Antares rocket failure. They lost 29% in one day. And they came back in less than a year, and this was before the acquisition of ATK, so they were not as diversified as they are today. Still they recovered.
It’s part of our business, which is risky.
Can launch services generate the earnings to appeal to shareholders?
You see here a business with 3-4 years of backlog and some visibility for a decade. At a time when equity is volatile and bonds don’t earn you a dime, let’s see what investors decide.
Let’s talk about SSMS, the Small Spacecraft Mission Service.
SSMS is an adaptor to put maybe 30 different cubesats, from small ones to ones up to 400 kilograms, under the same fairing.
But with us it’s not just the adaptor device, it is that plus an upper stage module that can stay in space for 2-3 months and delivery payloads to different planes. It is a space tug, not just a dispenser.
SSMS is a business model concept. It’s a call for opportunity for smallest manufacturers who want to partner with us and tell us where they need to go.
Your competition now is India’s PSLV. They are increasing production rate and targeting the market. Glavkosmos is too, with Soyuz.
We are not going to simply jump on price discounts to follow other players. We want to offer something they cannot offer. Not just a launch into space, but positioning satellites in space — an orbital experience.
You think the small satellite market is moving in your direction?
The era of saying, “I’ll throw a bunch of stuff at space,” is finished. Either you are capable of performing orbital maneuvers over a certain period of time to move satellites from one place to another, change planes, inclination and altitude in orbit — or you are not offering a real differentiator.
How will we deploy that? First with SSMS, a multi-purpose concept. You can add a small cubesat, which will pay a small ticket; and a 200-kg satellite, which will be a better ticket. We can change altitude and planes over a period of up to a couple of months.
We have also announced with ESA the Space Rider concept. You recall IXV the space plane demo. Space Rider is an in-orbit validation that allows reentry. For me SR is an advanced payload. We can get it to space, keep it in space for two or three months and then get it back.
This is something others cannot do. We let SR reenter by performing a reentry maneuver with our upper stage module and let it fly back into the atmosphere.
The core of our differentiation is our upper stage, Avum. It has a roll, attitude and control system, and can reignite many times, and with the mission analysis we have we can let it go in many different places.
How many Vega launches are scheduled for 2018?
It should be four. It depends on timing of satellite arrivals. And in 2019, the first Vega-C launcher will be introduced, so we should have four. The challenge for us here is that while we are increasing cadence we are also modifying the launch pad for Vega-C. So in between campaigns we need to do this work.
The transition from Vega to Vega-C will be three years?
It may be a little more. Some customers continue to demand Vega and I am not willing to take it from the market unless there is a good reason. Why would I retire it if customers still want it?
Arianespace and Ariane Group say Avio has “full responsibility on Vega results.” What does that mean?
It means we agreed with Arianespace and ESA and Ariane Group that the prime contractors, Avio for Vega and Ariane Group for Ariane 6, take full profit and loss responsibility for the selling of their respective launchers. We will no longer have government support for launcher exploitation in the future. We will continue to receive funding to develop the products. So the whole revenue and cost lines shall be under the control of the Primes. We decide whether to accept a launch service price with a customer, and we manage our costs accordingly.
Arianespace today is entrusted by ESA to sell the Vega launcher. But the Primes decide whether the customer for that price is acceptable or not. — which is fair. If we have to take the risk and responsibility of a P&L, we also have to be able to agree on the price.
Are you happy with this and with the arrangement with Arianespace?
Look at the results. In June Arianespace signed with Airbus Defense and Space for two launches for Vega-C, for four fully commercial satellites — before the launcher is even ready. We accepted our own risks on schedule and cost.
And Vega- C Plus?
We made the fairing larger. It’s now at 3.3 meters in diameter. And we redesigned the structural part of Avum to be lighter. The larger fairing also allows the vehicle to carry radar satellites such as Italy’s Cosmo SkyMed radar satellites. We used to be at a capacity of 2.0-2.1 tonnes, now we are moving to 2.3 or 2.35 tonnes with Vega-C Plus.
Where are you on Vega-C pricing, and where do you need to be?
Pricing is a very complex issue. Customization makes each mission unique. I think we are in good shape, and we can become even more competitive based on volume. If we get a commitment from a customer for more than one launch, we can be more competitive on price.
But I leave this to Arianespace to manage. I just check to see if these numbers fit within my business plan. It always looks like a number of special situations. It is unimaginable to have a list price. Every customer is different, the situation is so diverse that there cannot be a list price.
So your message to small-satellite owners is: We’ll give you control over your orbit?
Yes, even if they do not have propulsion. We will do whatever the customers need to be sure they get to where they want to go.
My point here to satellite owners is to look beyond the piggyback market. We will be able to take you where you want to go through a longer set of orbital maneuvers
If you want to be in the driver’s seat and make sure the launcher is doing what you expect, Vega is the right solution. Smallsats in low-earth orbit are the core of our business.
ISRO of India says the same about the PSLV.
There is a difference in technology between them and us.
Also a difference in labor cost.
There too, but labor cost is not the primary driver in the manufacturing of our rockets. They use liquid propulsion and the number of parts for liquid propulsion rocket is 10 or 100 times more. Solid propulsion in inherently simple, with fewer parts.