WASHINGTON — Airbus will incur nearly $1 billion in costs due to inadequate cost and schedule planning on a number of satellite programs and review strategic options for its space business.
The company said after the European stock market closed on June 24 that it was revising its 2024 forecast due to problems with space programs and a reduction in commercial aircraft deliveries. This includes a 900 million euro ($965 million) charge that the company will take in the second quarter for its space business.
In a statement, Airbus said the charges came after a new Space Systems management team “conducted a comprehensive technical review of all programs and identified additional commercial and technical challenges” in the satellite programs. “These mainly relate to updated assumptions on schedules, workload, procurement, risks and costs over the lifetime of certain telecommunications, navigation and observation programs.”
The statement did not specify which programs are the cause of the problems, and company management did not elaborate on the issue in a phone call with analysts. However, they said the problems are mainly related to projects to build communications and navigation satellites.
“It was primarily about a business area we call telecommunications 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 were due to bottlenecks in test facilities and “interdependencies” with telecommunications and navigation, he said. “This primarily affects telecommunications and navigation.”
The €900 million charge reflects the update of competition estimates on these programs and summarizes the expected impact over the life of these programs, which span several years. Airbus Chief Financial Officer Thomas Toepfer said the cash flow charge will be around €300 million this year.
The executives suggested the company had not properly assessed the technology risks of these programs, which led to the allegations. Faury said the company was implementing a “very selective tender/non-tender strategy” for future programs that emphasized technological maturity. There had also been problems with non-delivering suppliers, which had prompted Airbus to rethink its make-or-buy decisions.
“Many deals were made with ambitions and challenges about the technologies to be developed, and the assumptions made about the organization’s ability to meet those challenges across multiple programs simultaneously have led to this accumulation of difficulties,” he said.
Those changes in technology and suppliers have been implemented in some newer contracts, executives said. “We are now really suffering the consequences of contracts signed in 2018 through 2021,” Toepfer said.
The new charge comes four months after the company announced it would take a separate €600 million charge in 2023 due to issues with satellite programs. The new charge was the result of what Faury called a “complete bottom-up assessment” of those programs, as well as risks identified last year that have since materialized.
He noted that the company is reviewing “all strategic options” for its space division. These include restructuring and merger and acquisition options. He did not say how long this review of strategic options would take.
“We have to digest this,” he concluded. “It will take time and it will be painful, but we want to face reality today and be clear about what it means to get these programs underway.” He did not rule out that there could be additional costs or other impacts on the space business as the analysis of these programs continues.
“That doesn’t mean that space is a bad business or that everything in space at Airbus is in trouble,” he said. “It’s a few programs, but important programs, and that’s basically the situation we’re in.”