London Satellite Finance and Industry Conference: PPP Seed funding liked but Export Credit funding may skew market

Source: Flightglobal.com
This story is sourced from Flightglobal.com

The newly inaugurated London Satellite Finance and Industry conference, held at the Institute of Mechanical Engineers on 8 February discussed new ways for cooperation between government and industry in the UK. Joanne Wheeler of the law firm CMS Cameron who organised the event, said: “The space and satellite industry is a little known UK success story. We are fortunate to have in this country to have depths of expertise across the sector.”

Lord Green, Minister of State for Trade and Investment, noted that with a GDP contribution of £7.5 billion and 9% growth per annum, space is one industry that the United Kingdom can genuinely compete in. In fact, the UK government has given itself the target of capturing, by 2030, 10% of a world space market that could by that time be worth more than £400 billion.

Mixed record for funding options

While Private Finance Initiative (PFI) funding schemes may have been found to be very poor financial value in hospital and school construction projects, the role of private funding in space has had a better record. The industry regards the Paradigm PFI funding of the UK Ministry of Defence’s Skynet satellite communications contract as a success. David Iron, PPP adviser to Logica, noted the benefit of having the risk of launching taken by the constructors and operators in return for guaranteed revenues from the government side. He noted that under the current contract any extra communications capacity revenues were being shared under a profit sharing agreement.

Having noted the Skynet success, Iron explained that Galileo’s failure to obtain sufficient PFI funding was due to political and institutional difficulties and because there were no guaranteed revenues. In the end the funding had to be entirely generated from within the EU.

The satellite operators Inmarsat and Avanti were keen to note how initial government "seed money" grants and loans encouraged other financiers to take risks on a project. Operators were especially appreciative that these grants could be used to partly fund new technology which can pay significant returns in the future. Magali Vaissieve of the European Space Agency (ESA) noted how such funding can allow this new technology to gain "flight heritage".  She also described how ESA’s ARTES (Advanced Research on Telecommunications Satellite Systems) programme had allowed the development of the Ameris on board digital processor and the Hylas flexible architecture.

Is Export Credit distorting the market?

Noting how the French Coface agency and US Ex-Im bank now guarantee loans and provide financing for deals to benefit the space industries in those nations, the UK Government has beefed up its own export credit agency which has now been renamed UK Export Finance.

Operators accept that having such an organization back their commercial loans had made financing much easier to the point where it may have distorted and weakened the market. As a result some of the weaker mobile satellite operators may not have secured financing without it. 

“What is good for the national tax payer may not be good for the industry” said Patrick McDougal, vice president for strategy and business development at Inmarsat, even though he accepted that his firm had also benefited from this type of financing. “We took advantage of it because it was there,” McDougal said.

Meantime, in response to a question of what would happen if any of these firms failed after receiving such financing, John Snowdon of the UK Export Financing agency  noted that there was a balance to be had between investment risk and export advantage which might be decided by his political masters. Snowdon noted his organisation’s duty to the taxpayer “not to make a loss”.

Liability regime changes afoot to make space launches more economic

The “Unlimited” Liability set out in the UK's Outer Space Act 1986 is to be amended to a level more consistent with those of other launching states. 
 
The current insurance requirement for a current UK launch license is for insurance covering third party liability to a value of £100 million. This is now to be changed to €60 million – the same amount that is required by the French government as it regulates the activities of Arianespace.

Nevertheless, while these changes are regarded as welcome, commentators note that it does not help subcontractors. Neil Stevens, an underwriter with the Atrium Space Insurance Consortium, who was formerly an aerospace lawyer, noted that the USA has more of a risk-sharing approach to liability and that such a system should be introduced in the United Kingdom., Stevens also made an attack on Insurance Premium Tax, noting that it can add significantly to the cost of insurance.

Operators fret about spectrum being given away

John Purves, general counsel of the commercial satellite operator SES, described the cumbersome nature of international and national frequency licensing. Purves made a special appeal to governments that space frequency spectrum in the C, Ku and Ka-band should not be “given away” to terrestrial communications operators as was beginning to be the case.

On other issues, the operators present were fully opposed to the Unidroit  Protocol – a proposed legal regime for space assets – as they noted its complexity and extra costs.

Andrew McSpadden of Trinity Advisers noted how well private equity firms had done in being able to release the value from satellite operators, though he accepted that part of the boom was down to the largesse of export credit guarantees. McSpadden also noted the next growth area may be "satellite services"; that is, those services that were attached to satellite firms rather than being directly operated by them.

UK Government to help Space SMEs – with CEO divorcees preferred by private investors

Government is to help Small and Medium-Sized Enterprises (SMEs) in the space sector by setting up the bizarre-sounding Satellite Applications Catapult Centre. As part of this, a low cost Satellite Operations Centre is being built.
 
While he denied that there was an investment "valley of death" for SMEs, Ron Armstrong, executive chairman of E-Synergy, noted that the risks that outside investors run when they invest at an early stage in such firms is high. He also noted that it paid to be choosy, and amusingly noted that one investor he knew would only invest in firms whose CEO were twice divorced with the justification that “he was already used to disappointment and would have a healthy fear of lawyers”.