The space economy: toward industry and beyond…
Abstract:
– Data on the space sector is rarely isolated from the aerospace and/or defense sector, and there are relatively few studies devoted to the sector.
– Space activity can be broken down into three markets: satellite design, satellite launch, and launch vehicle design.
– The sector is becoming privatized, but governments retain control due to the strategic aspects of research and development;
– New competitors and new opportunities are emerging, with technology as a competitive advantage.
– The benefits of space activity can be direct and indirect.
The space economy is a relatively little-known sector. The recent media coverage of the successful recovery of a launch vehicle (rocket) after orbit insertion by two American companies, SpaceX and Blue Origin, has highlighted the technological competition in the space sector. This sector opens up many opportunities for the rest of the economy and, despite its low weight in GDP, remains strategic for governments. The global space market is undergoing rapid change, marked by both a reorganization of the industry and a steady decline in government defense budgets, encouraging bilateral and multilateral cooperation.
There is more reliable data available on the satellite launch market than on other segments, so we will draw on more examples from this segment. We will begin with a presentation of the structure of the international space sector and the determinants of its activity. We will then look at the sector’s prospects before concluding with its driving force and its impact on the economy, using the example of the European space ecosystem.
1. Structure of the space industry
1.1 Structure
Global space activity can be broken down into three distinct markets: military & defense, scientific, and commercial. Not all segments are open to competition, as shown in the table above.
The first two are institutional and/or strategic and cover government or military programs and scientific applications (earth observation, meteorology, etc.). These two markets remain captive, from design to launch, but can nevertheless take the form of long-term contracts between private companies and governments. The Galileo program, initiated by the European Commission, is one example. The European Union (EU) will have its own GPS system with 30 satellites. The production of the satellites up to their launch represents a €3.4 billion contract.
The commercial market remains the only one truly open to competition. Design is shared between major European and American groups (Airbus, Boeing, Safran, Lockheed, Eutelsat, Thales, etc.). The launch vehicle manufacturing and orbit insertion segment is now a single market. Eurospace estimates the turnover of the European space industry at €7.25 billion in 2014, including €3.5 billion for the design of commercial satellites and €1.3 billion for scientific activities. The launch of these satellites (telecommunications (Internet, telephony, television, etc.) is shared between two private companies: Arianespace and Space-X, which each hold 50% of the market. However, part of the market remains captive. Due to geopolitical and economic issues, nations with expertise in space technology, such as China and Russia, launch their own telecommunications satellites. 104[1] satellites were launched in 2015, with 87 launches, compared to 92 for 115 satellites[2] in 2014. The value of this market remains difficult to assess because much of the data is not available due to its strategic nature. However, adding together the turnover of Arianespace and Space-X gives an interesting estimate of its size, as it encompasses part of the military and scientific markets of OECD countries plus the global commercial market. Arianespace achieved annual revenue of €1.4 billion in 2014, and in 2015, Space X’s revenue was estimated at $800 million for 2014.
1.2 Determinants of the space economy
The activity and dynamics of the space sector are influenced by several factors, both macroeconomic, such as public spending on space by governments, and microeconomic, such as the growing privatization of the sector and its markets.
1.2.1 Macroeconomic determinants
The global market for the aerospace industry alone is estimated at $477.1 billion[3], employing 1.7 million people worldwide. The world’s top 20 aerospace and defense companies achieved revenues of $370.7 billion in 2013, representing annual growth of 2.7%.
The space industry is closely linked to the aerospace and defense industries, which together grew by around 3.0% in 2015[4], driven by the increase in global air traffic. The total US budget devoted solely to space, the largest in the world, is around €40 billion per year (USD 60 billion, or 0.39% of GDP in 2007 if we add up all the budgets of public agencies devoted to space). Russia ranks second with €6 billion, followed by Europe with €6 billion (less than 0.03% of GDP[5]) and China with €5 billion. In terms of per capita space budget, the United States remains in first place with €46, followed by France with €30, Germany with €16, and the United Kingdom with €6. In 2015, CNES had a budget of €2.2 billion (+7.2% compared to 2014), including €763 million from ESA[6].
Public spending plays a key role in the sector’s dynamics. Governments and their space agencies are on both the demand side (purchasers of satellites and launches) and the supply side, as space agencies work closely with private companies in the sector. The sector is under pressure from declining military and defense budgets, particularly in the United States[7]. Exchange rates are also key in the space industry, as they are in the aerospace industry in general. It is an export-oriented sector and therefore subject to manufacturing and invoicing costs.
1.2.2 Microeconomic determinants
Privatization is transforming the space industry. The arrival of SpaceX has forced Europeans to reorganize the space sector, as the American company has broken orbit prices and manufactures its own launchers. The company also benefits from major contracts with NASA, enabling it to lower the cost of commercial launches. On the European side, the Airbus Safran Launchers joint venture recently bought out the CNES’s stake in Arianespace[8] in order to entrust a larger share of the business to the private sector.
However, while launch costs are becoming an important criterion in customer choice, the competence of the teams and the reliability of the launch vehicle used remain key factors. The more reliable a launch vehicle is, the lower the insurance costs. As a result, some companies do not insure their satellites because of the reliability guarantees offered by the selected launch vehicle.
2. The outlook for a rapidly evolving sector: technological competition
2.1 The players
Competition is intensifying with the arrival of private players and new countries such as China. The satellite design market is becoming increasingly important due to the many possible applications and the need to rationalize costs. The commercial market, from design to launch, is set to become increasingly competitive. This segment appears to be a growth driver for companies that previously focused exclusively on military and institutional satellites. Furthermore, unlike the military-institutional market, this segment is growing, with ever-increasing demand from cable operators. The development of global internet connection and space tourism projects offers significant potential. Technology is at the heart of the competition, so R&D is a key factor in this high value-added market.
2.2 Reusable launchers: the key advantage
The sector is changing, and resources dedicated to research and development will be a key factor for success in the years to come. Players in this market are moving towards the development of reusable launchers, a technology that has not yet been mastered but which should enable substantial cost reductions.
SpaceX is continuing to develop its Falcon 9 launch vehicle to make it reusable. The company recently achieved the feat of recovering its rocket in one piece, but returning it to service could prove more difficult and costly than manufacturing a new launch vehicle. In 2013, the American company United Launch Alliance( ULA) presented its own model of reusable launch vehicle, costing €200 million. This rocket will be 100% « made in the USA » and should be operational in 2019.
For its part, Airbus has unveiled a research program on reusable launch vehicle technology; the most advanced is called Adeline and would function like a drone. Europeans estimate that such a device would not enter service before 2025, considering that Ariane 6 is already a response to the competition. This new launcher is expected to halve the cost of launching a satellite. The space sector is an excellent illustration of competition through the pursuit of technological advantage, which drives the entire industry in a dynamic of growth and innovation.
3. The European space industry: a driver of the economy
The space sector generates numerous spin-offs. These can be direct, such as jobs and a trade surplus, but they can also be indirect and not noticeable to the general public.
3.1 Direct benefits…
The European space industry model is a good example of a high value-added ecosystem. In Europe, turnover reached €7.25 billion[12] in 2014, including €3.1 billion[13] in exports. The sector employed 38,000 people in 2014. Spending on R&D is significant, but no reliable figures are available. The sector’s infrastructure, service, and highly skilled labor needs, as well as its consumption, are the main drivers of the rest of the economy.
Finally, tax revenues are significant in a growing sector, much of whose activity is located in France. In a 2008 study[14], INSEE calculated a production multiplier of 0.27 because many subcontractors are not based in French Guiana, which is home to the European spaceport. The value-added multiplier is 3.1, which is higher because the denominator is low. The employment multiplier is high at 10.7 because the spaceport is located in this department. It employs 1,700 people and the CNES estimates that it generates 9,000 indirect jobs. In addition, the CNES is investing €39 million over the period 2014-2020 in the development of French Guiana.
An OECD study calculated a multiplier of 4.4[15] for Norway, meaning that one monetary unit of subsidy would generate 4.4 additional units of turnover for the sector.
3.2 … and indirect and not always quantifiable
Innovation and technological progress generate significant economic benefits, but these effects are not always tangible or even quantifiable.
Military research programs are the source of many innovations, but their applications are confined exclusively to the military domain. This market makes a real contribution to the economy once the technology has been transferred to the scientific and commercial markets. Apart from direct public procurement of goods and joint research programs, the benefits of military research to the economy are indirect. It is the transfer and search for new applications of technology that will create added value. GPS is a program that was initially military and then transferred to the scientific and commercial sectors, which found new outlets for it. The ability to geolocate a car or smartphone or use a map application are services that have emerged thanks to a program that originated in the military.
The scientific market has more visible benefits for the economy. Improved weather forecasting has made it possible to better manage and exploit natural resources. Scientific satellites also enable better environmental monitoring and management of climatic events such as natural disasters. Better anticipation and forecasting of the movements and developments of these natural events make it possible to minimize human and material damage to the economy.
The commercial market is probably the segment that generates the most benefits. Large-scale, high-quality telecommunications have been made possible by space technology. Wider and better-quality broadcasting allows the media to offer services to a much larger number of customers and thus increase their revenue. The GPS system and its use in cars and numerous smartphone applications have become effective thanks to the deployment of sophisticated, connected satellites. Finally, space attracts other industries to form industrial and research ecosystems. The sector’s capacity for innovation encourages companies to set up nearby, creating pools of employment and innovation. Numerous synergies, infrastructure sharing, and economies of scale are possible even with other sectors, thereby boosting economic growth.
Conclusion
We have seen that the space industry is made up of several markets that are more or less open to competition. The sector is undergoing rapid change, and technological competition will determine the positions of different countries and/or companies in the market. The numerous opportunities and its knock-on effect on the economy make it a strategic sector despite its low weight in GDP.
SOURCE: Eurospace Facts and Figures 2014, 2015 edition OECD study
http://www.deloitterecrute.fr/sites/www.deloitterecrute.fr/files/etude/2493/etude_aeronautique-et-defense_2015.pdf http://www.asd-europe.org/fileadmin/user_upload/Client_documents/ASD_Contents/2_COMMUNICATION/2.5_Publications/2.5.2_Facts_and_Figures/27439_Facts_and_Figures_2015_web.pdf
[1]Space launch report 2015.
[2]Space launch report 2014.
[3]Eurospace aggregate figure (US, Russia, Europe, Canada, Japan, Brazil).
[4]Deloitte figure.
[5]€6 billion divided by EU GDP in 2014.
[6]European Space Agency.
[7]The National Defense Authorization Act signed in 2015 represents a decrease of $30 billion compared to 2014, with the defense budget set at $585 billion for fiscal year 2015.
[8]Sale of 34.7% of CNES for €135 million.
[9]Joint venture between Boeing Defense, Space & Security and Lockheed Martin Space Systems.
[10]ADvanced Expendable Launcher with INnovative engine Economy.
[11]€4 billion program.
[12]Eurospace figure.
[13]Eurospace figure.
[14]The INSEE study uses data from 2002 and 2003 and concerns the economic impact in French Guiana.
[15]OECD figure from 2005.
