WASHINGTON — Airbus will take a charge of nearly one billion dollars because of poor cost and schedule performance on a variety of satellite programs, and will evaluate strategic options for its space business.
The company announced after markets closed in Europe June 24 that it was revising its guidance for 2024 because of both issues with space programs as well as a reduction in commercial aircraft deliveries. That included a charge of 900 million euros ($965 million) the company will record in the second quarter on its Space Systems business.
In a statement, Airbus said the charge came after a new management team in Space Systems “conducted an extensive technical review of all programs, identifying further commercial and technical challenges” on satellite programs. “These are mainly related to updated assumptions on schedules, workload, sourcing, risks and costs over the lifetime of certain telecommunications, navigation and observation programs.”
The statement did not identify which programs are the source of the problems, and company executives in a call with analysts did not go into specifics. However, they indicated that it was primarily in the projects building communications and navigation satellites.
“It was primarily in a business line that we call telecoms and navigation. That is where we have our issues. These are programs of similar nature using similar resources, similar suppliers,” said Guillaume Faury, chief executive of Airbus. Cost overruns in Earth observation, he said, were linked to bottlenecks in test facilities and “interdependencies” with telecommunications and navigation. “This is primarily telecom and navigation.”
The 900-million-euro charge reflects updates to estimates at competition for those programs, rolling up the projected impacts over the life of those programs, which extend for several years. Thomas Toepfer, Airbus chief financial officer, said the impact of the charges on cash flow will be about 300 million euros this year.
The executives suggested that the company had not properly evaluated technology risks on 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, he said, with suppliers not delivering, causing Airbus to revise make-or-buy decisions.
“A lot of business has been taken with ambitions and challenges on the technologies to be developed, and the assumptions that have been made on the ability of the organization to deliver on those challenges on several programs at the same time leads to this accumulation of difficulties,” he said.
Those changes in technology and suppliers have been implemented on some more recent contacts, executives said. “We’re really now suffering the consequences of contracts that were incurred in the years 2018 to 2021,” Toepfer said.
The new charge comes four months after the company said it would take a separate charge of 600 million euros in 2023 because of problems with satellite programs. The new charge was the result of what Faury called a “full bottom-up assessment” of those programs as well as risks identified last year that has since materialized.
He noted that the company was “evaluating all strategic options” for its space unit. They include restructuring as well as merger and acquisition options. He did not state how long that evaluation of strategic options would last.
“We have to digest this,” he concluded. “It will take time and will be painful, but we want to be facing the reality today, biting the bullet of what it means to get those programs on.” He didn’t rule out additional charges or other impacts on the space business as analysis of those programs continue.
“That doesn’t speak for space being a bad business or everything in space at Airbus being in difficulties,” he said. “These are a few programs, but important programs, and that’s basically the situation that we’re in.”