Memorandum 30
Submission from Astrium Limited
I have pleasure in enclosing Astrium's written
submission to your inquiry on Space Policy. Your inquiry occurs
at a critical time for the future of UK Space. The combination
of the Comprehensive Spending Review and the UK Space Strategy
Review means that both space funding and policy are in the firing
line.
Recognising the importance of this period, this
year Astrium initiated the "Case for Space" series of
studies, an unprecedented one year project, undertaken by UK Space
at the recommendation of Government, which aimed to scope and
quantify the many social, economic and political benefits the
UK enjoys from its world leadership in space, and to recommend
a path of action to secure the political and economic opportunities
for Britain. Our submission reflects the findings and recommendations
of this study.
Government remains critical to the success of
this national jewel, both as a risk sharer and as a customer.
However, the Case for Space points to urgent shortcomings, both
in terms of the recent dramatic cuts in space technology investment
and in the continued problems in promoting and coordinating space-based
opportunities across Whitehall.
It is within this context of opportunity and
threat, set against the closing window of the Comprehensive Spending
Review, that I welcome the opportunity presented by the Inquiry
to highlight importance of space and of UK space policy. I would
be delighted for the opportunity to give oral evidence before
the Committee to elaborate on these issues.
October 2006
Astrium submission
1. EXECUTIVE
SUMMARY
1. The UK Space industry is a leader in
one of the most strategic hi-tech sectors in the world, providing
exceptional skills, R&D investment, growth and added value
for the UK's knowledge economy. UK Space also provides innovative
solutions for policy makers across Government. The UK's international
competitiveness in Space, and its opportunities to create wealth
for Britain, rest on sustaining the partnership of investment
between Government and Industry in its world-class technology
base and in ensuring a lead role by UK in user-driven space programmes.
However, if the UK is to maximise the opportunities for wealth
creation and for policy delivery, the Government must reverse
recent cuts in public investment in space technology and must
review its coordination of space policy across Whitehall, starting
with a review of its decision only to offer a minimal contribution
to the environmental monitoring programme GMES.
2. INTRODUCTION
2.1 Focus of Astrium's submission
2. Astrium contributed significantly to
the written submission by the industry trade association UKspace.
To avoid duplication, we have focused our response to the Inquiry's
areas of interest on the economic case for investing in UKspace,
and the impact of funding cuts, and on the issues concerning the
coordination of space policy. However we would like to stress
that we whole-heartedly endorse the other areas of UKspace's submission
we have not covered, namely the importance of the UK's membership
of ESA, and the importance of the contribution of space to the
UK's research and skills base.
2.2 About Astrium
3. Astrium is Britain and Europe's leading
space company and one of the few organisations worldwide to offer
an end-to-end space-based capability. It provides a full range
of space products from civil and military telecommunications to
Earth observation, science, exploration and navigation programmes.
Astrium is capable of competing across the world space market,
a market forecast to grow to at least $1 trillion a year by 2020.
Its bank of world-leading technologies and its critical mass underpin
the future competitiveness and viability of the sector.
4. In Britain, Astrium directly employs
more than 2,500 people in its key sites in Portsmouth, Poynton
and Stevenage, representing more than half of the total direct
manufacturing workforce in UK Space, and the largest national
workforce in Astrium's worldwide satellite operations. The UK
is home to Astrium's centres of excellence for all military communications
satellites, all antenna systems and for the design and manufacture
of the advanced communications payloads.
2.3 Why Space?
5. Astrium believes the space inquiry will
shed a welcome light on a sector which has for too long been neglected
and misunderstood both in Government and Parliament. Space applications,
in particular satellites, are driving change across the world:
they synchronise City transactions, they improve crop yields,
they monitor climate change and help protect our environment and
support international relief efforts. They keep us in touch through
the TV, mobile phone, weather forecasting and satellite navigation.
Tomorrow, we will live in an increasingly space enabled world,
where our quality of life, our national competitiveness and our
public services will all depend on the satellite infrastructure
above us, and on the continued success of our own world-class
space industry.
3. MAXIMISING
COMMERCIAL BENEFITS
3.1 Summary of economic benefits
6. The economic case for investing in the
UK Space industry is compelling. Investment in world-beating satellite
technology has created one of the UK's most innovative and competitive
sectors, worth £7 billion a year and supporting 70,000 jobs.
This year, Astrium commissioned an economic study by Oxford Economics
(OEF) as part of its support for the "Case for Space",
which demonstrates that UKspace scores well against the Treasury's
key economic benchmarks, by:
— Investing £300 million
a year in R&D, 12% of manufacturing turnover, in the top league
for R&D intensity.
— Employing over 60% graduates,
double the national average—the highest skilled workforce
in UK manufacturing.
— Adding value of £135,000
per worker, four times the average.
— Growing at 12.5% a year, four
times UK economic growth.
— Winning 7.3% of a global market
that is itself growing faster than China, forecast to be worth
over $1 trillion by 2020.
3.2 Causes of economic benefits
7. UKspace owes its economic success to
a unique combination of factors: a public strategy of investing
in areas of high value; the sector's high technology investment;
its linkages with the UK's world-class service sector; its world
leadership in key areas; its access to City funding; and its prime
contractorship capability. Critically, Astrium's size, multinational
operations, inward investment, technology portfolio, and range
of products enables the UK to compete on the world stage, to access
funding and to develop relationships with other sectors. Astrium
directly funds more than half of the sector's R&D; it provides
a reservoir of skills delivering knowledge transfer to SMEs and
the UK's academic community; and it stands alone in its ability
to lead and win major international orders. For instance, Astrium
is one of only two companies in the world with the proven capability
to build the Inmarsat 4 satellite series.
3.3 The upstream-downstream link
8. Some of the fastest growing sectors in
the global economy are closely linked to satellite applications.
The UK's technology lead in these major satellite sectors provides
huge opportunities for growth in the wider UK economy:
3.3.1 Satellite Navigation
9. Positional services, driven by satellite
navigation (satnav) and precision timing will grow dramatically
in the next five to 10 years, as increased accuracy and reliability
is provided by the Galileo programme. As a result, satnav will
create new markets in every area of our lives, enabling us to
track virtually everything that moves, from parcels, to mobiles,
even to pets. A report by PWC suggests up to 20,000 jobs in the
UK could be created from Britain's lead role in Galileo. Astrium
is Europe's preferred supplier for satellite navigation payloads,
supplying the payloads for all thirty Galileo satellites.
3.3.2 Earth Observation
10. Britain leads the world in the application
of Earth observation data. The value of satellite data to better
weather forecasting is estimated to benefit the UK by up to £1
billion per annum. The ability to predict natural hazards as a
result of satellite observations could save up to $1.5 billion
globally. In all these areas, UKspace, and Astrium in particular,
has leading expertise. Astrium's portfolio of Earth observation
technologies include radar, passive microwave sounders and cryogenic
coolers, and through its subsidiary Infoterra, it provides Earth
observation services including mapping products to businesses
and humanitarian agencies worldwide.
3.3.3 Satellite Telecommunications
11. Commercial satellites represent a significant
part of the high-growth telecommunications market, attracting
increasing public investment worldwide. Britain can significantly
grow its share of the expanding global satcom market, with potential
UK turnover exceeding £10 billion by 2010. The UK, with France,
dominates Europe's satcom sector, and accounts for 80% of UK space
manufacturing jobs. Britain is home to Astrium's leading centres
of competence for satcom payloads, including antennas, processors,
RF electronics and mechanical platform. In particular, Astrium's
breakthrough in payload technology has opened up new markets to
the UK. Astrium's latest media satellite, Hot Bird 8, launched
this year, carries as many TV channels as 24 satellites built
10 years ago. And Astrium's Inmarsat 4 satellite series, with
their on-board digital processors, are the most advanced telecoms
satellites in operation today, each carrying the communication
capacity of 16 satellites produced ten years ago.
3.3.4 Military Satellite Telecommunications
12. Through winning two separate competitions
(Skynet 4 and Skynet 5); Astrium in the UK has been the incumbent
supplier of military hardened UHF and SHF satellites and increasingly
the associated ground segment to the MoD for twenty five years.
At the end of the present concession period, that time will have
stretched to nearly forty years. There have also been associated
export successes with NATO IV satellites, terminal sales to nearly
twenty countries and now the successful and developing third party
market. This achievement has benefited the UK defence forces,
benefited the UK economy and been built upon judicious defence
expenditure being aligned to both Government civil and Astrium
investments.
3.4 Technology Investment
13. Britain's portfolio of world-leading
technologies ultimately holds the key for wealth creation from
UKspace. This technology leadership helps to underpin the entire
space value chain, feeding cutting-edge space technology into
the wider economy. UK Earth observation technology is a world
leader in environmental monitoring. High-growth UK downstream
operators such as Avanti and Inmarsat have built their business
strategies around their relationship with the UK upstream technologies,
giving them early access to technologies which have assured them
a global market lead. This market edge has helped generate downstream
revenue growth in the UK of 44% in the last three years alone,
with strong future growth predicted.
14. The future of wealth creation in UK
Space depends on the future of this relationship between the technology
providers and the users, often referred to as the upstream-downstream
link.
15. Public investment in technology remains
critical in a fast developing industry with market failure characteristics.
Continued Government investment at seedcorn stage, jointly with
industry, will reduce risk and enable capital markets to invest
larger sums and maximise wealth creation and maintain Britain's
world-class science base.
3.5 ARTES
16. The Advanced Research in Telecommunications
programme (ARTES) managed by the European Space Agency (ESA) is
the only meaningful technology investment available to the UK
Space sector. ARTES investment has underpinned the basic technologies
which drive the entire industry. Government investment is matched
100% by industry funding. Government figures point to a return
on ARTES investment of 7:1, and in some cases far higher. Investment
in technologies developed for the Inmarsat 4 and Skynet 5 contracts
demonstrated a 40:1 return.
17. Inmarsat was floated on the LSE
in 2005 with a capitalization of $2.49 billion and is the world's
most profitable mobile operator. ARTES investments of £15
million underpin the innovative technology in its Inmarsat 4 satellite
series, one of the most complex satellites ever built. This offers
Inmarsat significant flexibility with revenue earning potential
estimated at £350 million per annum.
18. Paradigm, a subsidiary of Astrium,
through the Skynet 5 PPP, provides global secure communications
to the UK military and is now pioneering third party sales. ARTES
investments in antenna technology enabled UK-based Paradigm to
win the £2.5 billion contract with the Ministry of Defence,
against strong US competition. ARTES funding ensured the full
value was retained in the UK and that a key UK technology was
retained.
19. There is no doubt that the UK's user-driven
space policy, investing in programmes with clear user and policy
benefits, provides an essential framework for maximising wealth
creation. However the strategy should be better implemented, by
ensuring a lead role for UK policy and industry and GDP contribution
in European programmes of high value, including the environmental
monitoring programme GMES and the space exploration programme
Aurora.
3.6 Recommendations
20. To maximise wealth creation through
a strong technology base, Astrium therefore recommends that:
— Industry and Government steps-up
the funding of the advanced telecoms R&D programme (ARTES)
to £30 million a year each.
— The UK creates a national satellite
research and technology fund, with a minimum budget of £20
million a year.
— The UK maintains a leading and
influencing role and provides full GDP contribution in user-driven
space programmes, specifically GMES and Aurora.
4. THE IMPACT
OF CURRENT
INVESTMENT ON
THE COMPETITIVENESS
OF UK SPACE
4.1 Overall funding levels
21. By international standards, UK investment
in civil space is relatively small, falling behind 15 other countries
in GDP terms, including Finland and Belgium. The UK's civil space
spend of £200 million compares with €1.9 billion for
France and €850 million for Germany. In fact UK spending
on space amounts to around a penny per person per day.
4.2 Policy constraints in promoting UK space
competitiveness
22. UK Space Strategy recognises UK Space's
economic credentials and the role of Government to maximise its
potential for wealth creation. However, the prospects for maximising
wealth creation are limited by two factors. Firstly, recent reductions
in public investment in satellite technology risk undermining
the sector's competitiveness. Secondly, lead UK departments outside
the DTI do not adequately consider the economic benefits of major
space programmes in making decisions.
4.3 ARTES funding cuts
23. UK investment in satellite technology,
through the ARTES programme, has always represented a small proportion
of overall UK space spend. However, in December 2005, the UK cut
its investment in ARTES still further, from £20 million a
year to £8 million, which itself will run out in two years.
Despite the impressive returns, the UK's investment in ARTES is
now only 4% of UK civil space spend, and only 4.2% of total European
investment in ARTES. The UK's investment of €22 million compares
with €112 million from France, €75 million from Spain,
€70 million from Italy, and €56 million from Belgium.
Even Luxembourg is investing more.
4.4 Impact of cuts in ARTES investment
24. Recent cuts in ARTES investment threaten
to undermine the competitiveness of the entire sector. Astrium
UK risks losing its market leadership in the intensely competitive
and high growth international satcom market if the investment
partnership between Government and industry is not restored. UK
expertise in advanced payloads, processors and antenna could be
lost and rebuilt abroad.
25. Astrium believes that a step up, not
a step down, in ARTES investment is essential to sustain the UK's
leading technology base, reduce risk, address market failure,
and sustain UK competitiveness and the huge wealth creation prospects
the sector brings to Britain.
Recommendations are made in the previous section.
5. DELIVERY OF
PUBLIC BENEFITS
AND CO-ORDINATION
26. Innovative satellite-based solutions
could transform every corner of the Whitehall map. The global
reach, reliability and accuracy of satellites can improve the
evidence base behind decision making and can help in delivering
policy. Satellites can play a critical role in addressing all
of the Treasury's five "Key Challenges for Britain"
at the heart of the Spending Review, from climate change to terrorism.
For example, location-based services could revolutionise our emergency
services, road user charging and criminal tagging, not to mention
the numerous consumer benefits.
5.1 Constraints in UK space policy coordination
27. The UK's "centrifugal" space
policy is based on laudable aims of engaging with user departments
to ensure that, in the first instance, funding is directed at
those space programmes with the greatest policy benefits, and
secondly that these departments are then best placed to shape
and benefit from them. However, the reality of space-based programmes
is that they invariably benefit a number of departments. Other
countries recognise this fact by investing in a funded central
space agency with dedicated expertise in space applications, which
can then make informed decisions for the whole of Government.
The UK's British National Space Centre is more of a secretariat,
comprising around 30 highly-skilled staff compared to, say 1,500
in its French equivalent, CNES. It therefore relies heavily on
the engagement of user departments.
28. However the history of decision-making
under the UK's user-driven space strategy demonstrates clearly
that user departments, when given the responsibility to lead decision-making,
find it difficult to consider broader benefits outside their own
departmental remits. Space decision-making therefore works best
in Britain when the benefits clearly fit within the remit and
expertise of the lead agencies within Government. Such examples
include the Research Council PPARC's recognition and support of
the value of space science and space exploration; NERC's commitment
to environmental research; and the Ministry of Defence's longstanding
use of military satellites.
5.2 Military satellites
29. In the case of military satellites,
the recent Defence Industrial Strategy has highlighted the value
of world-leading niche capabilities in space and the leverage
that these offer in relationships with other nations. The capabilities
in military satellite communications have already been referenced.
The UK's national strength in small satellites has a clear development
route when combined with Astrium's strength in Synthetic Aperture
Radar payloads. It is projected that this combination will meet
a national requirement for sovereign capability which can only
benefit from coordinated cross departmental support, ensuring
focused and judicious expenditure.
5.3 Earth Observation and environmental monitoring
(GMES)
30. A less favourable example is the case
of Earth observation. Satellites are the best way of monitoring
gradual environmental change on a global scale. They are also
vital in predicting disasters and in helping the response. The
UK has built up a world leadership in Earth observation satellites—the
Chief Scientist Sir David King recently remarked, "there
is no doubt that satellites, often UK designed and built, play
a critical role in evaluating man's impact on the environment."
Astrium designed and built the AATSR satellite instrument which
monitors the world's rising sea-surface temperatures. Astrium
is also building a revolutionary satellite, Aeolus, which will
use laser technology to record wind patterns at 25 different altitudes.
Synthetic Aperture Radars, used to capture images through all
weathers, have long been recognised as a strategic asset for Astrium
in the UK.
31. At the policy level, environmental monitoring
is supported by strong words. Both the Prime Minister's Natural
Hazards Working Group and the UK's 2005 G8 Summit both committed
strong UK support to strengthening environmental monitoring to
tackle climate change and natural disasters. Europe's flagship
environmental monitoring programme, GMES, should therefore have
topped the UK's policy agenda, given the happy coincidence of
policy support for tackling Climate Change; recognition of the
role of environmental monitoring; and the UK's undisputed world
leadership in environmental space science and technology. However,
in December 2005, the UK opted to commit the minimal (1/4 GDP)
funding allowed into GMES—the UK's investment of £4
million per annum compares with £20 million per annum from
France and £24 million per annum from Germany.
5.3.1 Causes of the decision
32. The UK decision over GMES was caused
by three main factors: firstly, the lead Department, Defra, did
not significantly value those benefits from GMES outside its own
departmental remit, specifically the economic benefits. Secondly,
Defra lacked the in-house expertise in Earth observation that
would have allowed it to make an informed decision on behalf of
the UK; and thirdly, there was an inadequate structure in place
to coordinate decision-making across Government departments.
5.3.2 Economic impact of the decision
33. The industrial impact of the UK decision
has already been felt through the transfer of the Prime contract
on the first satellite outside of the UK, reducing UK contract
value from €220 million to €22 million. In the longer
term, the contracts which may be lost could be as much as €730
million. This would have provided the UK an economic return of
at least 10:1, and perhaps as high as 35:1. However, such economic
considerations fell outside the lead department's remit.
5.4 Recommendations
34. To maximise public benefits from space,
and to improve policy coordination across Government, Astrium
recommends:
— Government urgently reassess
the UK's approach to GMES. Astrium remains seriously concerned
that, when the second phase of GMES requires funding, the UK could
remain under-prepared for assessing the true value of GMES and
coordinating a cross-Government decision.
— Government should reassess the
role and responsibilities of the UK lead department on GMES.
— A high-level review of the coordination
of space policy across Government departments to help ensure that
the right machinery is in place to allow policy makers to make
informed decisions and fully benefit from space-based opportunities.
October 2006
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