WASHINGTON — Airbus will take a nearly $1 billion charge due to the poor cost and schedule of various satellite programs and evaluate strategic options for its space business.
After markets in Europe closed on June 24, the company said it was revising its guidance for 2024 due to issues with space programs as well as reduced deliveries of commercial aircraft. That included a 900 million euro ($965 million) charge the company will record in the second quarter in its Space Systems business.
Airbus said in a statement that the allegation came after a new management team at Space Systems “conducted an extensive technical review of all programs and identified additional commercial and technical challenges” for the satellite programs. “These mainly relate to updated assumptions about the schedules, workloads, resourcing, risks and costs over the lifetime of certain telecommunications, navigation and observation programs.”
The statement did not identify which programs were the source of the problems, and company executives did not elaborate on the call with analysts. However, they stated that it was mainly in projects to build communication and navigation satellites.
“It was primarily in a line of business that we call telecommunications and navigation. This is where we have our problems. These are programs of a similar nature using similar resources, similar suppliers,” said Guillaume Faury, Airbus CEO. Earth observation cost overruns, he said, were linked to bottlenecks in test facilities and the “interdependence” of telecommunications and navigation. “It’s primarily about telecommunications and navigation.”
The €900 million fee reflects updates to tender estimates for these programs and summarizes the expected impacts over the life of these programs, which spans several years. Thomas Toepfer, Airbus’ chief financial officer, said the impact of the charges on cash flow would be about 300 million euros this year.
Management indicated that the company did not properly evaluate the technological risks of these programs, leading to the allegations. Faury said the company is 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 the “make or buy” decision.
“Many businesses have been brought in with ambitions and challenges in terms of the technologies to be developed, and the assumptions that have been made about the organization’s ability to meet these challenges across multiple programs at the same time lead to this accumulation of difficulties. ” he said.
Those changes in technology and suppliers have been implemented on some newer contacts, executives said. “Now we are really suffering the consequences of the contracts that were signed between 2018 and 2021,” Toepfer said.
The new charge comes four months after the company said it would charge a separate fee of €600m in 2023 due to problems with satellite programmes. The new charge was the result of what Faury called a “full bottom-up review” of those programs, as well as risks identified last year that have since materialized.
He noted that the company is “evaluating all strategic options” for its space unit. They include restructuring as well as the possibility of mergers and acquisitions. He did not say how long the evaluation of strategic options would take.
“We have to digest it,” he concluded. “It’s going to take time and it’s going to hurt, but today we want to face the reality and bite the bullet of what it means to run these programs.” He did not rule out additional fees or other impacts on the space business as analysis of these programs continues.
“That’s not to say that space is a bad business or that everything in space at Airbus is in trouble,” he said. “These are a few programs, but important programs, and that’s basically the situation we’re in.”