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Airbus mulls options if massive U.K. Skynet 5 military satcom contract is not renewed

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LONDON — Airbus Defence and Space is preparing a Plan B strategy in the event the British Defence Ministry elects not to renew its $5-billion, 19-year Skynet 5 contract outsourcing all of Britain’s military satellite telecommunications, a scenario that now seems likely.

The contract, signed in 2003, expires in August 2022. British defense authorities are now reviewing options that include a non-renewal of the contract and a phased conventional procurement of Skynet 5 successor satellites.

The post-Skynet 5 debate comes at a time of sharp scrutiny in Britain of the costs to taxpayers of such Private Finance Initiatives (PFIs). The U.K. Treasury recently issued a report suggesting that, by some measures, the final bill for many PFIs is difficult to justify.

Skynet 5 has been favorably reviewed by Britain’s National Audit Office, which found no cost overruns and no evidence that the Defence Ministry was lured into a bad deal.

The Skynet 5 contract includes four Airbus-financed Skynet 5 X- and UHF-band satellites, plus the aging Skynet 4 spacecraft and regular system technology modernizations fnanced by Airbus.

Airbus also pays for non-Skynet satellite capacity including mobile services from London-based Inmarsat and Iridium Communications of McLean, Virginia.

The contract’s value to 2022 is estimated at 3.66 billion British pounds, or $5.4 billion, making it the largest-ever military satellite communications outsourcing deal. Once thought of as a harbinger of a new era of military contracting, the Skynet 5 model has not been replicated anywhere else in the 13 years since it began.

While Airbus financed, built and launch the satellites and ground infrastructure, these assets become British government property in 2022 and will be classed as customer-furnished items in any future contract with a private operator.

At a meeting of the Satellite Finance Network April 4 at mobile satellite service operator Inmarsat’s headquarters here and organized by the law firm Bird & Bird, senior Airbus and Inmarsat officials sought to portray the partial privatization of military satellite communications as an inevitable feature of today’s modern militaries.

The two companies are prospective competitors in the Skynet 5 follow-on contract, depending on how the contract is structured.

Colin Paynter, managing director of Airbus Defence and Space UK, said he understood that the British government’s current liquidity position is better than it was in 2003 and may argue for a new kind of services arrangement.

“In 2003 we were in a very different situation than we are now in the U.K.,” Paynter said. “There were a number of PFIs going through, using private rather than public capital. What comes out of this is an understanding by governments of how they could outsource what was considered a highly protected military program. Commercially, we are able to provide real military services to back up the warfighter. We are happy to go forward with a PFI if they want, or to enter a partnership of another nature.”

Paynter said that given the government’s improved cash position, there may be no need for a key Skynet 5 feature of asking the private sector to raise the capital. But the value of the core service-provision element, he said, remains as strong as ever.

“This time around, they have the capital to buy the satellites and then use a service provider,” Paynter said. “But the service provider model is really important for the government to carry on with, because it has proven, over the past 13 years, to be a fantastic model for them.”

Inmarsat Chief Executive Rupert Pearce said military outsourcing of telecommunications services reduces the likelihood of obsolescence over the life of the satellite system, however the hardware is contracted.

“The pace at which the commercial sector has been able to innovate has picked up dramatically,” Pearce said, noting that Inmarsat has included a military Ka-band payload on its four Inmarsat 5 Global Xpress satellites, three of which are in orbit, in hopes to attracting military customers starting with the U.S. Defense Department.

“A Skynet 6-type procurement, where you’re talking about a turnkey service with a capability that can stay at the leading edge, is going to be the way multiple governments procure their” satellite communications, Pearce said. He said some militaries will always prefer to purchase their core nuclear-protected, jam-resistant, secure communications on their own.

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Airbus mulls options if massive U.K. Skynet 5 military satcom contract is not renewed

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