EU Raises Satellite-Project Cost to 6.4 Billion Euros

The European Union said its flagship satellite project will cost 1.9 billion euros ($2.6 billion) more than planned, citing “high” risks that led industry to abandon a funding pledge and the EU to arrange a bailout.

The European Commission said the Galileo road, rail, ship and air-traffic control network will cost about 6.4 billion euros rather than a previously projected 4.5 billion euros. The venture meant to rival the U.S. Global Positioning System should start operating in 2014, six years later than originally planned, the commission said.

“It has proved difficult not only to keep within the budgets set for the various work packages, but also to obtain genuinely fixed prices from the industrial partners involved,” the commission, the 27-nation EU’s executive arm, said in a policy paper released today in Strasbourg, France. “The main requirement is to reduce risk and adapt governance.”

Galileo, one of Europe’s biggest industrial projects since Airbus SAS in the 1970s, was on the verge of collapse in 2007 after companies led by European Aeronautic, Defence & Space Co. and Alcatel-Lucent SA balked at a plan to share the costs, citing the risks tied to launching and operating the 30- satellite system. That prompted a public bailout in 2008.

Profitability

Before that, the EU had said industry would have an incentive to co-finance the project because the venture would be profitable by attracting paying users. Profitability wasn’t guaranteed because the government-funded U.S. system, known as GPS and designed primarily for defense, is used for free by businesses worldwide.

Today’s EU paper highlighted Galileo’s strategic importance in ending Europe’s reliance on GPS and the potential economic benefits stemming from the global satellite radio-navigation market, which the commission said may almost double to 240 billion euros in 2020 from 130 billion euros last year.

“It is expected to help secure a bigger share of the space-technology market and bring European independence,” the commission said. The commission said it will make a proposal for meeting the extra Galileo costs after examining options that include a funding split between the EU and national budgets.

Last year, the EU awarded four contracts worth about 1.2 billion euros for the procurement of Galileo’s operational capability. Two remaining contracts in this area are due to be granted this year.

“We are satisfied with the progress made so far and committed to bringing this project to fruition,” EU Industry Commissioner Antonio Tajani said in a statement.

To contact the reporter on this story: Jonathan Stearns in Strasbourg, France at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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