Will SpaceX Shut Europe Out Of The Space Launch Market?

"A few years ago I was over [visiting Arianespace in France and they] weren't worried about [United Launch Alliance but asked] could I get rid of SpaceX, because they were going to drive them out of business?" -- Rep. Loretta Sanchez (D-Calif.)

In 2015, sitting in on a House Armed Services Committee hearing on the cost of spaceflight, then-Congresswoman Loretta Sanchez got a few laughs with this quip -- but four years later, nobody's laughing in Europe. France's independent state auditor, the Cour des comptes (CDC), just reported that Elon Musk's use of reusable rockets to lower the cost of space launch poses a very real risk of driving Ariane out of the space business.

How do you say "we're losing the space race" in French?

For years, France's Arianespace space launch company, a subsidiary of Airbus(NASDAQOTH:EADSY), has struggled to compete with SpaceX in the market for commercial rocket launches. Here's the problem: Your average Ariane launch costs some $200 million, whereas SpaceX famously advertises Falcon 9 rocket rides for as little as $62 million.

Obviously, it's hard for Ariane to compete with prices that low. So to improve its competitive positioning, Ariane has spent the last few years developing a new family of rockets, dubbed "Ariane 6". Its goal: to bring Ariane's average launch cost down to about $77 million (for a payload capacity similar to Falcon 9's) or $126 million (for something closer to what a SpaceX Falcon Heavy will haul).

That sounds like a good idea. But as France's CDC opines, Ariane 6 may be too little, too late.

Slow and steady loses the race

In a 31-page "tome" incorporated in its rapport public annuel 2019, CDC notes that Ariane "lost global leadership in the commercial market to the American company SpaceX" way back in 2017. CDC directly links this loss to SpaceX's "breakthrough model of reusable rockets," and to Ariane's "failure to believe in" the concept of reusable rockets -- and build them.

Indeed, the audit chamber particularly criticizes Ariane's decision to make the Ariane 6 expendable, rather than reusable like SpaceX's Falcon 9 and Falcon Heavy. France's CNES may be "studying" a reusable "Prometheus" engine, and developing a prototype "Callisto" reusable rocket, but little progress has been made on either front. Meanwhile, SpaceX already has its Falcon operational and flying missions. Unlike Ariane 6s, each of which will have to be discarded once used, SpaceX's Block 5 Falcon 9 rockets are designed to be reused as many as ten times.

Ariane's "cautious" approach, says CDC, may turn out to be "not ... competitive over the long term." Rather, CDC believes that Ariane will ultimately need to "evolve Ariane 6 toward reusability" -- at the cost of "additional financing." All Ariane has accomplished with its first effort, therefore, was wasting time.

And given that even an expendable Ariane 6 isn't expected to go into service before 2020, time is not something Ariane has to waste. By the time Ariane 6 starts flying, SpaceX may have further refined its reusable rocket designs, tailored its business model to reap the full benefits of reusability, and lowered its prices even more, rendering any cost reduction in Ariane 6 moot.

Why did Ariane choose this moot route?

Perhaps the saddest part about all this, however, is that Arianespace knew exactly what it was doing when it chose to develop the Ariane 6 as an expendable rocket. It did this on purpose.

We know this because, in an interview with Germany's Der Spiegel last year, ArianeGroup CEO Alain Charmeau said as much (ArianeGroup is the parent company of ArianeSpace).

Describing Ariane's desperate need to secure "guaranteed launches" from its government sponsors in order to provide cashflow to fund its overhead, Charmeau argued that European governments should buy their space launches from Ariane rather than SpaceX, regardless of price. They should do this, said Charmeau, not simply to ensure that Europe has a reliable space program of its own (though that was certainly one goal), but because when Germany buys space launches from Ariane, "it creates jobs in Germany" (remember, this was an interview with a German magazine).

It's in the interest of maintaining jobs, furthermore, that Ariane has chosen to build lots of expendable rockets, rather than a few reusable rockets that could be used many times. As Charmeau explained: "Let's say we have ten guaranteed launches a year in Europe, and would have a rocket that you can reuse ten times -- then we would be building exactly one rocket a year. That does not make sense. I cannot tell my teams: 'Bye, then see you next year'" after building just one rocket!

So instead, Ariane builds lots of rockets -- and thereby provides its workers job security.

An epitaph for Ariane

But here's the great tragedy of Ariane: By attempting to secure full employment for its workers, Charmeau may have doomed his company. Shelving projects to build a reusable rocket of its own, ArianeSpace instead bet its future on an expendable Ariane 6, which it will now need to upgrade and convert into a reusable Ariane 6. As CDC opines: "This new launcher does not [in its current form] constitute a sustainable response in order to be competitive in a commercial market in stagnation."

Unless it makes the switch to reusability -- and soon -- this means Ariane itself may be unable to compete with cheaper, more efficient, more advanced rocket launchers such as SpaceX (and soon Blue Origin as well). When that happens, Ariane's workers may lose their jobs anyway.

This article originally appeared in the Motley Fool.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.