Brexit Biting for UK Space Industry

Artist's rendition of a satellite - mechanik/123RF Stock Photo

Artist’s rendition of a satellite – mechanik/123RF Stock Photo

UK companies involved in European Commission space programmes face an uncertain future according to media reports over the last week. The Financial Times reported that the European Commission wanted two key clauses in the contracts for work on the next part of the €10 bn Galileo Satellite Navigation System. These would allow the Commission to:

  • Cancel the contracts, without penalty, of any supplier who is no longer based in an European Union (EU) member state; and then
  • Charge that supplier all costs associated with finding their replacements.

Clearly, this poses a huge risk to UK companies given the fact that the UK has indicated its intention to leave the EU in 2019 by triggering Article 50. We wrote about the potential impacts of Brexit last year, and whilst we did pick up concerns over Galileo we didn’t see this coming!

Should the UK Space Industry be concerned?
Yes!

Despite reports to the contrary, this does not mean we are leaving the European Space Agency (ESA). We are very much remaining part of ESA, something that was confirmed at the ministerial in December. This solely relates to programmes owned, and funded, by the European Union (EU). However, it is concerning for two key reasons:

  • Anyone who has tried to negotiate contract terms with large governmental organisations will be aware that it tends to be a binary take it or leave it scenario. Therefore, if these clauses are in the contract, then it is highly likely companies will have to sign up to them to get the work.
  • It may not just be Galileo, the Copernicus Programme could be next. Copernicus is also an EU programme, and therefore it has to be a possibility that they may apply the same clauses to future Copernicus tenders. Galileo isn’t something Pixalytics is involved with, but if this was extended to Copernicus we’d be potentially impacted and would need to make choices.

What Can UK Companies Do?
The options are limited:

  • Bid anyway! Accept the potential financial risk, or hope that it will get resolved within the various Brexit negotiations. Given the size of these contracts, it will be a brave CEO who goes down this route.
  • Not bidding for any Galileo contract is probably the financially prudent option, but equally it removes a significant revenue stream.
  • Move to another European Country. I think there will be a number of companies who will be looking at moving some, or all, of their operations to another EU member state.

Any Causes For Optimism?
Not really, but there are tiny strands of hope.

  • Security – A key issue with Galileo is security. Currently, all EU members have agreements on security and when the UK leaves the EU, it leaves that agreement. Of course, security is just one of hundreds of agreements the UK will be hoping to discuss with the EU through Brexit negations. If security agreements are reached with the UK, maybe the position will change.
  • UK Election – Whilst writing this blog, the UK Prime Minister has announced a General Election in June. Parliamentary changes may influence the type of Brexit we have, but again it is highly unlikely.

It was fairly obvious, despite the contrary political rhetoric, that Brexit would have huge consequences on the UK’s relationship with Europe.

The UK’s space industry looks as though it will be at the forefront of those consequences. Forget 2019, the bite of Brexit is being felt today!