All the Ukrainian headaches from Avio
Avio, a company active in the construction and development of space launchers and propulsion systems, relies on three Ukrainian companies as so-called strategic suppliers, whose replacement "could require a prolonged period of time and significant costs". Facts and insights
The dependence on Ukraine risks impacting the business of Avio, the leading Italian company in space propulsion which builds the Vega rocket.
The investigation by the independent Commission of Inquiry led by the European Space Agency (ESA) and Arianespace (a company that markets the launches of the European launchers Ariane and Vega) on the failed launch of the first commercial flight of Vega C last December 20 identified " the cause of the anomaly was the unexpected erosion of the nozzle throat of the Zefiro 40 engine due to a non-homogeneous defect in the raw material", explain in the letter to the shareholders attached to the financial statements, the chairman and managing director of Avio, Roberto Italia and Giulio Ranzo.
The throat insert, made of carbon-carbon material intended to withstand high temperatures, was manufactured by Ukrainian firm Yuzhnoye, Spacenews said. The investigation concluded that the Yuzhnoye component could no longer be used on the Zephyr-40.
Despite this setback, the company remains optimistic: "The market's confidence in the Vega C launcher is in any case confirmed by the contracts being finalized by Arianespace with ESA, on behalf of the Italian Government, for 2 missions, over option for a third mission, for the Italian earth observation constellation IRIDE” continues the letter to shareholders.
On the other hand, the 2022 financial performance and the forecasts for 2023 of the Italian manufacturer show a limited impact of the December failure of the Vega C rocket of the delays accumulated by the Ariane 6 heavy launcher.
However, the replacement of the components supplied by Ukraine "could require a prolonged period of time and significant costs" admits the company led by Ranzo in the balance sheet report.
All the details.
THE ACCOUNTS OF AVIO
On 13 March Avio released its 2022 results. The company based in Colleferro recorded a 15% increase in revenues, equal to 357 million, compared to 2021, with an order book up 16%, reaching record of 1.014 billion euros and beyond the guidance indications (870-920 million), thanks to record order acquisitions in the year close to 500 million euros. Adjusted Ebitda, equal to €27.8 million, excluding non-recurring costs, is down by 26% and substantially in line with the guidance for 2022, due to the significant increase in energy costs. Net income, equal to 1.3 million euros, is in line with the guidance forecast for 2021 (-2/+3 million euros) and down by 7.8 million euros compared to 2021.
The new orders include production contracts for Vega C, development contracts for Vega E, production contracts for the P120C, and both production and development contracts for tactical propulsion. The order book does not yet reflect the effects of the ESA Ministerial Conference of November 2022 and the new projects of the NextGen EU of the Pnrr which will enter the orders starting from 2023, specifies the company.
THE DEVELOPMENT ACTIVITIES OF VEGA E CONTINUE
Among the positive events of 2022, Avio reports that during the year the development activities of Vega E continued with the first 24 tests of the new M10 liquid oxygen and liquid methane engine of the launcher's cryogenic third stage in the SPTF test facility in Sardinia . “It is the first engine with this technology to be tested in Europe, with more than 1,300 cumulative seconds of ignition in different configurations” points out the company.
AND THE SPACE RIDER SYSTEM
The development of the Space Rider system also continued, consisting of an "Avum Orbital Module" service module and a reentry vehicle called "Re-entry Module", designed to be launched with the Vega C launcher, ensuring the payload an orbital life about 6 months and then return landing on earth.
THE FUNDS OF THE PNRR ASSIGNED TO AVIO
Furthermore, Avio is one of the leading players in the space Pnrr whose resources, including the complementary funds for 2022-2026, amount to a total of approximately 2.3 billion euros, of which approximately 1 billion intended for observation projects of the Earth, which includes the Italian satellite constellation whose missions will be carried out with the Vega C launcher, and over 300 million for the "Space Factory" .
In this context, at the end of June 2022 Avio announced that it had been awarded the first two contracts as part of the initiatives for the space industry for the implementation of the "Next Gen EU" worth 340 million euro, and in March 2023 signed two contracts for 285 million to start two key development programs.
GIULIO RANZO'S COMMENT
“2022 marked the successful maiden flight of Vega C and the first series of ground tests of our new M10 liquid oxygen methane engine. 2022 was also a record year for the orders received and the growth of the net cash – commented the CEO Giulio Ranzo last month – From an operational point of view we suffered from the impressive increase in energy costs and unfortunately also from the anomaly in Vega C's second mission”.
DEPENDENCE ON UKRAINIAN STAREGIC SUPPLIERS
And precisely with regard to the anomaly that caused the failure of the December launch of Vega C, the company has provided an overview of the situation with respect to the dependence on the Ukrainian components.
As explained by Avio's top management in the letter to the shareholders "As part of its business, the Group makes use of strategic Ukrainian suppliers for the main engine of the fourth stage for the Vega and Vega C launchers and for the carbon-carbon inserts used for the manufacturing of the nozzles of the Z40 and Z9 engines of the Vega C carrier”.
THE ASSURANCE
On the one hand, the company reassures that "as regards the main engine of the fourth stage for the Vega and Vega C launchers, the state of supplies already present in Colleferro, by virtue of the advance orders already in place since 2017, allows the continuation without discontinuity of industrial activity relating to the Vega and Vega C programs in the short and medium term thanks to a conspicuous strategic stock”.
Furthermore, “since 2019, Avio has been carrying out an investment activity to strengthen its know-how in the field of production of carbon-carbon inserts. Also in this case, Avio has procured a strategic stock of carbon-carbon inserts to guarantee continuity of activities in relation to supply risks from Ukraine” it continues.
"The situation is being monitored in order to take actions aimed at protecting business continuity also in the long term" reiterates the company, pointing out that "in this context, ESA has recently decided to dedicate financial resources to start technical and industrial actions aimed at mitigating the long-term supply risk through the development of complementary technological solutions”.
AND THE RISKS
However, Avio also explains "certain suppliers and sub-contractors of the Group are difficult to replace or, in any case, their replacement could require a prolonged period of time and significant costs".
Among the Group's strategic suppliers that are difficult to replace or, in any case, whose replacement could require a prolonged period of time and significant costs "included, and still include, three Ukrainian suppliers who currently supply: the main engine of the 4th stage for Vega and Vega-C launchers and the carbon-carbon inserts used to manufacture the nozzles of the Z40 and Z9 engines of the Vega-C vector” explains Avio.
THE POSSIBLE CONSEQUENCES ON THE BUSINESS
Finally, the company also highlights that "in the information prospectus Avio explained that already in 2014 the tensions between Russia and Ukraine could have "affected the capabilities of suppliers operating in Russia and Ukraine".
"Such possible defaults – continues the balance sheet report – could have concerned a different range of components (such as the propellant tanks and the engines of the IV stage of the Vega launcher, the pressure regulators and valves) or raw materials ( such as ammonium perchlorate and carbon fibers) and, where there are significant episodes relating to defaults by suppliers or subcontractors of the Group or, for whatever reason, such suppliers are no longer able to fulfill their obligations or should be replaced by the Group, the latter, also due to any delays that could derive from it, could be held liable towards its customers, and, therefore, be subject to any requests for compensation".
Therefore, the "occurrence of one or more of these circumstances could have negative effects on the Group's business, prospects and economic, financial and equity situation".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/avio-ucraina-vega/ on Wed, 05 Apr 2023 11:06:49 +0000.