Investing in the Aerospace Sector. Talking with Alicia Daurignac
11 OCT, 2024
By Jose Luis Palmer from RankiaPro Europe
Alicia Daurignac, analyst of the Echiquier Space Fund, La Financière de l’ Échiquier, talks about investment in the aerospace sector, its evolution in recent years and the industry's prospects in the current macroeconomic environment. The space race is no longer a competition exclusively between governments; the private sector has accelerated its investment in the aerospace industry, displacing government agencies and increasing the competitiveness of the sector. The democratisation of the sector with the emergence of companies such as Space X, Amazon, Redwire or AST Space Mobile has accelerated the development of technologies and encouraged cost reduction.
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Space 2.0 is still little known in the market, at least in the media. Will there be a space wave like the one we are seeing with AI?
Yes. The Space 2.0 sector is still a relatively young sector and is at a similar stage to where the AI sector was five years ago.
During the Cold War, the aerospace sector was dominated by the public sector, i.e. governments. In recent years, we have seen a shift to the private sector, which has led to the rise of what we call the Space 2.0 sector which has brought a change of mindset with a clear objective: to innovate and incentives to reduce costs. The democratization and commercialization of the sector has allowed the entry of numerous private players. This paradigm shift is accompanied by a drastic drop in costs.
SpaceX has considerably reduced launch costs with the reusability of its Falcon 9 rocket, which has been a major contributor in revolutionizing the sector. A lower cost of access to space has allowed the flourishing of a real ecosystem of Space companies, which despite being at early stages have attractive growth prospects.. Around 20 years ago the launch cost per kilogramme was about $25,000 on average, today it costs around $2,500 on a Falcon 9.
Why do you have this conviction that the space ecosystem will become a sector as relevant as artificial intelligence?
Governments and many financial institutions have realized that the Space sector is strategic on numerous fronts. Not only is it crucial for security purposes, but also for telecommunications and Earth Observation which can be used in the likes of natural disasters or climate change monitoring. Many of the activities we carry out in our day-to-day lives are made possible by space.
There are also a number of innovative projects being carried out, such as SpaceX or AST Space Mobile that are setting up constellations for satellite internet connectivity. They are still in progress, but thanks to these projects we could have internet access anywhere in the world.
What do you think of the Spanish aerospace industry? Can you identify any interesting companies?
In our opinion, it is a small sector compared to other geographical areas such as China or the United States. The Spanish government has a stake in Airbus, a company that also invests in the manufacture of satellites and rockets. Indra could also be mentioned, but there are not many companies that only work in this sector. One example is Sener, which works directly with the European Space Agency and is dedicated to research for scientific projects.
The space sector is a very technical sector that needs skilled jobs and large investors to be able to carry out projects. France and Italy are perhaps the most active European countries in the sector, but there is still a long way to go if they want to position themselves at the level of the USA.
How is Echiquier Space Fund evolving?
Launched in 2021, Echiquier Space is Europe's first fund in Europe dedicated to this thematic. The management team aims to maintain rigorous investment selection within the specific investment universe identified for this fund. Stock selection favors companies whose activities are closely linked to the space sector, as well as technology companies. For example, at the moment we have to focus in some sub-sectors. One of them is software, which is a bit more defensive and perhaps at the present time can be beneficial for us. Investing in these companies is crucial to capturing the full value chain of the space theme, offering our fund exposure to cutting-edge technologies that feed the entire space ecosystem.
That is why active management is so important, especially in these sectors, because we can quickly choose and reposition the portfolio and identify those business models that we think are going to perform better.
Nvidia and Amazon are in the fund's portfolio, why? What do they bring to the space industry?
The Space sector’s growth is intrinsically linked to that of Technology sector’s.
For example, Earth observation to monitor natural disasters requires the management of a large amount of data. Another example is Amazon's cloud that is proving useful technology for managing. The company also is investing in Space with its Kuiper constellation project. The aim is to bring a satellite Internet network to the most remote areas of the world, by deploying more than 3,200 satellites in low earth orbit. In the case of semiconductor companies the development of this technology directly influences the performance of satellites and is a good example of how innovation in Tech can help the development of Space technologies.
The fund's portfolio is likely to change in the long term, when smaller, more innovative companies become established in the market. At the moment, it is these large companies that are helping to drive this sector forward.
Can you highlight several recent innovative examples from the aerospace industry that have impacted a particular market or attracted attention?
One striking company is Redwire, which is working on biotechnology in Space. The company is looking at growing human organs in microgravity which makes the development of human tissue easier.
Another innovation that may not seem so flashy but has been crucial to the industry is the recycling of various rocket components. SpaceX has succeeded in bringing part of the rocket back to Earth for reuse. And this has been a major breakthrough because it has reduced manufacturing costs and changed our perception of space. We now have much cheaper access and a great reason to invest in the industry.
Isn't the space sector very polluting?
The industry is increasingly committed to sustainability and developing cleaner technologies. Efforts are being made to research less polluting fuels and reuse rockets, like SpaceX does, which reduces waste and environmental impact. Additionally, advances in satellites and space monitoring systems play a crucial role in combating climate change by helping with Earth observation and resource management. So, while there are challenges, the sector is also leading initiatives to become more sustainable and contribute to a cleaner planet.
This pioneering generation of private space 2.0 players is reinventing the use of space, promoting clean energies and developing debris management policies, for example. And we're convinced that this space revolution we're living through is and will be useful in meeting many challenges, not least Earth observation and the monitoring of climate change and biodiversity. The impact of this burgeoning new industry, whose potential we believe has yet to be tapped, will undoubtedly have an impact on our future.
