The Burden of Proof Rests on the Launchers
If indeed the H2A and the Long March return to commercial activity in the near future, it will only mean that the oversupply issue will continue to influence contract negotiations. Even though the market currently is flooded with more vehicles than it needs, these providers are going to, now more than ever before, hold in high priority the client's needs for service. Price wars are sure to continue. The challenge of launch service providers then is to do whatever it takes to distinguish themselves from each other and garner orders. And in a time when the growth of the commercial market is minimal and the state of the launcher industry is depressed, that can be hard to do.
"The complexities of our industry make it almost impossible to pinpoint just one factor or issue facing the launch industry in 2004. Predatory, nonmarket pricing is certainly a chief concern," says Jim Maser, president and general manager of Sea Launch. The company prides itself on "creating long-term partnerships," says Maser. "Signing a launch contract is the initiation of each relationship. The activity between the signing and mission completion is a journey that bonds these relationships well into the future." Like any provider, Sea Launch also takes customers' needs seriously. "Customers want reliability and schedule assurance. We do what we say we're going to do when we say we are going to do it." As far as pricing goes it is not one of those companies lowering its price to win customers. "Sea Launch will not sacrifice the integrity of our service for price. We are focused on mission success, which can be assured only in a rational pricing environment," says Maser.
Echoing Maser's feelings about the price wars is Clayton Mowry, president of Arianespace Inc. "The key issue in today's market is pricing. Those service providers driving the market down with rock-bottom prices will not be able to ensure the quality of their services over the long run."
Arianespace's family of launch vehicles is equipped to handle small-to-medium payloads through to the heaviest. This range may be an advantage when wooing potential customers who can look to them for many different size payloads. "Customers want tailored solutions to meet their needs," says Mowry, who is fairly positive about the state of the industry. "Overall we've sensed a more optimistic mood among the larger satellite operators," he says, referring to the continued demand for Direct-to-Home video and new data services, as well as applications such as High Definition and interactive TV. "We see a slow but steady recovery in the market," he says.
In addition to pricing, back-up launch assurance is also paramount for customers. Heeding this call, Boeing Launch Services (BLS), Arianespace and Mitsubishi Heavy Industries Ltd. signed an agreement last year to provide a new commercial service offering that combines the three launch service providers to ensure on-time launches for customers around the world. The new launch services alliance offers commercial customers the ability to fly on one of the three launch systems. Under this agreement, customers can transition among launch platforms for maximum flexibility to ensure on-time delivery to orbit. This tri-party alliance also preserves each launch provider's ability to individually market and promote its own unique platforms and capabilities to customers.
But the devil is in the details as they say, and the customers will ultimately decide if this alliance proves financially successful for the providers involved. "From what I understand, the alliance arrangements are not cast in concrete and different back-up and contingency agreements can be crafted for each contract," says Asiasat's Jackson. "If this is the case, then it could provide significant benefit for the customer."
Telesat's Tinley adds that having an alternate vehicle available in a short timeframe if there is a problem with the prime launch vehicle makes good sense, but this alliance is fairly new and the terms remain somewhat ambiguous. "This type of backup arrangement, however, is certainly something we will explore the next time we go to the market for launch," he adds.
Clarification of contract terms within such strategic partnerships will be key in winning new business and retaining customer loyalty. When dealing with three separate launch service providers, geographically dispersed launch locations and variants in rockets, customers need to be more sold on the "seamless" transition of switching vehicles if the need arises. "Intelsat understands the underlying point behind the 'back-up alliance', but currently we do not have any launch services contracts that implement this offering," says Edwards. "Subject to more detailed review of the specific arrangements, such a back-up provision might be of interest, assuming that it does not unduly complicate the spacecraft/launch vehicle integration activities and does not significantly increase the overall program cost."
In addition to ironing out commercial contractual details, launch service providers are also seeking customers outside the commercial arena. Like most other observers, International Launch Services (ILS) sees the number one issue facing the industry as the slow growth in the commercial market. "The critical buying factors remain constant: reliability, schedule assurance and competitive terms," says Eric Novotny, ILS vice president of marketing, adding that ILS is in the business of selling complete services, not just rockets. "We bring an integrated service offering to our customers that extends from contract signing to spacecraft separation, including mission management and licensing assistance," he says.
With little evidence of anything more than a modest recovery predicted for the near future within the commercial marketplace, launch vehicle companies are also looking to their respective governments for support, either through launch contracts or funding. "There is a recognition of the importance of government business worldwide. While government orders have been a cornerstone of most launcher programs, defense and science missions are making up a larger proportion of the business while the commercial launch market is recovering more slowly," says Novotny. "Government business is key in determining which launch companies will remain viable in a few years."
Another launch provider feeling the sting of a depressed commercial satellite market is BLS. The company formally announced that it will offer Sea Launch as its primary commercial launch system, with its Delta 2 still available commercially and its Delta 4 taking a break for a few years with hopes of reentering the commercial market when conditions improve. According to Robert Villanueva, spokesperson for Boeing Expendable Launch Systems, "BLS understands the needs of its customers and recognizes that customers look at a variety of factors with respect to their mission requirements. These factors include: reliability record, scheduling availability, orbit requirements, launch vehicle performance, the quality of the mission and launch services support and price, to name a few."
The lingering question on everyone's mind is when the current industry depression will end. "Specifically, 2004 will look much like 2003. We saw 17 commercial launches and 46 non-commercial launches worldwide in 2003. We will see about the same number in 2004," says McAlister. "I do not anticipate any growth. Demand for satellite services will continue to be global with the United States and Europe being the regions with the greatest total demand. The companies that satisfy that demand will be located all over the globe."
Overall, it looks like the problems plaguing the launcher industry today will not go away anytime soon. But despite the uninspiring forecast, there are still those involved with commercial space transportation that remain hopeful and excited that the sun will come out (maybe not tomorrow) and the birds will continue to soar toward Geostationary orbit. In the end, such elements as customer satisfaction, unambiguous agreements and launch assurance will decide the winners from the losers.
Kelly Holder is the managing editor of Via Satellite magazine. She has covered the satellite industry for five years.