Launching To Space: Maintaining A Business In Challenging Times
By James Careless
Arguably, buying a rocket these days just got more interesting. With the virtual disappearance of the non-geosynchronous (NGSO) market and a cyclical downturn in geosynchronous (GSO) launches, the world’s big three launcher companies–Arianespace, Boeing (including its Delta program and its partnership in Sea Launch), and Lockheed Martin/ILS–are in a fight for survival.
"Right now life is pretty tough for the launcher industry, and I don’t think things are going to improve in the next few years," observes Phil McAlister, director of Futron Corp. "The problem is that we have a growing overcapacity of vehicles, at a time when demand is going in the exact opposite direction."
Of course, for commercial satellite owners, this "capacity glut" is good news. The reason? In an effort to capture what business remains, the big three have slashed launcher prices. To say the least, "vendors are definitely willing to compromise on price these days," observes Darlene Freeman, SES’ vice president of global sourcing.
Price, however, is not all that commercial satcom customers are asking for. At SES, for instance, "We want a complete commercial package: launching us on time, to specification and within budget," Freeman says. "We also want a vehicle to have achieved two successful commercial launches immediately prior to our launch. Finally, we want an open, frank relationship with our launch supplier. We expect access to their facilities, information and people throughout the process: especially if there has been a recent anomaly with one of their vehicles.
"We have two spares to launch, namely AMC 16 and AMC 18," she adds. "As AMC 16 will require a heavy lift booster, SES Americom will go with the Atlas 5, Proton, Ariane 5, Sea Launch or the Delta 4. AMC 18, which is expected to be in the 2,100 kg (4,630 lbs.) range, lends itself to a smaller launch vehicle. This said, we have a proven flight history with Arianespace as well as ILS, and consider both to be key strategic partners."
The same launch procurement standards also apply at Intelsat, another commercial satcom customer. In order to win Intelsat’s business, however, launcher companies must compete in a Request for Proposals (RFP) process. Moreover, the range of satellites Intelsat uses means that one launcher does not fit all. This is why "Ariane 4 was selected for Intelsat 907," says Intelsat spokesperson Jodi Katz, "while Sea Launch and Proton M/Breeze M were chosen for the Intelsat 10s."
Clearly, as far as launchers are concerned, it is a buyers’ market. Unfortunately for the big three, the cost of launching satellites has not dropped in tandem with the prices they are able to charge. Nor have any of the other costs dropped that are associated with attracting and keeping clients, such as customer service and support.
Worse yet, the usual way out for similarly cash-strapped companies–consolidating with a competitor to achieve economies of scale–seems to be a no-go as far as the launcher industry is concerned.
Granted, Boeing has saved some money by creating Boeing Launch Services, which combines the marketing and sales departments for its Delta 4 family and the Sea Launch partnership, but that is as far as the company is prepared to go. The same is true for Lockheed Martin/ILS and Arianespace, neither of whom are willing–or perhaps able–to surrender independence in return for a measure of financial relief.
The Global Launch Market: Hard Times Now, And Ahead
As reported in last month’s issue of Via Satellite, 2002 was a hard year for the launcher industry, and 2003 does not look much better. "First and foremost, the collapse of the NGSO market is probably the largest contributor to the launcher industry’s woes," says McAlister. "Five years ago, when the industry was gearing up to launch NGSOs for Iridium- style companies, this market looked like a winner. Now, however, that they’re ready and able to service it, the big NGSO market has all but disappeared.
"We’re also experiencing a predictable downturn in GSO launch demand," McAlister adds. "It’s part of the natural cycle, now that many old GSOs have already been replaced in orbit. Unfortunately, when combined with the failure of the big NGSO market, the launch industry’s being hit with a double whammy."
Then there is the combined telecom bust and the dot.com bomb. Collectively, these have effectively dried up venture capital for new satellite projects. Not surprisingly, this translates into fewer launches.
Finally, today’s GSO satellites are lasting longer, which means they do not need to be replaced as often. Once again, fewer replacements mean fewer launches. The bottom line: according to the latest figures (2002) from the Commercial Space Transportation Advisory Committee (COMSTAC), and the FAA’s Associate Administrator for Commercial Space Transportation (FAA/AST), the next 10 years is going to be relatively flat for launches.
The numbers: from a 2002 total of 27 GSOs and five NGSOs–some of these leftovers from delayed 2001 launches–COMSTAC and the FAA/AST only expect 19 GSOs and five NGSO launches in 2003. From here, the predicted annual average through to 2011 is 20.5 GSOs and 6.3 NGSOs a year.
To put this in context, in 2001 COMSTAC was predicting an annual average of 24.1 GSO launches through to 2010, while the FAA/AST was predicting annual NGSO launches of 6.7 to the same date.
For the big three, losing the NGSO business is not fatal. But still, it hurts. "Big NGSO was an important piece of our growth projections, but it wasn’t everything," says Jim Rymarcsuk, ILS’ vice president of business development. "We still have a solid base in the GSO market, and there’s sufficient demand in this area to support the industry’s main players."
"The big NGSO market may come back in the near term, but we’re certainly not building it into our business plan," adds Will Trafton, president of Boeing Launch Services, vice president of Boeing Expendable Launch Systems (Delta 4), and chairman of Sea Launch. "We can respond if things change, but frankly we’re not counting on it over the next two to three years."
How The Major Players Stack Up
It is no mean feat, assessing the big three’s strengths and weaknesses. This is because each of them is unique in their own way: both in terms of their products, and how they are targeting the global market. (Note: all payload capacities are cited for GSO payloads, since the NGSO market is not a factor these days.)
Arianespace: With launch facilities in equatorial French Guiana, the European-backed launcher company Arianespace has been taking an increasingly large share of the commercial satcom market. "In 2001 there were 28 launch contracts awarded in the global commercial market; we got 13 of them," says Arianespace CEO Jean-Yves Le Gall. "As of November 2002, there were 13, and we won 10.
"We’re not getting the commercial contracts because we are cheaper," Le Gall adds. "In fact, everyone in the market is roughly equally-priced. We’re getting the contracts because we offer better customer service, and we fly more often. Frankly, the more you fly, the more you sign. The more you sign, the more you fly."
As for launchers? A few years ago, Arianespace’s workhorse was the Ariane 4 launcher, capable of lifting GSO payloads ranging from 2,000 kg to 4,900 kg (4,410 lbs. to 10,800 lbs.) However, with the heavier-lift Ariane 5 now coming into service–capable of carrying up to 10,000 kg (22,046 lbs.)–the Ariane 4 is being phased out of service. "The market now considers Ariane 5 as flight proven," Le Gall says.
"By the end of 2002, we will have launched eight Ariane 4s and four Ariane 5s," he notes. "In 2003, we’ll be launching one Ariane 4, and seven Ariane 5s. After that, the Ariane 4 will be retired.
"We could have continued building Ariane 4s, but we decided to stop production on this vehicle to focus all our efforts on Ariane 5," Le Gall explains. "We consider that the key to achieving reliability is to fly often."
This said, Ariane’s been having tough times financially. In fact, the company lost 193 million Euro (U.S.$195 million) in 2001, and is planning to be in the black only in 2003. Part of Arianespace’s problem is due to the economic downturn. However, the Ariane 5, while offering more lifting capability than the Ariane 4, is also more expensive to build and launch.
In Arianespace’s defense, Le Gall says, "we are the only launch company that publicly reports our profits and losses. It is impossible to tell if Lockheed and Boeing are losing money in the commercial market, but I suspect this is the case today."
Boeing Launch Services: Boeing has two families of launchers in its roster: the Delta series (2, 3, and now the Delta 4) through Boeing Expendable Launch Vehicles, and Sea Launch, an international partnership in which Boeing has the largest block of shares (Sea Launch’s other partners include RSC-Energia [Russia], Kvaerner [Norway], and SDO Yuzhnoye/PO Yuzhmash [Ukraine].)
The Delta 4, having completed its maiden voyage this past November, has the potential of becoming Boeing’s latest standard bearer. Small wonder: based on the Boeing Rocketdyne RS-68 engine, the Delta 4 is a new generation of land-based launcher that meets USAF Evolved Expendable Launch Vehicle (EELV) standards. The core Delta 4 first stage forms the basis of five different two-stage boosters capable of lifting GSO payloads ranging from 4,210 kg to 13,130 kg (9,280 lbs. to 28,950 lbs.). The Delta 4′s second stage is actually derived from the proven Delta 3 second stage.
Meanwhile, the water-based Sea Launch system uses the Zenit 3SL multi-stage booster, with components built both in Ukraine and Russia. It is capable of lofting GSO payloads up to 6,000 kg (13,228 lbs.). All Sea Launch missions are for commercial satcom customers, such as DirecTV, Panamsat and Thuraya. The terms of the company’s international partnership mean that Sea Launch does not sell to military clients.
So how is business at Boeing? "We have won 22 of the 29 EELV contracts awarded by the Air Force in Round One," replies Trafton. "Thanks to the Delta 2 and the Delta 4, we have a robust government manifest. We’re also looking ahead to EELV 2 and EELV 3, where we hope to win more Delta 4 contracts.
"Our first launch of the Delta 4 will carry a commercial telecommunications satellite for Eutelsat of France," Trafton adds. "We have another commercial customer signed up to launch aboard a Delta 4 in 2003. (Boeing successfully completed the maiden voyage of its Delta 4 in late November 2002. For details about the launch and the rocket itself, see "For The Record" on page 8 of this issue.)
As for Sea Launch? "For 2003, we have six launches on our manifest," answers Jim Maser, Sea Launch’s president and general manager. "Meanwhile, in 2002 we’ve had a pretty good year, even though the competition’s very tough. We’ve had five straight successful launches in a row: for customers wanting a mix of reliability and competitive cost, our offering is hard to beat." (To be precise, Sea Launch has been launching vehicles since March 1999. In that time, the company has had one launch failure–that of the ICO F1 satellite, which was lost during Sea Launch’s second commercial mission on March 12, 2000. The failure is believed to have been caused by an open second-stage valve which released too much helium. Sea Launch resumed flight services in July 2000, and has been flying successfully ever since.)
Lockheed Martin/ILS: Like Boeing, describing Lockheed Martin’s place in the launcher industry requires more than a few words. In the commercial market, Lockheed Martin partnered with the Russian companies Khrunichev State Research and Production Space Center and RSC Energia, under the name International Launch Services (ILS). Collectively, ILS offers the Atlas 2AS, 3 and 5 boosters, plus Russian-built Protons. The Atlas 5–like Boeing’s Delta 4–complies with USAF EELV standards.
In terms of carrying capacity, the Atlas launcher lines can lift from 3,719 kg/8,200 lbs. (Atlas 2AS) up to 8,670 kg/19,114 lbs. (Atlas 5 551/552; this variant has yet to fly). Meanwhile, the Proton K/Block DM booster can loft a 4,350 kg (9,590 lbs.) GSO payload, while the Proton M/Breeze M launcher can orbit GSO payloads up to 6,000 kg (13,228 lbs.).
"Due to its ILS partnership, Lockheed Martin appears to be much more focused on the commercial satcom than Boeing," McAlister says. "Also, they’ve based the Atlas 5 on their successful earlier model, the Atlas 3. Not only is this a less risky approach, but it also makes it easier to sell customers on this new vehicle."
Meanwhile, for U.S. government clients, Lockheed Martin offers Titan 4s for GSO payloads (5770 kg/12,721 lbs.). As well, the company has been refurbishing Cold War era Titan 2s–used for the 1960s NASA Gemini missions–for some NGSO payloads.
Commercially, "we have 10 launches scheduled in 2002," says Rymarcsuk. "Right now, we have three Atlases ready for liftoff at the Cape, and three ILS Protons ready for launch at Baikonur over the next few months. "Meanwhile, ILS expects to have around 10 launches in 2003.
"We have been selling ILS on our reliability, our heritage, our strong customer base and our distinctive schedule assurance and mutual backup to offer customers better quality service," he adds. "We’re not relying on price-cutting as a main factor.
"Boeing, with its reorganization, appears to be focusing on the government market rather than the commercial market," Rymarcsuk concludes. "If you look at the commercial launch contracts that have been awarded over the last two years, almost all have gone to ILS and Arianespace."
A Level Playing Field?
In the launcher industry, it is a never-ending debate: is everybody playing by the same rules, or not? Ask Boeing or Lockheed Martin/ILS, and they will tell you that the playing field is far from level. The reason? Thanks to European government funding, Arianespace does not have to make a profit in order to survive. This means they can afford to sell at a loss–a charge often levelled at the European-backed Airbus consortium as well–while Boeing and Lockheed Martin/ILS cannot.
"We are concerned, but we recognize there isn’t much we can do about it," says Boeing’s Trafton. "The governments of Europe have paid to develop the Ariane 5, and they continue to cover Arianespace’s losses. This tells me that Arianespace can pretty much set their prices where they need to in order to win market share."
"We know that our costs are much lower than Arianespace’s," says Sea Launch’s Maser. "Unlike them, we don’t sell at a loss, and we never will."
However, Le Gall scoffs at this criticism. "The U.S. launch vehicle industry is supported through military contracts and other forms of aid," he explains. (Among the sources of aid cited by Arianespace: federal support for EELV launcher development, the European launch agency’s exclusion from U.S. government projects, Zenit construction at government- owned and operated plants in Ukraine and Russia, and low-cost leases–relative to what Arianespace pays in French Guiana–for U.S. launchers’ access to the Florida Spaceport.) "For instance, the Delta 4 has just started flying, yet Boeing already has about 20 government contracts to use this vehicle. If Arianespace enjoyed this level of support from European governments, we would be very happy."
Who Will Remain?
A shrinking market and too many launchers: would not consolidation make sense? Normally it would. However, as mentioned, it is not likely to happen in the launcher industry. After all, Europe is not likely to let Arianespace fail, both for strategic reasons (maintaining European-controlled access to orbit), and those of national pride.
"The word I use to describe the current state of the launcher industry is ‘irrational’," Trafton says. "I don’t see how the market can continue to support this number of launchers. The only reason it’s happening at all is that European governments are unwilling to let market forces come to bear. Whatever happens, Europe will not allow Arianespace to go under, because it’s their only launch provider." Meanwhile, with the U.S. government wanting the option of buying launchers from both Boeing and Lockheed Martin, it’s unlikely that they’ll be allowed to fail either. As a result, none of the big three appear in any imminent danger.
This said, you can’t run a launcher company without money. Hence, what remains to be seen is whether the European and U.S. governments will provide enough cash to keep the big three not just alive, but healthy. After all, launcher technology is dynamic: any company that just treads water risks being surpassed by its competitors, and ultimately being driven out of the market.
"Can we keep going like this?" asks McAlister. "As far as the current launcher companies are concerned, the answer is yes: we can keep going like this, and we will keep going like this. Whether it makes economic sense or not, the launcher industry will keep going like this."
James Careless is the senior contributing editor to Via Satellite.