Dollars And Sense: The Launch Industry–The High Price Of Preserving The Bottom Line

by Carissa Bryce Christensen

Should Europe and the United States be spending billions to protect a launch industry that cannot make it commercially? Painfully, the answer is yes.

The launch industry is in crisis. Overcapacity has driven commercial launch prices down nearly by half compared to a few years ago. Revenues have dropped at a time when providers expected to be recouping major development investments for the Ariane 5, the Atlas 5 and the Delta 4.

The United States and Europe have a launch infrastructure designed for 30 commercial GEO launches annually with government launches on top of that. Last year there were 20 commercial GEO launches, and in 2001 there were 12. Even optimistic forecasts have the commercial launch rate at or below 20 per year in the foreseeable future. Arianespace has at best five GEO launches (carrying eight satellites) manifested this year , with some of those contingent on successful requalification of the Vulcain 2 engine. Lockheed Martin’s International Launch Services also plans five launches. And finally, Boeing’s Sea Launch is scheduled for four commercial launches this year.

Moreover, Lockheed Martin and Boeing are seeing almost no commercial traffic on their Evolved Expendable Launch Vehicles (EELVs), Atlas 5 and Delta 4 respectively. Sharing development costs for these vehicles with the Defense Department (DoD) was supposed to be a win-win situation, with more bang for the buck on each side. Each was to benefit from the economies of scale from launcher families that could serve both government and commercial customers. The result, however, has been lose-lose. U.S. firms are not financially viable at current prices and launch levels. DoD is supporting a launch infrastructure well in excess of its needs.

There is little chance of a market-driven recovery for the industry. No surge in commercial satellite launches is on the horizon. While the satellite services industry is healthier than the launch industry (though also struggling), growing demand for services does not necessarily translate into growing demand for launches. Today’s satellites carry two or three times as many transponders as those launched 10 years ago, with more bandwidth per transponder. Their mostly mostly digital signals are compressed with increasingly efficient techniques. A transponder that carried one analog television channel now carries six or more digital channels. As a result, fewer satellites and so, fewer launches, meet a given level of demand for television, telephone, Internet and other satellite services.

Passing costs through to satellite service providers is unrealistic because aggressive international launch competition prevents prices from increasing to meet today’s cost points. Even if costs were passed through, it would reduce satellite competitiveness with terrestrial providers and erode satellite share in markets like Internet and direct-to- home television. There would be even less commercial demand for launches.

There are no prospects in the next five years for transformative new satellite applications or other space-based products. We will continue to see interesting experiments and tiny market niches emerge, but not that hoped-for new market that is unique to space and that will revitalize the launch industry.

Launch supply will continue to exceed demand; costs will continue to exceed revenues. GEO launch services will not be a sustainable business. Both the United States and Europe, however, rely on launch capability economically and (mainly the U.S.) militarily. Consequently, the launch industry has become a pressing government problem.

In response, Europe has committed $1 billion to Arianespace for 2005 through 2009 to protect European guaranteed access to space. This is in addition to $500 million in reprogrammed and new funds being spent now for Vulcain 2 fixes and requalification flights. The question there is how much more European nations will spend on new satellite programs to take advantage of their expensive, underused asset.

The United States has budgeted more than $500 million in additional funding through the next six years for the EELV program, divided between both providers, to keep them intact enough to provide assured access to space. While neither Boeing nor Lockheed has specified the amount of funding it needs, the currently allocated funding is not going to balance the books. Both firms will probably seek more funding for assured access, and eventually the opportunity to renegotiate the prices DoD pays for EELV launches to reflect costs more realistically.

Two EELV systems could cost $1 billion throughout the next five or six years. Economically, it makes sense to maintain just one. Even that would be costly. The entire EELV manifest is probably not enough to keep even one system operating at full capacity. But relying on a single system comes with national security risks. One launch provider means more vulnerability to system failures and down time, and less assurance of access to space. Now that U.S. national security is so reliant on space capabilities, this would be a painful choice. It may happen, but the odds are against it.

The bottom line is that supporting launch providers will exact a high, frustrating, but ultimately necessary price that U.S. and European taxpayers will be paying for years to come.

Carissa Bryce Christensen is a founder and managing partner of the Tauri Group, an analytical consulting firm in Alexandria, VA. The Tauri Group delivers systems analysis for the space enterprise, technology assessment for weapons of mass destruction threat reduction and strategic IT support.