US Defense Firms Eye International Opportunities in a Slowing National Market

Tighter budget environments at home are driving U.S. defense players to search for greater international collaboration.

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Leading system integrators, ground-based and satellite operators weigh in how they see the global government market evolving in the next few years, particularly in the Pacific Rim, Africa and the Middle East. Their insights come at a challenging time — as the world’s leading military power must absorb cuts of nearly $1 trillion in the next 10 years, including $31 billion in 2014 alone.

 

Mobile Capabilities

Even with the drawdown of large-scale military operations in Afghanistan and current funding challenges, the defense industry is still expected to generate $5 billion in revenue growth by 2022 primarily from rising transponder and bandwidth demand of UAVs and airborne-manned missions, according to Northern Sky Research (NSR).

That’s no surprise to Toni Lee Rudnicki, CMO for iDirect, whose subsidiary, iGT provides ground-based systems for the U.S. DoD. “Mobility is our number one application, especially airborne ISR,” she says, adding that the budget downsizing is mostly focused on people force, which is driving an increased interest in the DoD to “make the troops they have smarter. We’re seeing the same thing happen internationally.”

iDirect sees another key application area growing in importance: manpacks. “When you have less people, the ability to have intelligence closer to wherever you want to be becomes more important, therefore the mobility and the manpacks and man portables are critical,” adds Dean Griffler, VP of global sales for iDirect.

 

Growing International Revenues for many US Firms

Boeing Space and Intelligence Systems has increased its focus on international markets supporting both commercial and government needs, says Bruce Chesley, vice president of business development for the Boeing unit. “The distinction between commercial and government satellite service is increasingly fuzzy,” he says. Both rely on each other’s participation, whether for leased bandwidth services, hosted payloads on commercial satellites, or procuring dedicated satellites.

In addition, Space Systems Loral (SSL), which is currently building two satellites for National Broadband Network (NBN) in Australia and has built government satellites for both Japan and Spain over the last decade, sees a healthy government market.

“SSL has had a consistently strong presence in the international marketplace and we expect it to continue to be strong,” says SSL’s VP of marketing and sales Bill Weller, who indicated that 60 percent of the company’s revenue last year came from international deals. SSL’s backlog includes contracts to build 11 international satellites.

Weller is seeing new opportunities for satellite procurements in both the Middle East and Asia. “Several satellite operators in the Middle East have discussed requirements for new satellites, as have several in Asia. In fact, a number of procurements are in progress. Outside the U.S. we continue to focus on civil and military customers who want to apply affordable, commercial technology and practices to their government communications needs,” he says.

 

Exploiting the X-band Sweet Spot

For X-band operator XTAR, which reported more than 8 percent year-over-year revenue growth in 2013, the downturn in Pentagon spending has not affected growing interest in X-band systems, which offers cost efficiencies over other frequency bands.

Andrew Ruszkowski, CCO of XTAR, explains that while other bands may require the use of whole transponders of capacity to operate within coordination constraints, “X-band very often achieves a one-to-one ratio of MHz to Mbps when being used in conjunction with very small and mobile terminals.”

Today, 25 percent of XTAR’s business is international — and that’s a number Ruszkowski wants to grow to 50 percent over the next few years.

“We see growth opportunities occurring first in Africa and then Latin America. The Pacific Rim countries may be the most promising area in the long run for satellite operators. The Obama administration’s pivot to Asia, while rolling out much slower than expected, is inevitable. It’s seen as the fastest growing and perhaps most important security challenge for the United States,” he adds.

Today, XTAR doesn’t cover Asia with its current constellation, but the firm is looking at opportunities to enter the market “with some kind of service,” Ruszkowski says.

Unlike western countries, Asia faces different threats and challenges ranging from competition for resources, to piracy on the oceans, to conflicts among large and smaller countries in the region.

“There are more than ample requirements to use technology to maintain stability and security in that region,” Ruszkowski says.

 

Increasing International Collaboration

Countries are increasingly open to international collaboration to save money and still build capability. “There are efforts afoot for countries to come together to meet requirements as a coalition,” notes Skot Butler, vice president of satellite networks and space systems for Intelsat General. Butler leads Intelsat General’s work with the DoD, NATO, various civil agencies, and commercial enterprises in the U.S. and Europe. “I’m aware of a number of initiatives where one country has a requirement but not enough to justify a program on their own and we bring them together with an ally in the region to host their requirements on a commercial satellite,” he says.

Examples of the U.S. government working together with others include the DoD’s successful move to sign partners for both WGS and more recently, Advanced EHF.

Five years ago, Australia agreed to pay for a sixth WGS payload and, in exchange, gained access to the entire WGS constellation. Since then, Canada, Denmark, Luxembourg, the Netherlands and New Zealand have become participants on the worldwide Ka-band system. The U.S. government’s marketing of WGS to international partners underscores their openness to sharing a capability as a way to bring down costs early and still get a global military capability into orbit.

“It increased the robustness of the WGS constellation and gave Australia something they couldn’t buy on their own — global coverage on a worldwide constellation,” explains Todd Harrison, senior fellow with the Center for Strategic and Budgetary Assessments (CSBA).

Approximately 30 percent of iDirect’s overall business today is government related and international — a number Griffler expects will grow in the future. “The foreign militaries are becoming a bigger percentage of our business,” he says.

 

Eying Hosted Payloads, Network Roaming

Greater collaboration between countries means creating new ways to share information. Many of the new High Throughput Satellites (HTS) with spot beam architecture offer the ability for roaming across networks in the mobile environment, notes Rudnicki. Hosted payloads are an area that U.S. defense players say is generating interest in globally. “For these smaller countries, a hosted payload or partner with multiple nations may be the only way they can get assets launched,” says Butler.

Intelsat General sees hosted payloads as an international opportunity — especially in the Asia-Pacific region. A pioneer in hosted payloads, Boeing built the Intelsat 22 spacecraft, which was launched in 2012, with a military payload for the Australian Defense Force. According to Chesley, the hosted payload work began years ago “when we saw the U.S. defense downturn coming and we committed resources to develop more commercial satellite products and new solutions for military communications.”

Harrison says countries have many options for hosted payloads, from putting capability on an ally’s satellites, to countries jointly paying for a satellite bus to carry the payload, to scaling the payload down so it can be deployed on satellites already planned for launch.

“I’ve proposed that the United States. partner with Japan for a protected hosted payload, where they provide the satellite and launch, and we provide the payload. They can be part of our protected satcom constellation and we can expand our resiliency in the Pacific region and improve our interoperability with Japan,” Harrison says.

 

Potential Win-Win for U.S., Global Partners

One upside to the current budget challenge is that it will drive greater cooperation and sharing of resources for the larger good, something that GeoMetWatch and many other commercial satcom companies are counting on. But many feel that it will require a new mindset for the United States. to benefit. The U.S. government market will remain an important one for even the most global-minded players. Some commercial leaders express frustration at the pace of change inside the DoD, where there remains firm resistance to relinquishing their historical control over programs and assets. In spite of that, many industry watchers remain optimistic for the future.

“Multiple operators in the United States are replenishing and re-tooling their fleets,” notes Weller. “The U.S. government is looking for ways to procure space capabilities it needs more cost effectively, and when these new practices are implemented, they will add to the U.S. opportunities for satellite manufacturers.”

“The budget environment and the threat environment combined are forcing the DoD to rethink a lot of its policies and positions from the past,” adds Harrison, who observes that DoD programs don’t turn on a dime. “It’s very slow to move and to change DoD’s posture and priorities, but it is moving. If we navigate this downturn right, we could actually come out of it with more robust and more resilient space systems and better interoperability with our partners and allies.” VS

Anne Wainscott-Sargentis a communications consultant and writer who brings nearly two decades of writing experience in the aerospace, satellite, telecommunications, defense, and government sectors.

Monitoring Weather: A Global Opportunity

At least one U.S. company is looking to fill the need for weather monitoring, an increasing civil government need not being met by existing satellite constellations today. According to David Crain, co-founder and chief technology officer for GeoMetWatch, U.S. earth observation systems “are going to decline by 80 to 90 percent in the next decade.” The loss in capability is due to cancellations of next-generation systems such a NPOESS in 2011 (leading to a reduced-capability JPSS system) as well as delays in the Geostationary Operational Environmental Satellite (GOES), which has put the U.S. between five to 10 years behind in the replacement and follow-on programs. Crain says even though many of the instruments are superior, we’re not going to have the coverage we’ve come to rely on.

“When we’re doing numerical weather prediction and forecasts, it’s the timeliness of the coverage that enables forecast models to propagate and make accurate predictions,” he says, predicting that overall quality of weather forecasting is going to decline unless the United States relies on foreign weather programs, which also face similar funding and gap issues. In addition, current U.S. weather monitoring ground-based systems don’t cover the ocean even though “oceans are where the water vapor comes from that drives long-term weather trends,” explains Crain. “The infrastructure we have in the United States is not sufficient to make observations in those areas. Our primary mission at GeoMetWatch is to observe and quantify the global distribution of water vapor. It’s the driver, the energy source, for hurricanes, tropical cyclones and convective thunderstorms. Understanding what the water vapor is doing is key to understanding why storms are stronger or weaker in the past, and what they’re moving to.”

The firm’s top market is Asia, with its growing economies and rising population. The two often equate to being more adversely affected by weather, especially in areas that lack existing infrastructure. The firm, along with its partners, expects to deploy its constellation of six satellites by 2020, with global coverage excluding the poles, covering 95 percent of the world population. “We’re looking at other opportunities in the Pacific, the Indian Ocean and either over the Atlantic or Pacific coast of the U.S. Those will be our next two to three systems,” says Crain.Even countries that are not directly receiving the weather monitoring data will benefit, Crain says. “All weather is global. A system over Asia will impact the long-term forecast over Europe and the U.S. Anywhere you add high quality data, you improve the forecast globally.”

While GeoMetWatch expects that NOAA will eventually be a customer, the company is counting on international customers to help make the business case for it as a global resource. “I believe three-quarters of our revenues will come from international sources,” Crain says. “And by developing the business in an ITAR-neutral way, through the Department of Commerce Commercial Remote Sensing License, many more customers will have access to the data, while protecting sensitive U.S.-developed technology.” In accordance with this licensed capability, the firm can sell the data from this technology to a much wider audience, while still maintaining a U.S.-regulated operational control.

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