Frank McKenna, President, ILS

By | November 1, 2007 | Satellite News Feed

Approximately a year after becoming an independent company, International Launch Services Inc. (ILS) was in the midst of a record year in 2007 before a September Proton failure halted the company’s momentum.

The interruption was only temporary, as the Russian government returned the Proton to service Oct. 26 with the launch of three Glonass satellites, and ILS is slated to perform its next mission in November.

While operations were halted briefly, ILS remains on pace for a record year, says ILS President Frank McKenna. Through August, the launch provider had inked 11 different contracts with a total value of more than $1 billion. “The last time we had more than $1 billion in orders for a year was in 2000, and we had three products — Atlas 3, Atlas 5 and Proton — serving much larger markets,” he says.

McKenna, who served as ILS’ vice president and deputy for two years before being named president, spoke with Via Satellite Editor Jason Bates in August prior to the Proton failure and later commented on the Proton’s return to service.

Via Satellite: How did the Proton failure affect your business as well as the heavy-lift launch market?

McKenna: The failure was a significant disappointment and a reminder of how important a focus on performance really is. Now that Proton successfully returned to flight with a Russian federal Glonass mission, we are working with our customers to re-establish the commercial manifest for the rest of 2007 and early 2008 as well as coordinate with the scheduled Russian federal missions.

Via Satellite: What message does Proton’s quick return to service send to the industry?

McKenna: The message is that Proton is one of the most reliable vehicles in the industry. The Proton system is robust and will serve the industry’s needs well into the future. Regarding the investigation, it’s important to point out that the Russian State Commission was able to examine recovered hardware, not just telemetry from the mission. This was the major factor in enabling them to make a straight-forward determination of the cause of the failure and the necessary corrective actions. We started briefing insurers and customers, and they understand and have been satisfied with the findings. [The] successful Proton launch was further validation that the cause had been found and corrected.

Via Satellite: How has new ownership and the loss of Atlas 5 affected ILS?

McKenna: In establishing the company we focused on one product, which is the Proton M/Breeze M and set forth a strategy to become very focused on that product and the idea of performance. We reorganized to focus each of the organizations and cut back some of the staff. We are now a pretty strong, flexible and decisive organization. … I think in the larger scheme of things, this has been a great strategy change of ILS. Previously, we have had market strategies that marketed both products and was not quite as clear of focus. There was a price differential between products and mixed messages in the market about availability. I think the new strategy plays better than multiple launch system strategy.

Via Satellite: So the loss of the mutual backup marketing plan has not hurt ILS?

McKenna: There was a lot of hype around mutual backup strategies and we maybe sold one or two of those on that basis, but it was very few in terms of the larger scheme of things. Quite frankly, the backup type programs that the competitor has set up have not worked either. If you ask the operators, most prefer to create diversity in their launch procurements on their own without having a single supplier figure out how to do that for them.
Most companies have the capability to handle the situation, and mutual backup did not turn out to be a very good marketing strategy. I think customers really do prefer a focus on performance and on the product that you have. There is significant demand for on-time reliable launching, and the customer wants the flexibility to procure different types of spacecraft for different missions. We have found that model works the best and actually satisfying the largest operators who want a mix of spacecraft for their needs.

Via Satellite: Will the contract you signed with SES Global become the standard for how large operators work with launch providers?

McKenna: I think it’s a very unique idea that is developed by SES over the last nine months or so, but it has its roots in several things they did for risk management three or four years ago in terms of creating flexibility to launch their spacecraft in the event there is a satellite delay or launch vehicle mishap. They looked at their fleet management over a period of five years and did something about it, putting in plans to meet their requirements. They realized the old methods of doing business really are not as well-suited for their needs, and they are large enough and financially strong enough to do this. This is a unique, good approach for maintaining their revenue growth over the next five years.

What we’ve seen in the consolidation, and said this three or four year ago, is that it will strengthen things, and I think it has. With a few exceptions, we have not seen a cutback in the capital expenditure plans for the major operators. In contrary, we have seen a lot of diversity in growth in what they have been ordering. We’ve seen it across the board, and I don’t really see anybody retrenching.

Via Satellite: How will the restructuring of the Russian space industry affect your supply of Proton vehicles?

McKenna: Planning for this started a couple of years ago, and a decree that authorized this was signed Feb. 3, 2007, allowing Khrunichev to fully vertically integrate every element of the Proton launch system — the core vehicle, the engines, the avionics and the upper stage — is now in control of Khrunichev. This will be good for cost reduction, management and schedule control. They have increased their production rate to meet six commercial launches and another three to four federal launches this year. The hardware supply is very robust and meting demands for system.

Via Satellite: How long can the resurgence in the commercial launch market last?

McKenna: There is a significant demand. So far this year there probably are on the order of 30 launch vehicle orders already placed. We see a total of maybe 60 over the next two or three years, so the pace has accelerated quite a bit. The reasons for that are capability, balance and robust growth in the commercial satellite market, but the cycle will tail off in three to four years.

Via Satellite: With the number of competitors starting to grow, will there be another glut of launch capacity in a few years?

McKenna: Everyone tries to develop their launch systems to grow to heavy-lift capability. But for now, most of the new systems serve the small-to-medium end of the satellite market. We see a demand for 15 to 17 satellites per year in our part of the market, which is 5-to-6-plus metric tons. To enter our marketplace you have to have a reliable and routine launch rate, and it takes a long time to get there. You have to have operational launch rates in the order we are dealing with to have that, and that means another five to 10 years of work on those systems if they are to enter the heavy-lift market.

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