LAUNCH REVENUES WILL DECLINE
In the week that Arianespace reported its first-ever loss in 20 years of operations, an industry report states that there is a capacity and manufacturing glut. “New satellites with transmission capabilities several times more powerful than those they are replacing, along with reduced construction times, has led to a glut in manufacturing capacity,” says Armand Musey in Salomon Smith Barney’s (SSB) new report of manufacturing and launch services published this month.
Arianespace’s situation was not helped last year by it achieving only three launches and its continued investment programme on Ariane 5’s development. However this year it has only added three new launches to its backlog of orders although new contracts are expected to be announced at this week’s Paris Air Show. Arianespace states it expects to return to profitability by around 2003. It reported a net loss of E242 million for the year, compared with a modest net profit of E7.3m for 1999. Ariane’s sales last year stood at E1.11 billion, up from E976m in 1999.
Arianespace faces increased competition from the new range of American Atlas and Delta heavylifters, as well as Russia’s Proton/ILS package. While the contract has yet to be confirmed, Interspace understands that Eutelsat is about to order a launch on the Atlas 5 maiden flight for Hot Bird 6 in May next year. An Ariane order is expected for Eutelsat’s Hot Bird 7 craft due for launch in June 2002. “The whole question everyone is asking is how will Arianespace defend itself and how will it survive,” said a company spokesman.
While projecting worldwide satellite manufacturing and launch services to grow marginally to $13 billion (E15.26) in 2005 from $12.9 billion in 2000, for a CAGR of 0.7 per cent, Armand Musey also confirms that incumbent launch services are facing more competition which will put continued pressure on margins and encourage industry consolidation.
“US satellite manufacturers’ prospects are somewhat limited,” he states. “We expect GEO deliveries to be flat in 2001 and 2002, rising modestly in 2003 and 2004 due to a temporary increase in replacement satellites and the launch of BSS satellites. Specifically, PanAmSat and Loral are expanding and replacing their fleet, Echostar is launching Echostar 7, 8, and 9 in 2001 and 2002, Asiasat is replacing Asiasat 4, and DirecTV is planning to launch two new satellites. Following this replacement and upgrade cycle, we expect demand to trend flat at around 30 new GEO launches per year until 2007, based on known projects.
“Commercial demand for LEOs should stagnate after 2004. Given the recent failure of Iridium and Globalstar we believe demand for LEO satellites will decrease significantly after current constellations are delivered.”
SSB expects launch industry revenues to peak next year and then to trend downwards for the rest of the decade. Musey predicts the market will effectively divide into two, for heavy and light launches.
The satellite manufacturing sector faces increased downward pressure on costs, and the launch industry is the same, says Musey. Arianespace say they have already reduced the per kilo launch costs by about 30 per cent while at the same time planning to increase launch capacity from the current six tonnes, to 10 tonnes next year, and to 12 tonnes by 2006.
GEO Satellite launches: Annual average/decade
|*Data: Salomon Smith Barney, June 2001|