Boeing’s Brinkley Looks For New Markets

The satellite manufacturing marketplace is seeing a number of players compete for a dwindling number of commercial orders. Talk of consolidation is rife, whether it is Lockheed Martin and Loral Space & Communications in the United States or Alcatel Space and Astrium in Europe. One thing, however, is certain – Boeing will continue to be a force in this marketplace. In an interview with Interspace Senior Editor Mark Holmes, Boeing Satellite Systems President Randy Brinkley speaks about recent restructuring at Boeing, as well as how he sees the satellite manufacturing marketplace developing over the next year.

Interspace: How does the realignment of Boeing defense, space and intelligence businesses affect Boeing Satellite Systems (BSS) in terms of its ability to gain commercial satellite orders?

Brinkley: Well, our commercial customers should not notice any change, and the realignment will help make BSS a stronger organisation for the long term. BSS will remain the satellite enterprise capability centre for all of Boeing. Under the new Boeing Launch and Satellite Systems organisational alignment, BSS will still be the commercial satellite systems marketing and program management arm for our commercial customers. One of the main reasons that Boeing merged its Space & Communications and Military Aircraft & Missiles organisations was to facilitate our government and military customers interface with The Boeing Company. Satellites are a strategic capability for Boeing and are critical elements of growth in both the military’s network-centric architecture as well as in the hybrid networks that will deliver new applications and services on the commercial side. We have our feet planted firmly in both markets, and our strong presence in the government/military market lets us balance our business and improve our products through continuing R&D and production while we wait for the commercial market to return.

Interspace: Could you tell us about the significance of Boeing’s deal with mobile satellite system operator Thuraya? How much is the contract worth? You mentioned at the time there were a number of other potential commercial satellite negotiations. How many satellite orders are you expecting this year and next?

Brinkley: Thuraya’s order for Thuraya-3 is extremely significant for several reasons. While it is not our policy to share the value of the contract, it is always very gratifying when an existing customer returns for new business. This order in particular demonstrates Thuraya’s confidence that we have successfully addressed the solar-array design issues that have impacted earlier Boeing 702 spacecraft.

We continue to engage in active negotiations with several other potential customers, but we are finding that most procurements in the current economic climate are still moving to the right. As recently as April, we predicted up to 20 sales worldwide in our addressable market, but now that number looks closer to 12 or 15. We believe things will slowly begin to improve in 2003 because of pent-up demand, but that will depend on the overall economic climate.

Interspace: If the scarcity of satellite orders continues, will you have to make additional cuts at BSS? How difficult is it to build a profitable business in this area right now?

Brinkley: We don’t anticipate further staff reductions this year. Depending on the pace of the overall industry’s recovery, we will have to look very closely at how our business is sized next year. Of course it is difficult to maintain short-term profitability in the midst of a prolonged commercial downturn, but Boeing is committed to BSS for the long term, and we are focused on running the business as efficiently and skilfully as it can be run. A large part of that is our implementation of Boeing best practices to deliver quality spacecraft on time and on budget. Another way BSS can leverage the resources of The Boeing Company is through the option of financing through Boeing Capital Corp. for potential customers with solid business cases. Boeing Capital Corp. is unique in that it understands the value of space-based secured asset financing, something a commercial lender may appreciate less.

Interspace: You mentioned the demand for new applications based on satellite capacity, such as satellite distribution of movies. Could you tell us what impact you expect Boeing Digital Media to have? What other markets do you think BSS can tap into?

Brinkley: Boeing is committed to a strategy of demonstrating new space-based applications and services that will lead to greater demand for satellite capacity. Boeing Digital Media is just one example of that approach, and Boeing Digital Cinema has now proven itself, most notably with the digital distribution and presentation in May of Star Wars: Episode II – Attack of the Clones. Now that we have shown that the application works and its business case [is sound], we expect to pursue opportunities in other markets such as medicine, finance, and oil. We also see numerous opportunities in the government sector. What these all have in common is the need for secure satellite distribution of large digital files. In some cases the distribution is to places that might not be connected to the wireline infrastructure, while in others the goal is to use satellites as part of an integrated solution that bridges the last mile. If we were only focused on the commercial market, this would be an even more difficult time, but our business is balanced between commercial and government, and we intend to be a healthy contributor to Boeing’s bottom line going forward.

Interspace: How do you view the international opportunity for Boeing Satellite Systems, in particular Europe?

Brinkley: Over the years, we’ve done business with more than 40 customers in 18 countries, so a large percentage of our customer base has been international and this is still the case today. We are currently building satellites for customers in Japan, Hong Kong, Canada, United Arab Emirates, Great Britain, France and The Netherlands. Of those, the last two are European customers who previously never bought from us [Eutelsat and New Skies], so they represent important inroads we’ve made in Europe. We also are very proud of our successful long-term relationship with SES Astra. So overall we feel we are well positioned to do continuing business internationally and particularly in the European marketplace. We also recognise the importance of European suppliers and have developed strategic supplier relationship with a number of European companies.

Interspace: What do you see as the main drivers for revenue growth?

Brinkley: In the near term we believe that revenue growth will be focused on the government side, and our role in Boeing IDS should help us better serve our military customers by offering integrated solutions that will include a satellite systems component. On the commercial side, excitement is building at BSS as we see the fourth-generation digital signal processors and advanced active array antennas for Hughes’ Spaceway begin to take shape for launch in the summer of 2003. These technologies will differentiate us from the competition, and will drive a lot of new market applications that should in turn build demand.

In general, we’re seeing an increasing similarity between the government and commercial customers requirements of anywhere, any time, communication connectivity. The Boeing 702 provides the growth platform for our government customers and growth in commercial broadband, and we believe our leadership in digital signal processing and advanced antenna technology will provide us critical leverage as a market leader.

Aside from the external challenges posed by current economic conditions and the difficulties customers face in obtaining financing and insurance, our main challenge at BSS continues to be the need to deliver on our commitments. Our overriding focus is on-orbit reliability, and I believe we are already well on the way to proving our reliability with the successful return to flight of the Boeing 702 and the continued flawless performance of JCSAT-8, ASTRA-3A, and DIRECTV-4S.