Recovery Depends On Demand, Reliability
By Roger Rusch
For the past 20 years, TelAstra has maintained comprehensive records of satellite contracts, launches, and in-orbit experience. Each year, we update the records and examine the trends. Several characteristics of the industry emerge that confirm conventional wisdom in the industry.
Sales of geostationary satellites have partly recovered
There was a frenzy of satellite-buying activity between 1995 and 2001. As a result, the number of transponders in orbit has nearly doubled from 4,000 in 1995 to more than 7,500 now. Demand for transmission capacity has been soft for the past few years and the number of transponders that do not generate revenue quadrupled from 2000 to 2003. Consequently, few satellites were ordered in 2002. Satellite operators have procured 14 commercial communications spacecraft in 2003, primarily to replace disabled or amortized satellites. The business justification for another surge in satellite orders could remain weak for a few more years.
Satellite pricing is a wild business
Building space vehicles is a glamorous business and at least a dozen companies have the staff and facilities to act as prime contractors. Competition is often intense because management is under pressure to keep the factories filled with production orders. There is frequently at least one supplier who is willing to bid relatively low prices to grow its backlog. One thing is crystal clear: there is little relationship between actual production costs and bid prices. Although we can construct cost models to predict prices, normalized contract prices vary more than a factor of two from lowest to highest. Prices in competitive procurements are relatively low. Sole source prices are typically higher. Some customers appear to pay premium prices and impose more rigorous production standards. Over the years, satellite manufacturing has produced low profit margins.
Export control affects satellite sales
Although some of us have been reluctant to accept the unintended consequences of U.S. export controls, regulations have had an adverse affect on satellite sales. Some bid requests actually specify that no U.S. parts shall be used. Recently, a customer announced that export controls were a deciding factor in not choosing a U.S. vendor. U.S. regulations have become a significant issue for U.S. satellite manufacturing companies.
Satellites are becoming more sophisticated
Satellite progress includes longer design life, higher power, and more capability per satellite. Realized design life has increased from 8 to 12 years over the past 13 years. Average satellite power has increased from 3 kW to 7 kW in the same period and some solar arrays produce 15 kW. The average number of transponders per satellite launched has increased from approximately 15 to about 36 from 1990 to the present. Consequently, fewer satellites will be required to replace the satellites that were launched 12 years ago. Advanced electronics now provide autonomous operations and elegant antenna-beam forming. The use of on-board data-packet switching was initiated with Iridium and a quantum leap is planned for the SpaceWay satellites of Hughes Network Systems.
Many satellites are delivered late
Production cycles have been shortened and refined. Between 1990 and 1995, the time from the award of a contract to launch dropped from about 46 months to 30 months. Since then, the production span has averaged 30 to 33 months. Although this reduced production time has cut manufacturing costs, concerns exist that the haste to deliver spacecraft has increased the risk of problems in orbit.
Satellites still are delivered later than originally planned. In a study of 75 satellite programs, more than 77 percent were delivered late and the average delivery time was 31 percent longer than scheduled. Tardy deliveries have continued during the business recession.
Failures and anomalies hurt the industry
One of the most troublesome issues has been the generation of on-board electrical power. Most of the satellite suppliers have encountered solar array problems. Several failures have resulted in substantially reduced power capability at end-of-life or shortened payload life.
For the past 35 years, there have been problems with the electrically enhanced propulsion systems; the latest failures with ion propulsion are not exceptional. There have been other problems with batteries, shorting wires and “tin whiskers” that have plagued several satellites. Manufacturers have emphasized the reliability of their products and some customers have avoided awarding contracts to the companies that have experienced the latest problems. Past success is not a guarantee of future reliability, and vendors who have had troubles in the past can produce superb products.
As we begin a new cycle of satellite production, all managers should reflect on our experiences and learn from past mistakes. Our industry has been transformed over the past several decades, but we must continue to improve.