Last month, we reviewed the fiscal, economic and political factors in both the Eurozone and the United States underlying “the new normal,” an emerging era of low growth, low interest rates, slashed government spending, higher unemployment and hoarded cash on corporate balance sheets. This combination of factors may take a greater toll on the satellite sector than did the “great recession” of 2008-2009. Several analysts insist that the global economy has actually never emerged from that recession. The challenge for the industry is how to survive and thrive in the new economic environment. Several ways come to mind.

As I noted in my May 2011 column, “Straight Talk on Subsidies,” the space sector is and has always been supported by both direct and indirect subsidies. Some subsidies are so indirect that their recipients do not recognize them for what they are. But this is an era in which subventions ranging from spending on aerospace and defense contractors to direct development loans and even the export credit agency financing so critical to several recent projects may become unavailable, so it is a good time to kick the subsidy habit, while of course using whatever public and quasi-public finance remains available. However, it will be difficult to justify sovereign guarantees of private debt when sovereign debt itself is in question.

In this environment, that hoarded cash on corporate balance sheets as a source of satellite finance should be actively sought. It is the largest source of finance out there that is not politicized and that does not have to be offered on a credit card. The cash has remained on the sidelines due to uncertainty about the economic outlook and government policy, but must be paid out in dividends or invested at some point. The encouragement of a new generation of strategic investors in the satellite sector would also be a welcome development. Strategic investment could take the form of vertically integrated providers both up and down the supply chain as well as more generalist players looking for diversification into new businesses. Like the advent of private equity into the sector in 2003-2004, strategic corporate investment could bring new resources ranging from intellectual property to cash infusions into the space business as well as access to new markets, depending on who these investors are.

In this environment as well, cost-effective and creative unconventional approaches such as wider development of hosted payload-like solutions to effectively share satellite bus and launch vehicle costs among payload operators, both from the public and private sector, may become more important and prevalent. The more options become standardized for sharing payloads, buses and launch vehicles among operators, the better the industry will be able to function in the new economic order.

It is also an environment to encourage entrepreneurial activity in satellite manufacture and launch. There will always be a market for the largest satellites carrying the greatest number of transponders and heavy lift launch vehicles. But it is a limited market, with a few main players competing for, at most, one or two more contracts per year than their average, while fundamentally counting on their share of a small number of orders. Operators spread these available contracts among those players to maintain competition and keep margins tight (with the exception of multiple vehicle and multi-launch contracts), and new market entrants in manufacture and launch services nipping at their heels. At some point, the relative stasis is going to be broken, and it will likely be those who, on both the manufacture and launch sides, can significantly lower the cost of access to space. Those players may increase supply, but they may also create new demand, something the industry critically needs.

Finally, technology and technology partnerships will also play a role in confronting the new normal. Technology transfer programs with universities and polytechnic institutions should be encouraged. Specific economic efficiency-promoting technologies should be aggressively pursued. If in-orbit satellite servicing and refueling projects become a reality, the industry will be upended, but is likely to emerge better able to confront an era of scarce public and private finance. Improved battery storage and efficiency will also create a leaner industry, as will frequency interference improvement.

The satellite industry has a great record of weathering economic turmoil, but the current conditions demand more than complacency based on past performance. This is an environment to reward creativity. If the satellite industry keeps renewing itself, it may be buffeted, but will stay aloft.

Owen D. Kurtin is a practicing attorney in New York City and a founder and principal of private investment firm The Vinland Group LLC. He may be reached at [email protected].