Weak demand fuels price deals in space
seattlepi.nwsource.com
Tuesday, August 20, 2002
By BERNARD SIMON
THE NEW YORK TIMES
No matter how perfect the weather at Cape Canaveral tomorrow, a dark cloud will be hanging over the maiden launching of the United States' newest rocket.
Hundreds of workers from the Lockheed Martin Corp. and their military and civilian guests are sure to cheer as the rocket -- the Atlas V -- thunders into space to put a French-built broadcast satellite into orbit 22,300 miles above Earth. But the applause and the celebratory dinner that will follow a successful launching cannot hide the pain of the world's space industry.
With many rockets competing for fewer payloads in recent years, launch companies worldwide have been cutting prices. The U.S. economic slowdown and problems in the telecommunications industry have contributed to the weakened demand.
The Pentagon has directed Lt. Gen. Brian Arnold, commander of the Air Force Space and Missile Systems Center in Los Angeles, to find ways to alleviate financial pressures on the two companies that dominate U.S. space launchings -- Lockheed Martin, the lead contractor for the Atlas V, and The Boeing Co.
Boeing's new Delta IV rocket is scheduled to make its first flight Oct. 9. The Delta IV, similar to the Atlas V, will be carrying a French commercial satellite.
Rocket industry officials say Lockheed Martin and Boeing are each seeking about $100million in government aid to offset the downturn in business. No decisions have been made, but a Pentagon official, who spoke on condition of anonymity, indicated that the companies would get at least some help. The official attributed that likelihood to the military's heightened alert after Sept. 11, which had made it "more critical than ever to be able to launch our national security payloads when we want to."
"There are some things we're going to have to do to ensure that we have two suppliers, and not one," the official said.
The Atlas V and Delta IV programs have received $500million each from the Air Force, a big customer. But much has changed in the eight years since work began on these rockets, part of a new series known as Evolved Expendable Launch Vehicles, which are intended to be less expensive but more reliable and flexible than their predecessors.
Frost & Sullivan, an industrial research group in San Jose, Calif., concluded in a May report that the world market for satellite launching services has "too many vehicles trying to survive off too few launch opportunities."
Only 60 satellites were launched worldwide last year, the fewest since 1962. An average of 90 launchings a year took place in the mid-1990s, and there were 85 in 2000. According to Marco Caceres, senior space analyst at the Teal Group, an aerospace consulting firm based in Fairfax, Va., only 15 launchings last year were commercial; 28 were for government civilian agencies, including NASA and the European, Chinese and Russian space agencies; and the remaining 17 were military. Caceres said he expected about 75 launchings this year.
"There's too much capacity in the launch market today," said Bernard L. Schwartz, chief executive of Loral Space & Communications of New York, a satellite manufacturer. "There's going to have to be some consolidation."
Mark J. Albrecht, president of International Launch Services in McLean, Va., a joint venture between Lockheed Martin and the Khrunichev State Research and Production Space Center of Russia, said: "This is a business where volume matters. We're all interested in keeping our tempo up." But, he said, "you can't price below cost for very long."
Out of the 18 rocket-launching companies, the most intense rivalry is among Boeing, International Launch Services and the European group Arianespace. These three have the biggest and most reliable rockets and a combined 90 percent of the market for medium and heavy satellites. Of 33 launchings in those categories last year, International Launch Services had 13, Boeing 9 and Arianespace 8, Frost & Sullivan said. Twelve were commercial, and Arianespace did half of them.
Besides the Delta IV program, Boeing has 40 percent of the Sea Launch Co., which uses a Ukrainian-built rocket to put satellites into orbit from a converted oil-drilling platform in the Pacific Ocean. International Launch Services markets Lockheed's Atlas rockets and the Russian-made Proton, using access to both in its pitch. The new Atlas V is powered by a Russian engine.
The new Delta and Atlas rockets give Boeing and Lockheed Martin the ability to match Arianespace's Ariane 5, which has grabbed business since its 1999 introduction because it can carry two satellites and a payload up to 14,000 pounds. Older U.S. rockets could not carry more than one satellite or 8,500 pounds.
Describing Arianespace as the "Mercedes-Benz of the launch industry," Philip McAlister, a director of the Futron Corp., a technology consulting firm in Bethesda, Md., said the Europeans had been "kicking the Americans' butts."
Ferocious competition has led to a wave of price-cutting. McAlister estimated that the price of launching a satellite, which can range from $50million to $100million depending on size, had fallen 30 percent in the past two years.
Customers no longer sign launch contracts years in advance. "They're waiting 'till nine months before launch," he said.
Another consultant, who asked not to be identified, estimated that Boeing and Lockheed Martin had cut payload launching prices for the first flights of their rockets by more than 50 percent and that Boeing would forgo payment if its mission was not successful. Lockheed Martin declined to disclose prices. Wilbur Trafton, president of Boeing's launching services unit, said only: "Customers have received what I would call a special deal. It's not our intention to stay at these levels beyond the first launch."
When the Atlas V and Delta IV programs were conceived in the mid-1990s, the Air Force was talking of a "launch on demand" capability for military and spy satellites.
Prospects looked even better on the commercial side, where start-ups, including Iridium, Globalstar and Teledesic, were planning the equivalent of vast telecommunications networks in space. Teledesic, started in 1990 by Seattle-area cable and telecommunications entrepreneur Craig McCaw, had planned 840 satellites, costing $9billion.
Today the Air Force's launch-on-demand vision is still just that. The dreams of McCaw and others are unrealized. Teledesic, for instance, has scaled back its plans to 30 satellites, none yet launched. Globalstar, which has 48 satellites in orbit, filed for bankruptcy protection in February. Iridium emerged from bankruptcy in 2000 in scaled-down form.
Even established satellite operators have cut back. Financing is harder to arrange, and insurance rates have soared because of satellite failures and the higher risk of new rockets, which are not yet proven reliable. Also expected to dampen demand are mergers and takeovers among satellite companies -- such as the deal last year between SES Astra and GE Americom to create SES Global, which operates 29 satellites. Combined companies eliminate duplication and cut costs.
Worse for the industry, technology has extended the life of a typical satellite to 18 years or more, from 12 to 15 years in the 1980s and '90s, lengthening the time between launchings. Referring to Air Force plans, the Pentagon official said that launchings planned for 2006 had been delayed.
The outlook is not all bleak. "It's a cyclical industry," said Juliette Salvati, program leader of the satellite communications division at Frost & Sullivan. "A few lean years do not mean that the industry is dying."
Though global mobile phone and "Internet in the sky" services remain visions, more established satellite uses, including direct-to-home TV, are relatively stable. "Consumer demand for our services is still strong," said Richard DalBello, executive director of the Satellite Industry Association, a trade group.
In any case, satellites have become an essential part of communication. "You can't just switch them off and walk away," said Roger Tinley, vice president for space systems at Telesat Canada, which buys space on a rocket for its satellites every 18 months and is building two satellites.
Schwartz, the Loral chief executive, estimated that 15 to 25 satellites need to be replaced each year as they reach the end of their useful lives and are placed into "parking" orbits or fall back to Earth. Describing replenishment as an "irrefutable law of physics," he said that "the industry has been putting off those decisions, but there's a time when they can no longer be put off." |
