Article from MSN
WITH A DOWNTURN in Asian markets and
an oversupply of commercial jets, Boeing's
management is, out of necessity, placing a
greater emphasis on satellites and spacecraft to
reduce the company's exposure to the cyclical
and unpredictable aircraft market.
One reason is profits. Boeing's Space and
Communications Group will have revenues of
only $7.2 billion this year, according to Paul
Nesbit of JSA Research in Newport, R.I., while
commercial aircraft brings in $35 billion. But
space, information and defense will post
margins of 7 percent to 8 percent, according to
Boeing's own estimates, while the commercial
aircraft unit is likely to lose money.
Growth is also a motivator. Revenues from
the Space and Communications Group will
climb at a 10 percent annual clip through the
year 2002, says Nesbit, while defense revenues
will shuffle along at a 2 percent clip and the
commercial aircraft business will contract.
To be sure, the plane business will continue
to account for over half of Boeing's sales for
the foreseeable future, and the company's
financial prospects are not likely to improve
markedly until its production problems are
solved. In fact, Boeing got a boost Wednesday
when Trans World Airlines placed an order for
50 Boeing 717-200s for delivery beginning in
February 2000.
SNAPPING UP SPACE LEADERS
But commercial space ventures, such as the
floating Sea Launch rocket platform, and
non-commercial efforts, such as the
International Space Station, can do much to
ensure Boeing's viability into the next century.
“That was the whole purpose of the
acquisition of both Rockwell [in December
1996] and McDonnell Douglas [in July 1997],”
says Bill Whitlow, a longtime Boeing analyst
with Safeco Asset Management in Seattle, “to
get a better balance of commercial aircraft,
space and defense.”
Data provided by
Microsoft Investor
Boeing expects rapid growth for the entire
space market. In a recent briefing, Boeing
forecast that the global space industry will be
worth $125 billion in 2003, up from $40 billion
this year, according to Whitlow.
One particularly promising space segment
is the satellite launch business. Boeing will
generate $2.2 billion from launch services this
year, according to Nesbit, rising to $4.55 billion
by 2002.
DELTA ROCKETS: SUCCESS AND
FAILURE
The centerpiece of Boeing's launch
business is the Delta II rocket, which will propel
12 payloads into orbit in 1998. McDonnell
Douglas created the Delta family of rockets in
1960 to support Air Force and NASA
programs, and the Delta II has been in operation
since 1989.
The Delta II rocket is
currently the workhorse
of Boeing's commercial
space launch business.
Boeing has had
good success
attracting
commercial as well
as government
customers for the
Delta II. One of the
most noteworthy is
Iridium World
Communications
Ltd., the
Motorola-backed
entity that last month
debuted a global,
satellite-based phone
and paging service. Iridium has used 11 Delta II
rockets to put 55 satellites into orbit, more than
three-quarters of the total Iridium constellation.
The work for Iridium is important in many
ways. First, Delta launches generate revenues of
$55 million apiece, on average, according to a
Boeing spokeswoman.
Second, the success of Iridium increases
Boeing's credibility as it seeks business with the
many satellite-based communications services
scheduled to go into orbit over the next decade.
Boeing already has a $1.4 billion contract to
provide systems integration and build and
launch satellites for Ellipso, a 17-satellite
constellation that will provide global voice and
data communications. Boeing is also an
industrial partner and investor in Teledesic, a
288-satellite system that will provide high-speed
data connections anywhere on the planet.
A planned expansion of the Delta family ran
into turbulence last summer, however. The
first-ever Delta III rocket failed at liftoff in
August, destroying PanAmSat's $225 million
Galaxy X communications satellite in the
process. Boeing will try to get the Delta III off
the ground again in the first quarter of 1999.
TO THE STARS FROM SEA
Another important piece of Boeing's space
plans is Sea Launch, an ambitious project that
will use a converted oil rig to fire rockets into
space from the middle of the Pacific Ocean. By
launching payloads at the equator, Sea Launch
can leverage the Earth's rotational force to
increase the efficiency of its launches.
Boeing has a 40 percent interest in Sea
Launch and is the overall project coordinator.
Other partners are KB Yuzhnoye/PO Yuzhmash
of Ukraine, which produces the two-stage Zenit
launch vehicles that Sea Launch will use; RSC
Energia of Russia, which produces the rocket's
upper stage; and Kvaerner Maritime a.s of
Norway, which built the Sea Launch command
ship and prepped the launch platform.
Given the August failure of the Delta III,
along with several highly publicized glitches on
satellites in orbit, getting Sea Launch off to a
smooth start is “crucial,” says Amy Buhrig, vice
president of marketing for Sea Launch.
‘If [Sea
Launch] is
successful, it
will show
amazing
ingenuity by
the company to
think outside
the box.
Customers will
place more
confidence in
the company
and their ability
to get a task
done.'
— PETER JACOBS
Ragan McKenzie
“These failures are impacting the insurance
markets and the financing markets, and making
everyone more risk averse,” says Buhrig. Sea
Launch's maiden voyage, scheduled for March
14, was originally supposed to carry
PanAmSat's Galaxy XI, but that satellite will
now be launched on a French-made Ariane
rocket and Sea Launch's first flight will carry a
demonstration payload.
Since Boeing holds just a 40 percent
interest in Sea Launch, the potential revenue
stream is not enormous. But, like Boeing's work
for Iridium, Sea Launch could give the company
valuable cache.
“If this is successful, it will show amazing
ingenuity by the company to think outside the
box,” says Peter Jacobs, an analyst with Ragan
McKenzie in Seattle. “Customers will place
more confidence in the company and their
ability to get a task done.”
One business that Boeing is not likely to get
into are satellite services, such as direct-to-home
television, voice, and data services. That puts
Boeing at odds with longtime competitor
Lockheed Martin Corp., which announced last
September that it intends to spend $2.7 billion to
buy communications services provider Comsat
Corp.
Given the company's present situation, that
decision suits most analysts fine.
“I think they've got a pretty full plate,” says
Nesbit, “given the problems they've got on the
commercial airplane side.”
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