Losing ground
Slumping satellite industry sees ray of hope in demand from broadcasters, retailers
boston.com
By Ross Kerber, Globe Staff, 2/6/2003
For the struggling commercial satellite industry, the disintegration of the Space Shuttle Columbia last weekend was the least of its problems. After years of growth driven by sales to the telecommunications industry, the sector has entered a deep slump with too many factories and launch pads chasing too few commercial projects.
But at the same time, new satellite-television and retail-services companies continue to find niches, and a strong backlog of orders should insulate the sector from whatever consequences befall the National Aeronautics and Space Administration following Saturday's disaster.
Changes instituted after the 1986 Challenger explosion largely put NASA out of the commercial-launch business. At the time officials worried the industry had become too dependent on the shuttle program. In addition, traditional rockets, including a new generation coming into service from Boeing Co. and Lockheed Martin Corp., can put satellites into higher orbits than the shuttle can reach. Now many satellite-industry executives are largely indifferent to the question of whether manned flight should continue, either on the shuttle or on board the International Space Station.
''If NASA either stopped or eliminated its human space flight program, and you asked what effect it would have on the commercial space industry, the answer would be, very little,'' said Philip McAlister, director of Futron Corp., a Bethesda, Md. management-consulting firm that works for NASA and several of its contractors.
Said Marco Caceres, senior analyst at Teal Group, a Fairfax, Va., aerospace research firm: ''I'm not sure you can connect the problems of the shuttle with the rest of the industry. They're now distinct areas.''
The satellite sector's record represents the successes and failures of privatization efforts, but also explains the small demand for NASA's services. Some argue that the commercial sector could suffer as well if NASA's manned programs were cut back, but only because the drop in demand would further increase the glut of capacity for manufacturing spacecraft. As a whole the US space industry is ''vulnerable and fragile,'' said Jeff Bialos, a Washington attorney and a former Pentagon official for industrial affairs in the Clinton administration.
''Any demand for space is important to the whole industry, and a significant decline in NASA's budget for space would lead to cutbacks across the whole sector,'' he said.
The satellite industry consists of the assembly facilities run by Lockheed Martin of Maryland, Boeing of Chicago, Loral Space & Communications of New York, and two European competitors; launch services that use rockets built by many of the same companies; and ground-based services. These include the leasing of bandwidth to television broadcasters and to consumer services such as satellite- TV systems like Hughes Electronics Corp.'s DirecTV and EchoStar Communications Corp.'s Dish Network.
The growth of both consumer-TV companies has been a rare bright spot for the industry. Another hit has been the use of satellites to link point-of-sale terminals used by retailers including Target and grocer Winn-Dixie Stores Inc. Excluding military work, the worldwide satellite industry's revenue rose to $85.1 billion in 2001 from $82.6 billion in 2000, according to the Satellite Industry Association, including manufacturing, launching, and ground services. The SIA once predicted 2002 revenue would reach $101 billion, but executives now believe that estimate is too high based on preliminary data.
Military satellite applications are probably worth another $50 billion worldwide, some analysts estimate, money that largely goes to pay private contractors. Occasionally the shuttle has been used for military purposes. One example was a mission flown by the Space Shuttle Endeavour in 2000, sponsored by the little-known National Imagery and Mapping Agency, which used a sophisticated radar to plot topographic data for most of the Earth - crucial for targeting smart bombs and missiles. But military sales have been flat in recent years.
Another Pentagon contribution has been to pay Boeing and Lockheed more than $500 million apiece for the development of the new generation of rockets known as the ''evolved expendable launch vehicle.'' Each company has recently used its versions to fly a commercial satellite cargo into orbit, and earlier generations such as Boeing's Delta II rockets are also still operating. All compete with foreign launch companies including Europe's Arianespace, in which France holds a majority stake. Bloomberg News reported last week the Pentagon might drop either Boeing or Lockheed's new program to cut costs, a possibility the Pentagon won't discuss.
Finding satellites to put on board these rockets became more difficult with the collapse of the telecommunications industry. Boeing, for instance, launched four rockets last year - down from 12 in 2001. Two well-known customers in the past were those that provided worldwide satellite-telephone services to consumers, Iridium and GlobalStar. But each filed for bankruptcy several years ago; Iridium has since emerged but neither has remained a major launch customer.
Another market that has failed to develop as expected is for the production of images of Earth from space, known as ''remote sensing,'' using technologies that previously were only available to spy agencies. In January, for instance, both Lockheed Martin and Lexington-based Raytheon Co. took charges related to their investment in Space Imaging, a Colorado photo service that operates a satellite that can provide civilian customers with digital images with ''1 meter'' resolution.
Prior to 2002 customers ordered 25 to 35 commercial satellites each year, according to the satellite industry trade group, but last year only about five satellites were added to company backlogs. ''It's a global depression on the commercial side,'' said Dan Beck, a Boeing spokesman. ''The only reason that Boeing has been able to get through this downturn is because we have a robust government-satellite business,'' including military sales.
Boeing, Lockheed, and Loral produce their satellites mainly in California. Boeing received just one commercial order last year; Lockheed Martin said it received no orders last year and hopes for a few in 2003. Loral also booked no satellite orders in 2002.
All three companies say they have a sufficient backlog to see them through the downturn, though they also began rounds of layoffs last year that will ultimately reduce their combined work force by several thousand people, to around 15,000. While all three companies are involved in manned flights, their satellite operations are largely distinct.
For instance, Loral also produces batteries used on board the International Space Station, and spokesman John McCarthy said the company expects its ''involvement with the project will continue well into the future.''
But any major changes wouldn't likely have a big impact on Loral, which generates such a small portion of its revenue from the battery sales it doesn't disclose the figure. ''It's just a fraction of our business,'' McCarthy said.
Ross Kerber can be reached at kerber@globe.com.
This story ran on page C1 of the Boston Globe on 2/6/2003.
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