Perilous Times Jolt Booming Launch Market
CRAIG COVAULT/PARIS
Operational failures, soaring insurance losses, a trade clampdown
and political turmoil are hitting all at once
Internationalcommercial space launch, finance and insurance executives
meeting here said that the volatile new combination of increased failures,
fragile insurance markets and, what they view as inept U.S. policy, are
combining to create havoc in what otherwise should be the strongest
period of growth in the history of global space operations.
The good news
is that the space
launch business
should be
booming with
$45-55 billion in
new commercial
and government
unmanned space
launch
operations now
through 2007--a
2-3 fold increase
over the last
10-year period,
according to a
new assessment
by Euroconsult,
a European think
tank.
But while explosive growth in commercial satcom operations is driving
this increase, the bad news is that other equally important market factors
and government regulations are damaging that growth.
About 250 top managers from virtually every space launch company in
the world, along with key international finance and insurance managers,
were brought together by Euroconsult, for a "Space Transportation
Business Summit" to air their concerns on the situation. Global finance
and insurance is as important to commercial space as rocket fuel.
But managers at the conference said the insurance and financial sectors
have been stunned by the recent failures of spacecraft already in orbit,
launch accidents and U.S. policies that have now largely halted a free
flow of information between international space business staffs.
Approximately $300 million in claims for commercial space losses for the
first five months of 1999 are three times higher than the premiums paid to
cover such losses, said Guy Lallour, manager of international business
risk for France's AGF, the world's largest space insurance underwriter.
This compares with an almost as bad 200% insurance loss ratio for
1998, said Brigitte Vienne, vice president for finance and risk
management at Arianespace.
Individual commercial launches--such as the heaviest Ariane flights with
dual payloads--can put at risk as much as $800 million for one 20-min.
ascent to orbit, other managers said.
But, AGF figures show that the total global space insurance capacity for
the entire year, covering dozens of launches, is only about $1.3 billion.
Lallour said, however, he believes the insurance industry can cope with
the situation. Other managers here warned there is actually less space
insurance capacity available than that--meaning any more losses this year
or next will put this vital segment of the commercial space industry deeply
in the red.
And political factors also loom. The U.S. government's new export
controls and transfer of licensing from the Commerce to State
Dept.--sparked by the Chinese technology transfer controversy--are a
further setback (see p. 23).
"They are killing an entire industry with their lack of attention [to reality],"
said Robert Bednarek, executive vice president and chief technology
officer for PanAmSat. "It's making it more and more difficult to access
information, hampering competition. If we do not have access to
information, we cannot insure your projects," Lallour said.
Jean-Marie Luton, chairman and CEO of Arianespace, said, "We are
very cautious about this [policy] issue. We need information exchange to
make decisions on new projects and offers to customers."
Alexander Medvedev, first deputy general director for Russia's
Krunichev Proton operations, said he is also quite concerned, as is Liu
Zhixiong, vice president for China Great Wall Industries, which markets
the Long March--a key player in the overall controversy to begin with.
Japan's Hiroshi Imamura, vice president for Rocket System Corp., which
is marketing the H-2A, said, however, he believes "time will solve this
problem."
Wilbur Trafton, president of International Launch Services, which
markets both Atlas and Proton, had a similar view. Trafton does not
believe that the U.S. government--hearing such an uproar--will allow any
policy to stand that will damage the industry. But he is also concerned
that a Proton quota--to kick in late this year--be amended.
The loss in just the last year of two Delta IIIs and their payloads, a Zenit
carrying 12 Globalstars, an Athena and its Ikonos satellite along with
three U.S. Air Force Titan IV missions, illustrates the launcher problem
(AW&ST May 3, p. 31; May 10, p. 28).
But there has also been "a drastic increase of in-orbit failures," according
to data compiled by Philippe Montpert, managing director of Paris-based
Aon, the world's largest wholesale insurance brokerage firm. That
represents a shift in the commercial communications satellite industry
requiring operators to think in terms of more total reliability beyond the
launch vehicle, Bednarek said.
The insurance, policy and hardware failure issues all influence the
financing picture. And financing is becoming increasingly hard to get,
especially for startup launch enterprises. This will force a greater blending
of financial and insurance arrangements, managers said.
The recent collapse of the high-yield debt market and the Asian
economic crisis have greatly reduced the money available for commercial
space investment, said George Mueller, chief executive officer for Kistler
Aerospace Corp.
The deep financial troubles of the Motorola Iridium program are also
severe enough to be influencing the entire space investment picture,
several managers said.
The total commercial space financing needed through 1999 is about
$750 million, said Mathis H. Shinnick, managing director for banking and
corporate finance at Chase Securities. But only about $450 million of that
has been raised to date, he said. Companies like Kistler, Sea Launch,
Rotary Rocket and Kelley Aerospace are all vying for investment, but
obtaining the money will be difficult because "capital markets are yet to
finance any standalone launch providers," Shinnick said.
One exception may be Sea Launch, however. The company's successful
first Zenit launch on Mar. 28 may allow it to go to the market soon for
nonrecourse financing, he said, adding that he believes such financing in
which assets are less at risk, would be unprecedented for a commercial
space project.
Sea Launch is dealing with the pullout of their Norwegian partner,
Kvaener, as a result of financial problems in the firm. The recent string of
failures--both with operational satellites already aloft and missions during
launch--are also having a significant effect on the overall
telecommunications market's perception of space.
"When we talk to our customers [in the telecommunications industry]
there is a growing belief that commercial communications satellites are
unreliable--that satellites and boosters are failing--and that these are 'very
visible failures,'" Bednarek said. "We must broaden customers'
perspectives" on the nature of this business, he told the forum. He is in a
strong position to know--PanAmSat is operating 19 spacecraft.
The major U.S. government and industry reviews sparked by the string
of accidents should result in "increased reliability across the board," said
Trafton of ILS. J. David Schweikle, general manager of Boeing's Delta
Launch Services Div., which has suffered two Delta III failures in a row,
agreed, but said a lot will depend upon the specific causes found for each
accident and how that influences processes down the chain from prime
contractors to component suppliers. Delta managers are looking at the
possibility that a gear failed in the pump of a Pratt & Whitney RL10B-2
engine in the May 4 Delta III mission failure.
Andrew Beal, president of Beal Aerospace Technologies, which is
developing a large new expendable, said the accidents and reviews "will
make it harder" for new firms like his to break into commercial
operations. There will be a premium placed on performance and
demonstrated reliability. "I think the world is skeptical of just talk," Beal
said. He noted his own program plans to make at least two flight test
launches without payloads to prove his booster's performance and
reliability.
© May 17, 1999 The McGraw-Hill Companies Inc. |
