Supply and demand for commercial launchby Jeff Foust
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| “This past year has been a bittersweet year for Sea Launch,” Kjell Karlsen, president and general manager of Sea Launch, said last month. |
However, for the foreseeable future this market still pales in comparison to the established commercial space industry. According to the Satellite Industry Association, the global satellite industry generated nearly $145 billion in revenues in 2008, up 19 percent over 2007. Those revenues are dominated by telecommunications services and the equipment needed to support them. Launch services is only a small sliver of that total—$3.9 billion in 2008—but is obviously essential to the overall industry. Therefore, the continued health of the commercial launch industry, which has had its ups and downs over the last 15 years, is of keen interest regardless of any new NASA initiatives in commercial space transportation.
Relaunching Sea Launch
One launch company that has experienced more downs than ups recently is Sea Launch, the multinational venture that launches commercial satellites from a converted oil platform from the Equator in the Pacific Ocean. Sea Launch suffered a launch failure immediately after liftoff in January 2007, an event that was infamously initially described as an “anomaly” (see “I write sins, not tragedies”, The Space Review, February 5, 2007). Sea Launch resumed operations a year later, but burdened by a heavy debt load, filed for Chapter 11 bankruptcy protection last June.
“This past year has been a bittersweet year for Sea Launch,” Kjell Karlsen, president and general manager of Sea Launch, said in a panel discussion about the launch industry at the Satellite 2010 conference outside Washington last month. While Sea Launch was able to celebrate its tenth anniversary earlier last year, the Chapter 11 filing put most of the company’s operations on hold. “Since June of 2009,” when the company filed for Chapter 11, “we have basically worked on getting funding to continue our operations and to find an exit out of Chapter 11.”
Sea Launch has received the former—what is known as debtor-in-possession (DIP) financing—from a secretive venture known as Space Launch Services. That company, which provided $12.5 million in DIP financing last year and an additional $12 million last month, is linked to Excalibur Almaz, a venture based on the Isle of Man that is attempting to develop a commercial human spaceflight venture using Almaz hardware originally developed by the Soviet space program. Also involved in Space Launch Services is PlanetSpace, a company originally involved in suborbital space tourism but later moved on to orbital spaceflight, bidding for but losing a contract to deliver cargo to the ISS.
Sea Launch is now working on a reorganization plan that will allow the company to exit Chapter 11, as soon as this quarter, Karlsen said. Sea Launch is working with both Space Launch Services and an “undisclosed strategic investor” on that effort, which will wipe away the company’s debts. “The huge debt load that had plagued Sea Launch for its ten years of operations is gone, and we will emerge with a strong equity and balance sheet,” he said.
Separate from Sea Launch’s financial reorganization is a technical restructuring of its operations, work on which Karlsen said preceded last year’s Chapter 11 filing. “We had taken steps to make Energia the prime contractor,” he said, referring to RSC Energia, the Russian company that provides the upper stage for Sea Launch’s Ukrainian-built Zenit-3SL rocket; the companies are now close to finalizing a deal. Doing so, he said, would take care of supply chain issues that had plagued the company in the past.
| “We are an established system that certainly can service that market, especially to the space station,” Karlsen said, referring to a potential entry into government markets. “But immediately off, it’s not our core market.” |
Karlsen said that when Sea Launch does exit Chapter 11, the company will be better positioned to compete on the commercial launch market. Without a heavy debt load to service, he said Sea Launch only needs to perform four launches a year to be successful, less than its theoretical capacity of six missions. The company plans to begin launches again in 2011, and anticipates that by the time it emerges from Chapter 11 it will have a backlog of two years’ worth of launches.
However, the roles played in Sea Launch’s restructuring by nontraditional companies like Excalibur Almaz and PlanetSpace have raised speculation in some quarters that the company might seek to go after markets other than launching commercial communications satellites. Also, the multinational nature of Sea Launch had locked the company out of the market of launching government payloads, which have helped sustain other commercial providers; could a restructured Sea Launch with a majority stake held by, for example, an American company, enable it to go after those payloads?
Karlsen said that, for now, Sea Launch is still focused on its existing business of launching commercial communications satellites, but suggested that if the restructured Sea Launch has a more American-centric ownership structure, they may seek out government business. “We are an established system that certainly can service that market, especially to the space station,” he said. “But immediately off, it’s not our core market.”
Too many or too few launch options?
Sea Launch’s planned return to the commercial launch market comes in the midst of an ongoing debate in the commercial space industry about how many launch providers are needed to support the market. As several companies and organizations seeking to enter, or reenter, the market, satellite operators argue that there’s a need for additional launch providers. However, the two current major commercial launch companies, Arianespace and International Launch Services (ILS), which market the Ariane and Proton rockets, respectively, say too much additional capacity could be a bad thing for the industry overall.
Leaders of the “big four” commercial satellite operators—Eutelsat, Intelsat, SES, and Telesat—said in a panel during the Satellite 2010 conference that they were very happy with the service provided by Arianespace and ILS, but worried about relying on them alone. “The one area of great concern to us is what happens when something happens” to one of those launch providers, said Daniel Goldberg, CEO of Telesat, referring to the ever-present risk of a launch failure. “These manifests are very full right now, and if any one of those companies should have a break in their launch cycle, that will have an adverse impact on us, on our customers, and on our industry as a whole.” That, he said, why it was important to have additional providers to serve as a “backstop” in the event one has a failure.
Operators also want to see additional launch providers to generate competition among providers and keep prices in check. “We need the launcher industry to be vibrant and competitive, with enough players,” said Michel de Rosen, CEO of Eutelsat. Arianespace and ILS, he said, “need the pressure of competition.”
Another reason for increasing the number of launch providers is to encourage innovation in the industry. “We you have a competitive, robust marketplace, where you inject new thinking and new ideas, you do get the kind of innovation that can produce step changes and add value to us as their customers,” said David McGlade, CEO of Intelsat. “I think SpaceX is a great example.”
Certainly several companies are eager to provide that additional competition in the launch market, starting with Sea Launch. “It’s clear that they [satellite operators] do want to see a third supplier in this industry,” said Karlsen, “and they believe us, with our 30-launch history and a great success ratio, should be that third supplier.”
| “We need the launcher industry to be vibrant and competitive, with enough players,” said Michel de Rosen, CEO of Eutelsat. Arianespace and ILS, he said, “need the pressure of competition.” |
Another venture trying to reenter the commercial launch market is China Great Wall Industry Corporation (CGWIC), which made inroads into the market in the 1990s with its Long March series of boosters. However, changes in US export control regulations prevented the export of satellites to China containing US-built components, effectively locking them out of the market. In recent years CGWIC has tried to get back into the market by launching so-called “ITAR-free” satellites, manufactured in Europe or China without any US components, but has won onl a handful of launch contracts.
Yin Liming, president of CGWIC, said at Satellite 2010 that he hoped export control reforms under consideration in the US would make it possible for them to compete more openly in the launch market. “We hope that the restrictions can be removed soon,” he said. However, the version of export control reform legislation currently working its way through Congress would still prevent the export of US-built satellites and their components to China (see “Prospects and concerns for export control reform”, The Space Review, March 29, 2010).
The leaders of Arianespace and ILS, though, worry that too much additional competition in the launch market could hurt everyone in the industry. Jean-Yves Le Gall, chairman and CEO of Arianespace, noted that the industry today has the capacity for launching about 25 satellites a year. In 2009, he noted, there were 22 launch contracts awarded, although only 14 were for new satellites: the remainder were remanifesting previously-announced satellites on different vehicles. “There is obviously an overcapacity of launch services on the market,” he said. While operators might want more capacity, he said, they’re really interested in cheaper launch services. “Today, we have enough launch services to support all the market needs.”
ILS president Frank McKenna concurred, noting the risk of history repeating itself if additional launch capacity entered the market with most projections for commercial launch demand being flat at best for the foreseeable future, with a potential drop in demand in a few years as operators wrap up their current cycle of replacing satellites. “I think we’re in for a very rocky road if we increase the supply at this time. I think the timing is very, very bad for that,” he said. That could create an overcapacity situation like that in the early 2000s, when launch demand failed to meet projections, driving down launch prices and potentially affecting vehicle reliability.
McKenna acknowledged that there is increased commercial demand in a new market, ferrying cargo and crew to the ISS. However, he noted that new vehicles like SpaceX’s Falcon 9 and Orbital Sciences Corporation’s Taurus 2 are being developed to serve that market, and thus doesn’t address potential overcapacity in the rest of the commercial market.
| “I think we’re in for a very rocky road if we increase the supply at this time. I think the timing is very, very bad for that,” McKenna said. |
However, despite the desires of some satellite operators, it’s not clear just how much additional competition will develop in the industry in the coming years. The Coalition for Competitive Launches, an industry group established last fall to lobby for policy changes that would allow China as well as the American EELV rockets, the Atlas 5 and Delta 4, back into the commercial market (see “How competitive is commercial launch?”, The Space Review, October 19, 2009), has been quiet of late. With little prospect of sufficient export control reform to permit Chinese launches of US satellites, and EELV manifests filled with government payloads, neither seems likely to compete head-to-head much with Arianespace and ILS.
With limited commercial success to date by other potential entrants, including SpaceX and the Indian space agency ISRO, the market appears to be left for now primarily to Arianespace and ILS, with Sea Launch prepared to return in the near future as it makes plans to exit Chapter 11. That additional demand likely won’t satisfy satellite operators, but launch providers aware that they can’t be complacent. “The evolution of the market is based on comparative economic advantage,” McKenna said. New systems that can incorporate new technologies and maintain reliability, he said, “will supplant systems that do not keep pace with innovation and technology.”