The Space Reviewin association with SpaceNews

Falcon 9 first launch
SpaceX’s early success with the Falcon 9 has helped it compete in the mainstream commercial launch market. (credit: Chris Thompson/SpaceX)

New competition and old concerns in the commercial launch market

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In the ongoing political debate about NASA’s commercial crew development plans, one argument often put forward by opponents is that commercial providers are untried and unproven. This is typically an implicit—and sometimes an explicit—reference to SpaceX, which at the time the commercial crew proposal was rolled out in February 2010 had yet to launch its Falcon 9 rocket. Since then, of course, SpaceX has performed two Falcon 9 launches, both successful: enough to demonstrate its capabilities, if not to win over all its critics.

Those launches may have opened the doors for SpaceX to more than just the commercial crew market, though. Another launch market that today is far larger and more mature than commercial crew and cargo is for commercial satellites, dominated by communications satellites in geosynchronous orbit (GEO). The customers for these launches, including several companies that operate fleets of dozens of satellites each, tend to be relatively risk averse when it comes to purchasing launches, valuing reliability and on-time performance over discounted launch prices. And yet one of those major satellite operators has stepped forward to buy a launch from SpaceX, one of several developments that have the potential of reshaping the global commercial launch industry in the next several years and also stoking the ongoing debate about the appropriate level of supply in the commercial launch market.

SpaceX enters the market

Last Monday, as the Satellite 2011 conference kicked off in Washington, SpaceX announced it had won a contract from Luxembourg-based SES to launch one of that company’s satellites. The contract calls for the launch of SES-8, a satellite ordered from Orbital Sciences Corporation last month, in the first quarter of 2013 from Cape Canaveral, Florida, with an option for a second launch approximately two years later.

“The SES deal shows that even the most conservative commercial or government customers can have confidence flying their satellites on the Falcon 9 rocket,” said Musk.

As it turns out, this contract is not the first SpaceX has won for commercial GEO communications satellites. Last year SpaceX won contracts with Spacecom, a small Israeli operator, and Space Systems/Loral, a major commercial satellite manufacturer, for commercial GEO launches. The SES launch, though, will be the first commercial GEO mission for SpaceX. More importantly, though, it’s a sign that SES, one of the four large commercial satellite operators (along with Eutelsat, Intelsat, and Telesat), is confident enough in SpaceX to satisfy its risk-averse nature.

“SES is known for their low tolerance to risk and cautious approach in evaluating suppliers,” said SpaceX CEO Elon Musk in the release announcing the contract. “The SES deal shows that even the most conservative commercial or government customers can have confidence flying their satellites on the Falcon 9 rocket.”

“SpaceX, with the Falcon 9, is a very interesting development in order to being small and medium-sized satellites into geostationary orbit,” Romain Bausch, president and CEO of SES, said during a panel session of major satellite operators at the Satellite 2011 conference on Tuesday.

Bausch said, though, that the Falcon 9 is today not ready to launch SES-8. “There are a couple of enhancements that will need to be done: a larger fairing, and also enhancement of the engine,” he said. “But our team, after a very thorough due diligence, came to the conclusion that this is very likely to be achieved.”

In another Satellite 2011 session later Tuesday, SpaceX president Gwynne Shotwell confirmed that the SES launch is dependent on fairing and engine upgrades to the Falcon 9. “They did want to see a fairing flight prior to” the SES-8 launch, she said. “We’re also working on upgrading our engines, and they wanted to see a flight of that.”

“I think that it’s huge news” that SpaceX won the SES contract, said James Murray of Morgan Stanley.

Other satellite operators, who in recent years have complained about increasing launch prices and limited competition in the commercial launch market, applauded the SES-SpaceX deal, while not necessarily racing to ink similar deals of their own. “It seems to me the most viable new entrant is SpaceX,” said Dave McGlade, CEO of Intelsat, during the Satellite 2011 operators panel. “We’re very pleased you’re [SES] helping them jumpstart their capabilities in the commercial side. We’re a bit more conservative at Intelsat so we look forward to success for you first.”

“I applaud the announcement SES and SpaceX made the other day,” said Daniel Goldberg, CEO of Telesat. He said the low launch costs offered by SpaceX and potentially other new entrants in the market, such as India, could make the launch of smaller GEO satellites more economical than today. “If the launch costs can get down for the smaller satellites… then that would make launching smaller satellites much more viable.”

The financial community also sees consider potential for SpaceX in the commercial GEO launch market. “I think that it’s huge news” that SpaceX won the SES contract, said James Murray of Morgan Stanley during the Satellite Finance Forum, part of Satellite 2011, on Monday. Attracting “blue chip” customers like SES is a “ringing endorsement” of SpaceX, he said, adding that such customers could help SpaceX attract financing in public markets.

Murray also looked ahead to SpaceX’s plans to develop the Falcon 9 Heavy, whose larger capacity would allow it to launch the heavier commercial GEO satellites that make up most of the market. “I think for the first time you may have a truly competitive commercial environment,” he said, with SpaceX competing against Arianespace, International Launch Services (ILS), and perhaps Sea Launch. “I think this is a very dynamic sector.”

Other competition and controversy

While SpaceX is making inroads into the commercial GEO launch market, Sea Launch is looking to get back in. The company filed for Chapter 11 bankruptcy protection in June 2009, putting launch operations on hold while it worked to restructure the company (see “Supply and demand for commercial launch”, The Space Review, April 5, 2010). Sea Launch emerged from Chapter 11 last October under a new ownership structure dominated by RSC Energia, one of the companies in the original multinational partnership.

“Going forward, Sea Launch is focused on the heavy-lift sector of the market,” said Kjell Karlsen, president of Sea Launch, during a launch providers panel session at the conference. “We look at ourselves as the third proven provider in that market” after Arianespace and ILS.

Karlsen said Sea Launch plans to resume launches later this year, with two planned for this year and three for next year, based on existing launch contracts. By 2013, pending the signing of new launch contracts, he said Sea Launch planned to do as many as five launches a year.

“We look at ourselves as the third proven provider in that market” after Arianespace and ILS, said Sea Launch’s Karlsen.

Sea Launch’s reentry into the market, as well as SpaceX’s plans (Shotwell said the company expected by 2013 or 2014 to be performing as many as a dozen Falcon 9 launches a year, although many of those will be for NASA and other non-GEO customers), would seem to pose a competitive threat to Arianespace and ILS, who today account for most commercial GEO launches. At the Satellite 2011 panel, though, the heads of the two companies had differing takes on effect those entrants will have on the overall market.

“I think there will be another rationalization” in the launch market like what took place in the early 2000s, said ILS president Frank McKenna. Then, a drop in launch demand pushed some vehicles, like the Delta 4, off the commercial market entirely, while the Atlas 5 saw its commercial business decline to a trickle. Now, declining demand for launches as major satellite operators wrap up replenishment of their satellite fleets, and a desire for those operators to be more efficient and lower costs in the face of terrestrial competition, could affect the launch industry. “I see that, in the next four to five years, will clearly lead to a shakeout,” he said. “There’s no doubt in my mind about that. The weaker players, financially, will have to exit.”

Arianespace chairman and CEO Jean-Yves Le Gall, though, said he was confident that his company’s record of reliability and performance would allow it to continue to attract customers, regardless of the market. “We are starting to see customers move to heavy, heavy satellites, beyond seven tonnes,” he said, a move that would effectively exclude all of Arianespace’s competitors, since the Ariane 5 is the only commercial vehicle on the market capable of launching spacecraft that large to GEO. That is only possible, he said, because of the record of success built up by the Ariane 5, whose last launch failure was over eight years ago. “The customer can take the risk with a satellite that can be launched only by the Ariane 5.” He predicted that, within a few years, there would be customers that would use the full capacity of the Ariane 5, about nine tonnes.

During the Satellite 2011 panel, Le Gall and McKenna spent less time debating the future of the launch market than debating each other regarding the degree to which they are subsidized by their respective governments. McKenna noted ILS has a balance between commercial customers, which account for about eight Proton launches a year, and Russian government, or federal, missions, which account for about four Protons a year. “The eight commercial [launches] drive the economics,” he said, allowing them to avoid subsidies. He contrasted that Arianespace, which he said has taken about a billion euros ($1.4 billion) in subsidies in the last several years.

“I see that, in the next four to five years, will clearly lead to a shakeout,” ILS president McKenna said. “There’s no doubt in my mind about that. The weaker players, financially, will have to exit.”

Le Gall countered that while Arianespace may receive subsidies, it at least does so in a transparent manner. “At Arianespace, we decided that the effort of the European governments to sustain launch services must be completely transparent,” he said. He contrasted that to his experience with Starsem, a European-Russian joint venture to market the Soyuz rocket that Le Gall also serves as chairman of, where he said there was a “huge effort” by the Russian government to subsidize the industry. “Our analysis is that the Russian launch systems, either Proton, Soyuz, or Zenit, receive a lot of subsidies, much more than Ariane, but these subsidies are not transparent.”

That debate about subsidies is likely to continue after ESA member nations agreed late last week to provide an additional 240 million euros (US$340 million) for the Ariane 5 program through the end of next year. McKenna told Space News that ILS has gone as far as considering filing a protest of the subsidies with the EU or the World Trade Organization, arguing that, among other things, such subsidies are “detrimental to the long-term health of the commercial launch industry.”

Regardless of the level of subsidization, it’s clear that satellite operators welcome additional choice in the market provided by SpaceX and Sea Launch, seeing them as able to counter trends for increasing launch prices. “Having new entrants is key,” said Intelsat’s McGlade. He noted that he and Eutelsat made “a huge amount of effort” to ensure that Sea Launch emerged from Chapter 11.

“In recent years we’ve seen prices go up,” said Michel de Rosen, CEO of Eutelsat. “That is a concern for our industry, and therefore to see new players come in is good news, because just like we compete with one another to satisfy our customers, it is good that our suppliers also compete with one another. Hopefully this will have a positive impact on the evolution of prices of launchers in the coming years.”

Launch providers, of course, fear that the additional supply, coupled with forecasts for diminished demand, could lead to a “rationalization” as McKenna fears. One potential sign is the future of Land Launch, a venture that uses a variant of Sea Launch’s Zenit-3SL launched from Baikonur, serving smaller GEO satellites in competition with Soyuz and, now, Falcon 9. Sea Launch’s Karlsen said that there are no Land Launch missions on the books after a mission for Intelsat planned for later this year. “After that, we have to sort out what to do with Land Launch,” he said. “At this point in time, I’m not certain that Land Launch is competitive in the marketplace for those kinds of satellites.”

The question facing the industry is whether, in a few years, other launch systems will be in the same situation as Land Launch, if too many vehicles chase too few launches in this market.