Stagflation, overcapacity, and the commercial launch industryby Jeff Foust
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| “While we have an overcapacity,” said ILS president Albrecht, “the fact of the matter is that with real launch vehicles that are really available to launch customers during these time frames, there’s actually a capacity shortage.” |
One conclusion an observer might draw from this is that the commercial launch industry has continued its dizzying decline from the heights of the late 1990s, when the market was far larger and forecasts much rosier. In fact, the situation is more complex than that, as some launch providers claim their near-term manifests are full even as they warn about overcapacity in the overall market. Moreover, despite that overcapacity and flat launch forecasts for the next several years, a number of new vehicles are planning to enter—or in some cases, reenter—the commercial market.
Near-term stagflation
A key element of conventional wisdom regarding the commercial launch industry is that there is a significant degree of overcapacity: far more launchers available than demanded by today’s customers, who are primarily commercial geosynchronous orbit (GEO) satellite operators. The number of launches that the major providers can perform per year is considerably more than the number of commercial satellites ordered in recent years. Yet, because of the introduction of, and problems with, some new launch vehicles, some launch operators report having no room to in the near-term manifests to accommodate additional launches.
“We’re in an ironic situation,” said Mark Albrecht, president of International Launch Services (ILS), which markets the Atlas and Proton boosters to commercial customers, during a session of the Satellite 2005 conference in Washington DC last week. “While we have an overcapacity, the fact of the matter is that with real launch vehicles that are really available to launch customers during these time frames, there’s actually a capacity shortage.”
That lack of capacity, which Albrecht said started last year and will persist this year and likely next year as well, has driven up prices somewhat from the lows of the recent past. (Commercial launch prices are among the most sensitive and contentious data in the entire industry, and are rarely revealed in public.) In a briefing a day before the conference session, Albrecht likened it to “stagflation”, that 1970s-era combination of economic stagnation and high inflation.
Another person seeing brisk business in the near term is Jim Maser, president of Sea Launch, the multinational venture that launches satellites on Zenit 3SL boosters from a floating platform in the Pacific Ocean. “Right now we have a full manifest for the next two years, with five to six launches scheduled for each year,” he said. That’s good news for Sea Launch, which has never performed more than three launches a year. “Our baseline plan to survive would be four [launches] a year, on average, going forward,” he said. “In the long run we’d have to take a hard look at the business plan if we continue for the next few years to launch only three.”
Sea Launch, which relies today exclusively on commercial business, would also like to get involved in government missions, notably ISS resupply, but its multinational nature and the Iran Nonproliferation Act—the Zenit 3SL uses a Russian upper stage—currently prevents it from doing so. Maser believes that NASA would be best served by contracting out ISS resupply, preferably to his company, rather than developing such systems in-house. “Does NASA want to use their best and their brightest and a lot of their money to send toilet paper and water to station?” he asked.
Beyond the near term, though, overcapacity may be a concern again for even the most successful launch operators. Most forecasts call for relatively flat demand for commercial launches: the 2004 forecast for GEO launches by the Commercial Space Transportation Advisory Committee (COMSTAC), an industry group that advises the FAA, estimated an average demand of only 18.3 launches from 2004 through 2013, with a slight increase over the decade to 21 a year by the end of the forecast period. Albrecht said he expects a “generally flat” market of 15–18 commercial launches a year for the foreseeable future.
“So in some senses it feels like a marketplace on a day-to-day basis where you’re in a little bit of a seller’s market,” said Albrecht, “but we’re still in a situation where there’s overcapacity and where new competitors enter all the time.”
Changing nature of demand
In the late 1990s, commercial GEO satellites were large and getting larger, driven by the desire of satellite operators to put more and higher-power transponders on satellites, particularly for direct-to-home (DTH) television and broadband data services. Proponents of that trend might see some proof in the launch of Inmarsat 4, which, weighing nearly 6,000 kilograms, was the heaviest commercial GEO satellite launched to date.
| “Does NASA want to use their best and their brightest and a lot of their money to send toilet paper and water to station?” asked Sea Launch president Maser. |
However, in some respects that satellite is more an anomaly than a trendsetter. A combination of overcapacity among communication satellites in orbit, a rash of technical problems with the new generation of heavy GEO satellites and a corresponding rise in insurance rates, as well as the limited capacity of the space insurance market today, has soured many on these extremely large satellites, and they are instead finding ways to meet their needs with smaller satellites.
A counterexample to Inmarsat 4 is AMC-18, a communications satellite announced last week by SES Americom, the US unit of European satellite operator SES Global. The satellite, which will transmit programming for cable television providers in the US, will weigh only 2,300 kilograms at launch. While most new satellites are larger than AMC-18, these small satellites have found a niche among operators who don’t need the high power or capacity heavy satellites offer. Some industry observers have even suggested a potential bifurcation in the market in the future, as DTH broadcasters and broadband data providers shift to heavy satellites while other users stick with smaller versions.
These shifting needs have an obvious affect on the launch market. “We are not seeing many spacecraft approaching six tons,” said Jean-Yves Le Gall, CEO of Arianespace. “The last contracts we signed were for spacecraft in the range of four to five tons.” Ironically, these shifts come after Arianespace and others invested large sums to upgrade their vehicles to handle heavier spacecraft: the ECA version of the Ariane 5 that returned to flight last month can place 10 tons into geosynchronous transfer orbit, enough for two large satellites. These efforts continue today: Albrecht said that Khrunichev, the Russian company that manufactures the Proton, is completing a program to increase that vehicle’s GEO capability to six tons by removing excess weight from the booster.
At the same time, though, launch providers are looking at ways to more effectively serve smaller payloads. As part of a Franco-Russian accord, Soyuz rockets will begin launches from the same spaceport in Kourou, French Guiana used by the Ariane 5; Arianespace is marketing these launches commercially as a complement to the larger Ariane 5. Sea Launch is pressing ahead with Land Launch, using effectively the same Zenit 3SL rocket but launched instead from Baikonur. ILS, meanwhile, plans to market the new Angara 3 rocket under development by Khrunichev. All three vehicles will be capable of launching GEO payloads in the range of 2,500 to 3,500 kilograms.
New and returning vehicles
These new (or simply relocated) intermediate-class vehicles are just some of the vehicles projected to enter the commercial market in the coming years, despite the relatively uninviting forecasts for launch demand. Perhaps the biggest surprise of last week’s Satellite 2005 conference was the announcement by Dan Collins, vice president for expendable launch systems at Boeing, that the company would reintroduce the Delta 4 to the commercial markets by the end of this year. “With the early success and new capabilities of the Delta 4,” Collins said, “we plan to build off of a strong government manifest and then grow into the commercial world.”
| “Long March has made it very clear they want to reenter the commercial market,” Maser said. “They’re coming back, and they’re going to be cheap.” |
This represented a sudden about-face for the company, which withdrew the Delta 4 commercially in mid-2003, citing an inability to compete with other providers for the limited number of commercial launches. However, in an interview with the Orange County Register the next day, Collins seemed to back away from his bold pronouncement, saying that the end-of-2005 date for the commercial reentry of the Delta 4 was only “a maybe”. During the session itself it appeared that there were still many open issues regarding the Delta 4 and the commercial market: he was unsure if the vehicle would be a part of the Launch Services Alliance, a partnership that includes Arianespace, Sea Launch, and Mitsubishi Heavy Industries (MHI). Moreover, there is a potential conflict in that Boeing Launch Services markets both the Delta 4 and the Zenit 3SL, whose capabilities overlap significantly.
Another player who may reenter the commercial launch market is China, which effectively withdrew the Long March family of vehicles because of US export control restrictions. Maser noted that as European manufacturers are finding ways to eliminate their reliance on US-manufactured components—and hence avoid those export control issues—they will see the Long March as an attractive, inexpensive option. “Long March has made it very clear they want to reenter the commercial market,” he said. “They’re coming back, and they’re going to be cheap.”
Japan is trying to get into the commercial market as well with the H-2A booster. That booster is technically commercially available today, and is part of the Launch Services Alliance, but only now is MHI getting serious about marketing the vehicle. “With the last successful H-2A launch [last month], we have proceeded to enter the commercial launch market,” said Shoichiro Asada, director of the H-2A launch services office at MHI. He said later that they are looking to have one or two commercial launches a year in addition to two or three government missions annually.
The role of entrepreneurs
Even as established and reemerging companies battle for the commercial GEO market, entrepreneurial ventures like SpaceX are taking aim at the market for smaller payloads. At the conference SpaceX founder Elon Musk acknowledged that the first flight of the company’s Falcon 1 had slipped again, to some time in the third quarter of this year, this time because of a range conflict at Vandenberg Air Force Base with the final Titan 4 rocket carrying a classified national security payload. Musk noted that the company is preparing a separate launch site at Kwajalein Atoll in the Pacific for the Falcon’s second launch; if the Vandenberg launch continued to be delayed by range issues once the vehicle is ready to fly, he said, that first launch could be shifted to Kwajalein.
Despite the delays getting the first Falcon 1 off the ground, Musk said he anticipates four Falcon launches over the first 12 months of operations, with a launch rate that will increase once his team gains more experience. “It’s hard to exactly predict demand growth,” he said, but believes that in three years the company will perform 8–10 launches a year of both Falcon 1 and 5 variants, including perhaps an upgraded version of the Falcon 5 that could launch five-ton GEO satellites. “I think there’s significant price elasticity in the market” that will result in new launch demand once low-cost vehicles like his enter the market, he said.
| “If you’re affordable the market will always be there for smallsats,” said Kistler’s Trafton |
Kistler Aerospace, which once planned to offer low-cost launches for LEO satellite systems, is trying to come back after filing for Chapter 11 bankruptcy protection in mid-2003. Kistler president Wil Trafton said that the company should be able to emerge from Chapter 11 shortly after a final court hearing scheduled for March 29. The company is planning the first flight of its K-1 two-stage reusable vehicle in early 2007, although Trafton did not say if the company had lined up all of the investment required to complete the development and testing of the K-1.
Kistler is focusing primarily on government business with the K-1, most notably commercial resupply of the International Space Station. Trafton added, though, that Kistler is “very actively pursuing” the market for launching small satellites. “We’re looking at dedicating our first two launches to precisely that marketplace,” he said, adding those launches would be at “severely discounted” prices. “If you’re affordable the market will always be there for smallsats.”
The emergence of these low-cost alternatives is not a major concern for most existing commercial vehicle operators, since they operate much larger vehicles that serve commercial communications satellite operators, who are relatively risk-averse and insensitive to price reductions. However, these vehicles are a concern to Boeing’s venerable medium-sized Delta 2, which launches primarily government payloads as well as the occasional commercial remote sensing satellite. Collins acknowledged that concern, noting that the vehicle “faces some challenges” from both the new small vehicles as well as larger vehicles that may try to capture some of the smaller payloads the Delta 2 has traditionally launched. “I think we need to meet the challenges by addressing some of the costs on Delta 2,” he said. “For us to be viable in the long term, we’re going to have to be able to produce that launch service at a lower cost than we do today.”
Who will be left standing?
Throughout the session, the industry leaders often spoke of “value propositions”, how they can differentiate themselves from a large and growing pack of competitors to win a sufficient share of the commercial market to survive. They spoke of concepts like backup arrangements and “schedule assurance”, customer service, and affordability. However, those comments masked the main issue of overcapacity. “There’s just not enough to go around, chaps,” quipped David Todd, an analyst with Airclaims, a British aerospace consultancy. “You’re going to have to face facts: some of you are not going to survive. Some of you are going to have to rethink your business plans.” Which launch providers do and don’t survive, and why, is an open question that may take several years to answer.