By Kelly Holder

Back in the 1990s money, along with champagne, was flowing through the halls of launch vehicle companies and the global satellite industry at large. Times were good. Those years experienced a significant increase in the number of commercial launches and everyone hoped it would last. This flow of steady business propelled the launch service providers to develop new and better rockets, which proudly stood ready for liftoff on their launch pads waiting for contracts to become final.

Today, there is no way to sugarcoat the problems that exist. Unlike the robust business of yesteryear, launch service providers find themselves contending with an industry where supply outweighs demand. "The number one issue facing the launch industry in 2004 (and beyond) is overcapacity," says Philip McAlister, director of Futron, a consulting firm based in Bethesda, MD. "Launch demand for the next decade will probably be between 40 and 60 launches per year worldwide, while the available capacity is anywhere from 100 to 150 launches per year. This is going to continue to put financial stress on the industry in 2004 and beyond."

This serious dilemma has left the world’s space-faring nations caught in a cycle of price wars and a super aggressive market; each trying to distinguish itself from the other in order to win launch orders from fewer customers who are now more demanding of launcher services.

A Buyer’s Market

While the pool of global launch service customers has shrunk, the power those clients hold has increased. They come to the negotiating table knowing exactly what they want and offer an impressive list of demands, keeping the checkbook out of sight until they are satisfied. Across the board, many of the satellite operators sing the same tune when it comes time to procuring a launch for their payload. Even though their list of criteria–reliability, flexibility, competitive and fair pricing, and a proven launch record–have not changed throughout the years, their scrutiny for detail has.

Having been in the satellite service provider business since the 1960s, Intelsat knows a thing or two about procuring launch services for its satellites. With the launch of its 10-02 satellite planned in the second quarter of this year, and the expected launch of Telstar 8 in mid-year–pending the final closing of its acquisition of the North American satellite assets of Loral–Intelsat keeps launch companies on their toes. "[We] select launch services based on an evaluation of technical/programmatic factors, contractual terms and conditions and financial aspects," says Terry Edwards, senior director of spacecraft and launch programs management for Intelsat. "The most important technical/programmatic factor is the heritage and launch record of the launch vehicle to be used for the launch service."

And make no mistake: launch procurers are acutely aware of the competition that is out there for their business. Bridget Neville, senior vice president for engineering at Panamsat feels as many others do. "Oversupply of capacity [is the number one issue facing the launch industry.] With fewer satellite launches and more launch capacity, there’s more competition for each launch." Although its launch schedule for 2004 is small–just one launch, the Galaxy 14 later this year–Panamsat operates a fleet of more than 25 satellites in orbit. And like its brethren, Panamsat is a company making its demands known. "On a top 10 list, reliability would be numbers one through eight. Then price, then flexibility," says Neville.

With a global fleet of 16 geosynchronous satellites under its operation and a heavy launch schedule planned for 2004, SES Americom is a company that will hardly go unnoticed by launch service providers. "SES Americom has a very full launch schedule this year. In early February we launched AMC 10 and in mid-May we are launching AMC 11. This summer we have another two launches planned, Worldsat 2 and AMC 15," says Monica Morgan, vice president of corporate communications for SES Americom. Having its launch vehicle contracts already in place, SES Americom’s deciding factors were similar to what launch providers continue to hear. "Reliability is our number one criteria, then flexibility and fair pricing," says Morgan.

Like SES Americom, Telesat Canada’s feelings regarding the launch procurement process are much the same. According to Roger Tinley, vice president of space systems for Telesat, "The satellite industry needs another year of highly reliable services from the launch industry." With more than 30 years of experience, Telesat has successfully launched 12 Anik satellites along with two Nimiq satellites, and plans to further expand its fleet with the launch of Anik F2 this spring. "We look for reliability, a competitive price, flexibility and good customer service when selecting a launch service provider. In addition we are looking for offers with innovative methods to provide financial compensation should there be a launch failure," says Tinley.

Within the Asia-Pacific region not only are some of the regional operators echoing their global operators’ sentiments, but forward momentum is on the horizon for this region’s launcher business. Last year, China put its first human in orbit, rejuvenating the space-based business assets of the country, which include the Long March rocket. Chinese space officials hope to have the Long March garner a significant portion of the future commercial payload sector. "Asiasat has launched two satellites on Long March and for non-U.S. made satellites, Long March is very attractive now and continued success will obviously increase its competitiveness," says Peter Jackson, executive director of Asiasat. The Hong Kong-based satellite operator has a fleet of just three satellites and no launches planned for 2004. Asiasat, however, still has a strong voice at the negotiation table every time it enters the launcher boardroom. "Reliability, unchanged product and flexibility in contract terms" are what Jackson is looking for from launchers. "If all else were equal then price would be the deciding factor," he adds.

Shin Satellite PCL of Bangkok is gearing up for its much-anticipated launch of its IPStar satellite later this year. The IPStar satellite will offer telecommunications and multimedia services to households, businesses and public organizations.

In addition to the Long March, Japan’s H2A rocket will also re-enter the playing field this year, according to industry executives. The Japanese government has decided to privatize the troubled H2A launch vehicle program by 2005. Isao Yamazaki, executive chief engineer for Mitsubishi Heavy Industries, says that the rocket would return to flight later this year, following last November’s launch failure.

The Burden of Proof Rests on the Launchers

If indeed the H2A and the Long March return to commercial activity in the near future, it will only mean that the oversupply issue will continue to influence contract negotiations. Even though the market currently is flooded with more vehicles than it needs, these providers are going to, now more than ever before, hold in high priority the client’s needs for service. Price wars are sure to continue. The challenge of launch service providers then is to do whatever it takes to distinguish themselves from each other and garner orders. And in a time when the growth of the commercial market is minimal and the state of the launcher industry is depressed, that can be hard to do.

"The complexities of our industry make it almost impossible to pinpoint just one factor or issue facing the launch industry in 2004. Predatory, nonmarket pricing is certainly a chief concern," says Jim Maser, president and general manager of Sea Launch. The company prides itself on "creating long-term partnerships," says Maser. "Signing a launch contract is the initiation of each relationship. The activity between the signing and mission completion is a journey that bonds these relationships well into the future." Like any provider, Sea Launch also takes customers’ needs seriously. "Customers want reliability and schedule assurance. We do what we say we’re going to do when we say we are going to do it." As far as pricing goes it is not one of those companies lowering its price to win customers. "Sea Launch will not sacrifice the integrity of our service for price. We are focused on mission success, which can be assured only in a rational pricing environment," says Maser.

Echoing Maser’s feelings about the price wars is Clayton Mowry, president of Arianespace Inc. "The key issue in today’s market is pricing. Those service providers driving the market down with rock-bottom prices will not be able to ensure the quality of their services over the long run."

Arianespace’s family of launch vehicles is equipped to handle small-to-medium payloads through to the heaviest. This range may be an advantage when wooing potential customers who can look to them for many different size payloads. "Customers want tailored solutions to meet their needs," says Mowry, who is fairly positive about the state of the industry. "Overall we’ve sensed a more optimistic mood among the larger satellite operators," he says, referring to the continued demand for Direct-to-Home video and new data services, as well as applications such as High Definition and interactive TV. "We see a slow but steady recovery in the market," he says.

In addition to pricing, back-up launch assurance is also paramount for customers. Heeding this call, Boeing Launch Services (BLS), Arianespace and Mitsubishi Heavy Industries Ltd. signed an agreement last year to provide a new commercial service offering that combines the three launch service providers to ensure on-time launches for customers around the world. The new launch services alliance offers commercial customers the ability to fly on one of the three launch systems. Under this agreement, customers can transition among launch platforms for maximum flexibility to ensure on-time delivery to orbit. This tri-party alliance also preserves each launch provider’s ability to individually market and promote its own unique platforms and capabilities to customers.

But the devil is in the details as they say, and the customers will ultimately decide if this alliance proves financially successful for the providers involved. "From what I understand, the alliance arrangements are not cast in concrete and different back-up and contingency agreements can be crafted for each contract," says Asiasat’s Jackson. "If this is the case, then it could provide significant benefit for the customer."

Telesat’s Tinley adds that having an alternate vehicle available in a short timeframe if there is a problem with the prime launch vehicle makes good sense, but this alliance is fairly new and the terms remain somewhat ambiguous. "This type of backup arrangement, however, is certainly something we will explore the next time we go to the market for launch," he adds.

Clarification of contract terms within such strategic partnerships will be key in winning new business and retaining customer loyalty. When dealing with three separate launch service providers, geographically dispersed launch locations and variants in rockets, customers need to be more sold on the "seamless" transition of switching vehicles if the need arises. "Intelsat understands the underlying point behind the ‘back-up alliance’, but currently we do not have any launch services contracts that implement this offering," says Edwards. "Subject to more detailed review of the specific arrangements, such a back-up provision might be of interest, assuming that it does not unduly complicate the spacecraft/launch vehicle integration activities and does not significantly increase the overall program cost."

In addition to ironing out commercial contractual details, launch service providers are also seeking customers outside the commercial arena. Like most other observers, International Launch Services (ILS) sees the number one issue facing the industry as the slow growth in the commercial market. "The critical buying factors remain constant: reliability, schedule assurance and competitive terms," says Eric Novotny, ILS vice president of marketing, adding that ILS is in the business of selling complete services, not just rockets. "We bring an integrated service offering to our customers that extends from contract signing to spacecraft separation, including mission management and licensing assistance," he says.

With little evidence of anything more than a modest recovery predicted for the near future within the commercial marketplace, launch vehicle companies are also looking to their respective governments for support, either through launch contracts or funding. "There is a recognition of the importance of government business worldwide. While government orders have been a cornerstone of most launcher programs, defense and science missions are making up a larger proportion of the business while the commercial launch market is recovering more slowly," says Novotny. "Government business is key in determining which launch companies will remain viable in a few years."

Another launch provider feeling the sting of a depressed commercial satellite market is BLS. The company formally announced that it will offer Sea Launch as its primary commercial launch system, with its Delta 2 still available commercially and its Delta 4 taking a break for a few years with hopes of reentering the commercial market when conditions improve. According to Robert Villanueva, spokesperson for Boeing Expendable Launch Systems, "BLS understands the needs of its customers and recognizes that customers look at a variety of factors with respect to their mission requirements. These factors include: reliability record, scheduling availability, orbit requirements, launch vehicle performance, the quality of the mission and launch services support and price, to name a few."

Deliberation

The lingering question on everyone’s mind is when the current industry depression will end. "Specifically, 2004 will look much like 2003. We saw 17 commercial launches and 46 non-commercial launches worldwide in 2003. We will see about the same number in 2004," says McAlister. "I do not anticipate any growth. Demand for satellite services will continue to be global with the United States and Europe being the regions with the greatest total demand. The companies that satisfy that demand will be located all over the globe."

Overall, it looks like the problems plaguing the launcher industry today will not go away anytime soon. But despite the uninspiring forecast, there are still those involved with commercial space transportation that remain hopeful and excited that the sun will come out (maybe not tomorrow) and the birds will continue to soar toward Geostationary orbit. In the end, such elements as customer satisfaction, unambiguous agreements and launch assurance will decide the winners from the losers.

Kelly Holder is the managing editor of Via Satellite magazine. She has covered the satellite industry for five years.