By Lisa Daniel

After enduring years of low prices created by too many vehicles and too few satellites, the commercial launch industry is undergoing a market correction that is filling manifests and creating competitive services and alliances as well as some new players.

For customers, the shift in supply and demand has meant rising prices and as much as a two-year wait to get on launch manifests. "It’s not like a few years ago when you could step in and get a good deal on short notice," Jeff Foust, a Futron Corp., analyst said.

While commercial launch providers are enjoying the shift and their full manifests, they clearly are thinking about what happens when these current backlogs thin out. What customers have lost in price and expediency, launch providers are trying to make up for with improved services, specifically, more reliable equipment, and launch dates and a greater flexibility in negotiating contracts, launch company executives say.

With the leveling of prices and supply has come a more competitive market among the top three launch players — International Launch Services (ILS), Arianespace and Sea Launch — and ultimately, what the commercial launch providers are seeking is a balance between the extreme market highs of the 1990s and the lows of the late 1990s and the early 2000s. "I think we’ve recovered from the price instability of the turn of the century," says Mark Albrecht, president of ILS. "The inventory of vehicles is stable now and we know what the supply is. It’s just a matter of satellites and launch vehicles finding each other in equilibrium and I think we are reaching that."

That equilibrium is creating a collective sigh of relief among launch providers. "For the first time in a long time, I have confidence in the delivery schedules of satellites," says Rob Peckham, president and general manager of Sea Launch Co. LLC. "That’s not to demean the satellite manufacturers. Those guys were put in a really tough spot, and I think they responded the only way they could and admirably delivered products where they could."

One method for providing the reliability that satellite operators and launch service providers are seeking has been the development of backup agreements between launch providers, guaranteeing customers that if space is not available on one vehicle, another rocket will be available to place a spacecraft into orbit. ILS, formed in 1995 by Lockheed Martin and Russia’s Khrunichev State Research and Production Space Center to market launches of the Atlas 5 and Proton rockets, started the trend by offering customers who bought a launch aboard one vehicle the option to transfer to the other if needed. Albrecht believes ILS’s success helped spark a similar agreement among its competitors — Sea Launch, France’s Arianespace and Japan’s Mitsubishi Corp. created the Launch Services Alliance in 2003 to offer backup services among their respective launch vehicles. But ILS may lose its backup offerings with the September announcement that Lockheed Martin will sell its interest in ILS to Space Transport Inc. and will market commercial launches of the Atlas 5 on its own through Lockheed Martin Commercial Launch Services.

New Entrants

While overcapacity was a major contributor to the problems the launch industry faced recently, that has not kept new entrants from trying to crack the market. The most serious new challenge to the established players is coming from Space Explorations Technology, or SpaceX, a California-based start up created by Paypal magnate Elon Musk, who if financing SpaceX with his own fortune. SpaceX’s first rocket, the Falcon 1, uses a two-stage engine and "the most basic liquid oxygen-kerosene propulsion," says Larry Williams, SpaceX’s vice president of international and government affairs. The back-to-basics model is meant to decrease the possibility of failure by having fewer stages and cut costs by eliminating unnecessary extras such as "exotic" fuels, he says. The Falcon 1 failed in its first launch attempt in March, but the U.S. Defense Advanced Research Projects Agency has approved the return of the vehicle to flight status, and SpaceX plans to attempt another launch before the end of 2006.

While the Falcon 1 targets the small end of the launch market, SpaceX also plans to unveil a larger vehicle in 2008, dubbed the Falcon 9, and plans on competing for commercial geostationary launches by undercutting competitors’ prices. "We intend to compete along the entire breadth of the launch industry from small to heavy launch, and we intend to be a heavy player in all segments domestically and internationally," Williams says. SpaceX sold a launch of the Falcon 9 to the U.S. government for $33 million, while similar service with the Atlas 5 average $160 million, he says.

"In this business, oftentimes, you get what you pay for," Clay Mowry, president of Arianespace Inc., says. "They may start with a low overhead, but it will be interesting to see where they are as time goes on."

SpaceX is not the only possible competition for the established large launch providers. It is unclear what impact Lockheed Martin’s decision to bring marketing of the Atlas 5 in-house will mean for the commercial market. ILS’s commercial manifest has been dominated by the cheaper Proton, and both the Atlas 5 and Boeing’s Delta 4 are considerably more expensive than other vehicles.

Government-owned vehicles in China, India and Japan could have an impact on the market, though India’s Geosynchronous Satellite Launch Vehicle suffered a failure in July, and China’s Long March rockets faces export issue keeps it from being a serious competitor for international commercial business.

Established Players Sharpen Operations

While not seeing any serious competitors on the horizon, established launch providers also continue to sharpen their competitive edge. The alliances are just part of several new initiatives, many branded around the buzzword flexibility.

Arianespace has undertaken arrangements with launch insurers, known as Launch Reflight Guarantee, to provide flexible pricing. The company also markets added flexibility in its ability to launch the new, super-sized satellites weighing up to 8 metric tons. "Our platform allows for freedom of design because nobody launches rockets as large as we do," Mowry says. "With these huge satellites, they have the freedom to build antennas as large as they want."

Sea Launch officials also are talking about flexibility. "Flexibility, on our part as providers, is critical to the success of our business," says Peckham. "Our business is much more than launching rockets, it’s launching satellites and working with all of our customers’ needs."

Sea Launch plans to debuts its Land Launch program in 2007 with the hopes of breaking into the U.S. government market, possibly as a subcontractor to NASA or the International Space Station, Peckham says. Currently, Sea Launch is barred from launching U.S. government payloads because the company does not meet the requirement of having at least 51 percent U.S. content or ownership. "We recognize we have barriers to overcome," Peckham says. "It’s not our place to change U.S. law or policy, but we are making the government aware of what our capabilities are and support the vision of space when called upon."

Rather than look toward new markets, ILS is focused on capitalizing on its current customers and growing services like HDTV, satellite radio and disaster response, Albrecht says. "We’re in a stable business," Albrecht says. "We’re not in a high-growth business. "So the question is, ‘Where is the growth within?’ We determine our growth prospects in each business and follow that." Like his counterparts, Albrecht quickly turns to the need for flexibility. "We continually survey the scene and get to know our customers to better understand their business models and be more flexible and adaptive," he says.

While launch providers enjoy new equilibrium in supply and demand, they still have to stay attuned to volatility in the market, Foust said. "They just need to keep their eyes on the key issues, and they are all aware of that," he says. "A stumble, a failed launch or any significant setback to a customer will open the door to a competitor."

Lisa Daniel is a freelance business writer who covers the satellite industry. She may be reached at [email protected].