The September failure of an International Launch Services (ILS) Proton rocket is the latest incident that has led to a tightening of capacity in the launch services market. The Proton loss, along with a January Sea Launch failure, have temporarily left satellite operators with few launch options, and some operators have felt compelled to secure access to space with long-term deals, leaving other operators even fewer options. The potential emergence of low-cost vehicles could add yet another dimension to a market that is seeing its competitive dynamics change rapidly.

Arianespace benefited the most from the launch problems experienced in 2007. “The last year has been a bit unusual,” says Jean-Yves Le Gall, chairman and CEO of the French launch provider. “In addition to the foreseen launches on our manifest, at the last minute we were asked to accommodate a number of orphaned payloads. Of course, we obliged, and on Aug. 14, we were able to launch the first of these — Spaceway 3 — only six short months after the contract was signed. I was extremely pleased with how our team was able to pull together and bring this mission to fruition, under the pressure of an immediate deadline.”

But in the aftermath of Proton failure the queue for launch services already is beginning to build again, and the short-term capacity that allowed some operators to find new rides after the Sea Launch failure is no longer available, says Le Gall. “There are several customers who are looking for launch opportunities in the near term. We will work to see if we can find a solution, but the manifests today are crowded. In the long term, a delay of six months or more could have a domino effect on customers launching in 2009.” Arianespace is upgrading its Ariane 5 launch vehicle to provide the capability to launch up to 16 satellites per year by 2009. “That should help stabilize the market as it exists today,” he says.

Sea Launch, which has been working feverishly to resume operations, hopes to perform its return-to-flight mission in November once the satellite for the mission is delivered, says Robert Peckham, president of Long Beach, Calif.-based Sea Launch. “We had an ambitious recovery plan, and we have met all of our goals. We set a goal of being ready to launch in October and we are ready. From the beginning we have accomplished things no one else has ever attempted and, after Jan. 30, we faced new challenges that no one else has ever had to meet or even look at. We have done it.”

However, the problems suffered by some of the traditional commercial launch providers could provide an opening for some old entrants, says David Markham, president of Lockheed Martin Commercial Launch Services. While Lockheed Martin’s Atlas 5 mainly serves U.S. government customers, the company has received inquiries from commercial operators since the Proton failure. “We have seen near-term shortcomings in the ability to accommodate specific launch requests for specific dates, but customers with established long-term plans are finding the rides they need. Broadly, the industry may see higher insurance rates across all launch providers. It is disappointing that the performing systems will have to bear this burden,” he says.

Boeing also could see some commercial opportunities for its Delta 4 rocket, which also has seen most of its business from the U.S. government, says Ken Heinly, vice president, Boeing Launch Services. “I think it is a good time to be a launch service provider. There seems to be an upturn in the business,” he says. “I think the major challenge for Boeing over the next year, as we market the Delta rocket, is to let everyone know that we are back in the commercial business. We had a commercial launch this year for Thales Alenia Space — Cosmo-SkyMed 1 — but prior to that, we had not had a commercial launch for about five years. This was primarily due to the downturn in the market and us not viewing our rockets as necessarily competitive.”

Boeing and Lockheed Martin have created the United Launch Alliance to market their respective vehicles for government missions, and Heinly believes the joint venture operations will be a key factor in retuning Delta 4 to the commercial market. “I anticipate that, once the [joint venture] has fully consolidated its activities, efficiencies will result allowing the Delta rockets to be more competitive,” he says. “… We have been in communications with customers. We do not have any new commercial launches signed up. We are talking to people about Delta 4. We recognize our ability to offer presently launch slots which will probably not be available until 2010 and that it will take a while for this specialized market to get going.”

New Launch Deals

While 2007 is likely to be remembered for the two major launch failures, the year also will be notable for a new type of launch services agreement. In June, SES Global signed long-term deals with Arianespace and ILS for 10 missions through 2013. Le Gall believes other satellite operators would look to follow this lead and lock-up long-term deals. “Manifests are booked solid for the next two years. I think companies can read the writing on the wall and decide for themselves that multiple launch agreements make sense in both the near and long term,” he says. “Putting off the decision often can be hazardous to their respective business plans and jeopardize their ability to procure a launch within an ideal fiscal time frame. Large operators who are trying to increase transponder utilization rates will have less fallow capacity in orbit, which puts more pressure on their ability to launch new and replacement satellites on time. SES has secured a strategic advantage in this area and we expect other large operators may follow suit.”

Other operators have looked into these deals, says Heinly. “We have had customers come to us relative to discussions looking for multiple launch opportunities,” he says. “They would approach us and say, for example, ‘We are going to launch perhaps five satellites over the next few years. Is there something we can do with you in terms of launching of all of those satellites?’ I would certainly think it could make sense for us to look to enter into those types of long-term agreements. ”

Markham adds, “We believe that the unbridled optimism that fuelled the initial constellations has been tempered with a dose of cold economic reality, and the current planning for second-generation systems will likely be based on more sound principles. We currently see operators looking for long-term relationships with launch vehicle providers that focus on flexibility and launch certainty versus pure price.”

Jeffrey Foust, a launch services analyst at Futron also sees long-term launch buys becoming a trend. “These long-term agreements are driven by the high launch demand. Large operators want to be able to secure manifest slots for their systems for the next several years. If demand remains high, then I would not be surprised if other operators followed suit with long-term delays, block buys, and the like.”

But not all launch providers are looking to tie up part of their manifests with such deals. Peckham says Sea Launch is not willing “to provide the schedule flexibility that SES so coveted because of [its] commitment to the whole breadth and spectrum of customers. … There would have been little if any room for other companies on our manifest. That is not to say that we do not have a good relationship with SES. We talk all the time. I am confident we will be launching satellites for SES well into the future. We chose not to impact the commitment we have made to our customers and what our future expected commitments will be. One of those customers is SES and we will keep the commitments we have made to them. We are at a place with SES in which we are comfortable.”

Potential New Entrants

With demand for launch slots high, traditional industry heavyweights such as Sea Launch and ILS having their struggles this year, the door could yet open for some of the non-traditional launch service providers to make an impact. Foust believes that in the short term, new entrants are unlikely to have significant impact on the top-tier launch services providers like Arianespace, ILS and Sea Launch. However, in the medium term, it might be a different story. “If the launch market remains tight and new entrants — be it India’s GSLV (Geosynchronous Satellite Launch Vehicle) or SpaceX’s Falcon 9 — can demonstrate reliability and lower prices, they may then start to win over some business from satellite operators who would normally deal exclusively with existing major commercial launch providers. A wild card in all this, to some degree, is China. They do have vehicles that are low cost and reliable, but export control restrictions by the U.S. government make it impossible to export satellites with American-built components for launch there. It is possible we may then see more deals like Indosat Palapa-D, where Thales Alenia Space will be building an ITAR-free satellite that can thus take advantage of a Chinese launch.”

One of the new breed of launch service providers is the Indian Space Research Organisation (ISRO), and G Madhavan Nair, the groups chairman, believes ISRO is beginning to prove its vehicles are reliable enough for the commercial market. “PSLV (Polar Satellite Launch Vehicle), with 10 consecutively successful flights, has indeed become a reliable and versatile launch vehicle.  It offers great flexibility for small and medium satellites at an affordable cost. It can launch satellites into different orbits. Also, there are very few launch vehicles for small satellites and hence our PSLV could be the appropriate vehicle for many customers. Launches of PSLV are at a fairly regular intervals could suit many customers schedule quite effectively.”

While a relative newcomer to market, Madhavan Nair is confident ISRO could build a strong business. “Over the next two years, we expect six more launches of PSLV and four GSLVs to meet the domestic requirement for remote sensing, communication and scientific satellite missions as well as to meet the requirement of international customers. The vehicles are already under production. The capital expenditure plan mainly covers the development of improved version of launch vehicles like GSLV Mk-3 that will have a capability to launch 4-ton class satellites and development of new technologies aimed at reducing the cost of access to space.”

But Le Gall warns that looking for more cost-effective options elsewhere could be a disaster. “The commercial satellite market for all suppliers has only recently rebounded to levels where spacecraft manufacturers and launch services providers can sustain their production levels and maintain quality,” he says. “Unfettered Chinese access into the market has the potential to destabilize this fragile recovery and force suppliers into a race to the bottom as they try to compete with cut-rate prices. Such a race would surely lead to lower quality and higher failure rates, damaging the whole industry. Operators who are considering Chinese launches should also weigh the transparency and totality of their service offering.”

Bottom Line

While prices for launch services may be rising, and demand is high, other factors need to be taken into the equation when assessing whether this is great time to be a launch services provider. “Every time I pick up an industry periodical I chuckle when I read that launch prices are going through the roof,” says Peckham. “Launch prices are just going back to where they were eight years ago, and we are not there yet. At the same time, my trusted partners in the CIS — Ukraine and Russia — have seen a huge measure of inflation in not only their labor but their raw material costs as well, so the costs for us in particular, and I imagine this applies to our competitors, are going up almost as fast as the prices are going up. Five years ago, the prices were not sustainable in the long-term. This company will price to the value that we provide to our customers. That includes the costs and the market value for our product.”

The launch services space is a curious beast right now. The demand for access to space has perhaps never been stronger, yet it is not all sweetness and light. Other players could look to enter this market, and a pair of failures have somewhat taken the gloss off a potentially buoyant industry. However, if Sea Launch and ILS can manage successful returns to flight in the near future, this would help relieve the pressure with these players currently off the market. If not, others may look to follow SES Global’s lead and secure long-term access to space.