[Satellite News – 06-02-08] Rival CEOs of launch service providers have not been surprised by Khrunichev State Research and Production Space Center’s swoop for a majority interest in International Launch Services (ILS), which the two companies announced May 29.
    Khrunichev acquired the shares of ILS owned by majority shareholder Space Transport Inc., which acquired Lockheed Martin’s interests in the launch provider in October 2006. ILS will remain a U.S. company and will continue as the marketing arm for commercial launches of the Proton launch vehicle built by Khrunichev as well as the Angara vehicle under development.
    Frank McKenna, president of ILS, said the deal would bring “no change” in the operations and management of the company. “We have an outstanding relationship with Khrunichev, delivering commercial Proton launch services for our customers over the past 15 years. For ILS employees and customers, there will be no change in operations or management and we will continue our focus on performance. The completion of this transaction only strengthens the relationship with our launch partner, Khrunichev,” he said.
    ILS’s primary rivals in the heavy-lift launch market were not surprised by the deal, which they saw as the next logical step for ILS. “This has clarified the ownership picture,” Jean-Yves Le Gall, CEO of Arianespace, told Satellite News. “Now it is clear that ILS is a Russian-owned company with headquarters in the United States.”
    However, the deal did catch some by surprise. Jeffrey Foust, an industry analyst at Futron said, “This was a surprise, at least for me, because its been less than two years since Space Transport bought Lockheed’s stake in ILS, and there were no indications I was aware of that they were planning on selling to Khrunichev or anyone else. On the other hand, it does make sense for Khrunichev to buy a controlling stake in ILS to streamline the sales process by bringing ILS in-house.”
    In terms of what ramifications this deal has for the launch services industry generally, Foust said, “it’s too soon to tell. … In the short term it will probably have little effect, since there are bigger issues for Khrunichev and ILS to deal with, namely returning the Proton to flight and restoring customer confidence in the vehicle.”
    The deal comes on the heels of a pair of launch failures that has put ILS and Khrunichev in a tight spot in an increasingly competitive launch services industry. In September, a Proton failed to put the JCSAT-11 satellite into orbit for Japanese satellite operator, JSAT, and in March, an upper stage issue left the AMC-14 satellite for SES Americom in a useless orbit.
    “The recent launch failures have damaged confidence in the Proton for now,” said Foust. “However, if Proton returns to flight later this year and has a few successful launches and demonstrates that they have resolved any quality control issues that may be at the root of the recent failures, they will probably have few problems winning new launch contracts given current demand and the supply of alternative vehicles.”
    In April this year, the two companies initiated a quality initiative for Khrunichev and its subcontractors to assure future Proton customers that their satellites will reach orbit. McKenna recently told Satellite News, “Both Khrunichev and ILS realized that steps needed to be taken. The Khrunichev quality initiative is intended to restore customer confidence that Proton is a reliable product for the long run.”
    Foust believes such an initiative was necessary. “The fact that there were three failures in just over 24 months for a mature launch vehicle like Proton demonstrated that there had to be some kind of quality control issues with the vehicle’s manufacturing process,” he said. “A quality initiative like this is not only key to improving their processes to resolve those problems but to demonstrate to the market that they are aware of the problem and working to rectify it.”
    Both Le Gall and Robert Peckham, CEO of Sea Launch, expressed sympathy with ILS. “ILS and Khrunichev are working to move forward from their recent difficulties,” said Le Gall. “They will return to launching when they are ready.  We know this is a challenging business as we continue to work to extend our current record of 24 consecutive mission successes,” he said.
    “Launch failures are a part of the nature of this business,” said Peckham. “I expect ILS will return to a strong position.”