The proof of this shift can be found in Defense Secretary Robert Gates’ $553 billion 2012 Pentagon budget proposal. Gates told Congress that the future of military operations over the next five years would be based on leveraging existing assets through the optimization of critical technology and applications – specifically unmanned aerial vehicles (UAV). The number of missions performed UAVs is expected to increase substantially as ground forces are scaled back and replaced by other means of gathering intelligence. UAV applications require massive amounts of high-speed satellite bandwidth and can be cancelled when capacity is not available or impeded by interference or weather.

With the absence of future military-exclusive bandwidth projects following the cancellation of TSAT in April 2009, NSR Senior Analyst Patrick French told Via Satellite that increased UAV missions would help continue to push growth in commercial transponder agreement revenues  

“The 2012 military budget shows that commercial satcom companies will stand to benefit from increased demand created by diverted funds in the budget. Demand for commercial satcoms that are currently used by ground troops should continue to grow at modest levels for the next four years,” says French. “Budget cuts will certainly not affect commercial satellite in a negative way. A large percentage of budget cuts will come from inefficient programs, and funds available will be redirected to other programs. Moreover, tactical UAV missions similar to drone attacks in Pakistan are likely to be sustained, if not increased, in the two major hotspots with troop withdrawals.”

Bob Canty is leading the development efforts for the next generation of GPS as program manager for Raytheon’s GPS OCX efforts. Raytheon was awarded an $886 million contract to improve the accuracy of information from the GPS. Canty agrees that the focus of military optimization is being shifted to maximizing available assets.

“If you look at UAV missions, you will see that the main reasons those missions are sometimes aborted is because they lose a lock on the GPS signal, the com-link or both. UAV operators know that there are places on the globe that don’t get GPS signals depending on the time of day. GPS is basically a line-of-sight system — if you can’t see four satellites, you can’t lock on the GPS signal,” Canty says. “In my opinion, this is what U.S. Defense Secretary Robert Gates mentioned as a key element to cutting operational costs. The technology is there and has been evolving so rapidly and has become so critical to execution that specialized abilities like GPS OCX were needed.”

Gates plan to cut expensive military programs will divert about $70 billion back into new technology purchases in the next five years, which will allow the Air Force to buy more Reaper drones made by General Atomics Aeronautical Systems and increase purchase orders for Boeing and Lockheed Martin’s Evolved Expendable Launch Vehicle. The Navy also said it would begin development of a seaborne unmanned strike and surveillance plane and a new generation of electronic radar jammers.

The military’s future bandwidth plan has been mentioned in recent space-related contracts. In January, Lockheed Martin received a $424.7 million contract from the U.S. Air Force to produce the GEO-4 satellite as a part of the Space Based Infrared System Program, designed to provide early warning of missile launches. Lockheed Martin had been working on this project for some time, as the company received its $1.5 billion order for GEO-3 in June 2009.

Aerospace Industries Association CEO Marion Blakey says she was “encouraged” by the opportunities presented in the 2012 U.S. defense budget. “At 34 percent of the total U.S. budget, it comes close to reaching the 35 percent marker that we think is needed to ensure a healthy industrial base for the aerospace and defense industry.”

Blakey also mentioned that the AIA has been concerned over the growing imbalance of military operational costs over investments. “Personnel and operations accounts are increasing at four times the rate of growth of the investment accounts, and we are concerned about the long-term robustness of procurement and research. This year, for the first time since the beginning of flight, there is no new manned civil or military aircraft program in design, and there is a huge requirement to reset and replace equipment used in Iraq and Afghanistan,” she said.

While the military’s long-term budget strategy generally was well received by market leaders in the satellite technology sector, not all analysts saw the spending cuts as positive. Zacks analyst Sherzn Mian said that despite regular contract wins by military satcom providers, which are scheduled and expected to sustain through 2013, military and government satellite providers and manufacturers should prepare for some impact on revenues. “We believe that the cost savings initiatives of the U.S. Department of Defense — through reduction of the defense budget by $178 billion over the next five years — will impact all major defense operators, and I maintain my neutral rating on most of those stocks until I see more specific benefits outlined in Gates’ plan,” he said.

Andrew Ruszkowski, vice president of global sales and marketing for Xtar, says that while the 2010 military spending budget has helped the satellite sector develop confidence in the sustained and growing strength of U.S. military-commercial satcom partnerships, businesses are preparing for setbacks, as they did with the global recession in 2008. “There’s no doubt that any talk of government budget cuts is going to be a concern for us. The government is our sole customer, and given that we’re X-band, we don’t have the option to fall back on the commercial or enterprise sectors. However, we see opportunities for us this year to deliver on the value proposition that Xtar has to offer. My confidence stems from the continued demand for our services and technology from government and military customers and the fact that the orders keep coming in.”

U.S. government space and satellite partnerships with commercial providers also are being driven by international competition, according to Lexington Institute Vice President Daniel Goure. “Russian and Chinese investments in advanced military capabilities, anti-satellite systems and cyberwarfare capabilities remain a top concern for Gates, and many of the industry’s military providers may see a ramp-up in activity well into the future. Past defense spending downturns have always come in response to the end of conflict and public declarations that peace has broken out. That is not the case this time. Secretary Gates strongly emphasized this point in last week’s press conference, and we will continue to see a Pentagon effort to keep our space and satellite infrastructure up to date,” says Goure.

The United States’ status as an international space industry leader fell in 2010, according to Futron Senior Analyst Jonathan Beland, who agreed with Goure’s assessment that the factor could be one motivation for the Obama administration to continue and strengthen government and military space architecture investments. “NASA and the U.S. government could learn a lot from Russia. Russia has become partner of choice for space agencies around the work seeking to develop new capacity. From South Korea to China, from private enterprise to governments, Russia is capitalizing on its space investments and developing long-term relationships with emerging powers,” he says.

As resources to refresh or expand military space assets become limited, government users will resources from commercial operators, freeing the government from the obligation to make large capital investments of its own. “A good example of this is what happened with the TSAT cancellation in 2009,” said Ruszkowski. “After its termination, commercial solutions rapidly began to fill the gaps left by its cancellation, truly exemplifying the value commercial operators can deliver with solutions that are already in place. I think we’ll continue to see that in the future.”