U.S. military readiness is based on satellite communications, and reliance on U.S. Air Force launch capabilities will continue to grow as newer and more powerful satellites are required. The U.S. military launch market is cyclical, but the current satellite development programs point toward strong launch demand throughout the next decade.
“In the short term, the trend is upward and will be robust for the next 10-plus years,” said Marco Caceres, senior analyst at the Teal Group. “There are now a huge slew of military satellites in the pipeline that have been under development for many years, and have been actually been delayed by three or five years. The systems that are meant to be replaced in orbit are now pushed to the limits of their lifetime. If you consider the communications, navigation and needs of positioning for targeting, the needs of the military are now greater than ever as the U.S. fights two wars,” he said.
Based on these expectations, the prospects for the United Launch Alliance (ULA) look good for the next decade, as the joint venture of Boeing Co. and Lockheed Martin Corp. is the only provider of heavy-lift launch services to the U.S. military market. The company, which began operations in December 2006, provides the U.S. government launches on Boeing’s Delta 4 and Lockheed Martin’s Atlas 5 rockets — both developed under the Air Force’s Evolved Expendable Launch Vehicle program. The ULA, which also uses the older Delta 2 rocket for medium-class missions, performed 11 missions from four different launch complexes in its first year of operations, including missions for the U.S. National Reconnaissance Office, the U.S. Air Force and three for NASA. Missions performed by the ULA to date included the first launch of the Delta 4 Heavy vehicle carrying the DSP-23 for the Air Force and the first Atlas 5 rocket launched from Vandenberg Air Force Base, Calif. Of the 19 missions the ULA has performed since it began service, nine have been for the U.S. military and another five have been for NASA. The company has three more NASA missions scheduled for 2008.
“The military launch market will remain relatively stable over the next decade or so,” said George Sowers, vice president of business development and advanced programs for the ULA. “With the number of satellite programs that are funded, we can project what the launch rate of those programs will need, but the aggregate is flat. There might be a slight downturn from a space budgetary standpoint. We can see a peace dividend, but the market will be relatively flat,” he said.
The development of the Atlas 5 and Delta 4 rockets was intended to improve U.S. access to space by making space launch vehicles more affordable and reliable, and the cost of launches on Atlas 5 and Delta 4 is lower than the $350 million to $400 million price of the now retired Titan 4 rockets, but the cost has not come down as much as expected, which is why the U.S. government allowed Boeing and Lockheed Martin to combine their efforts under the ULA banner. “ Under the EELV program, Boeing and Lockheed Martin quoted from $130 million to $200 million per launch,” said Caceres. “That was based on the assumption that the commercial market was strong and would offset the cost for U.S. military launches. However, the commercial market was very competitive and stagnant for U.S. launch companies. Boeing has already exited the commercial market with its Delta 4, and Lockheed Martin has had limited success and may exit soon. This is the reality that has driven up the cost for the U.S. military. Because of these realities, the cost per launch is perhaps $180 million to $260 million. Of course, this is still much lower than Titan 4 at its best price point.”
The formation of the ULA along with making more of an impact in the commercial market will help the two companies make more of an impact in the cost area, Ken Heinly, vice president of Boeing Launch Services, said in October 2007. “With the ULA being formed, the production facilities are being consolidated and the program management and engineering are also being consolidated,” he says. “ After the consolidation has taken place, those efficiencies should allow us to procure these rockets … at a lower price, and therefore, we will be able to sell them at a lower price. … I anticipate that once the ULA has fully consolidated their activities that efficiencies will result, allowing the Delta rockets to be more competitive,” he says. “We are talking to people about Delta 4. … We recognize our ability to offer launch slots which will probably not be available until 2010 and that it will take a while for this specialized market to get going.”
Air Force Lt. Gen. Michael Hamel, commander of the Space and Missile Systems Center, Air Force Space Command, has called for the United States to develop a new lower-cost satellite launcher. In a November telephone briefing, Hamel lauded the Delta and Atlas vehicles for reliability, but those huge rockets are “very expensive,” because they are fully expendable. Hamel calls for a new rocket with a reusable first stage and an expendable upper stage. He believes it would not take an enormous development effort to create such a new rocket because some of the technology already was developed for the space program in the 1960s. Developing a new rocket would consume about five to six years, but finding funding for such an effort in “very tough budgetary times” may pose a challenge.
Heinly also sees other changes that could be made to Delta 4 to make it more competitive commercially, and thus help bring down launch costs for the U.S. government. “When we thought the market was going to be robust we looked at the dual manifest capability to put on top of the Delta 4 Heavy which would have afforded some price advantage to the users,” he says. “That was put aside. If the market was to blossom, we could get into a situation where we could offer customers single, dedicated launches and dual manifest launches, but that would require some development. There are a lot of variables as to whether that could happen. I don’t think dual manifests are going to happen soon on Delta 4 unless it is driven by the government customer. For the commercial market, we could talk about dual manifests after the efficiencies are realized.

Competition

As Cost Driver

Competition for the ULA may help bring the launch prices down for the military as well. One company, Space Exploration Technologies (SpaceX), wants to challenge the incumbent with a new rocket, positioning itself as the low-cost provider with its planned Falcon 9 rocket. SpaceX conducted the first five-engine firing of the rocket May 29, and the first Falcon 9 is scheduled to be delivered to Cape Canaveral by the end of 2008, with the first demonstration scheduled for mid-2009, “but we will launch from the Cape as quickly as we can,” says Gwynne Shotwell, SpaceX’s vice president of business development.”
SpaceX is positioning itself as a low-cost provider — the Falcon 1 is being advertised for $7 million and the Falcon 9 for $35 million — as well as a flexible provider that can launch only an hour after an abort.  However, its reliability has not measured up to Musk’s vision. But SpaceX is quite transparent in its efforts to demonstrate that an entrepreneurial company can compete with the giants such as ULA and Arianespace, and in its efforts to reach orbit, the company is seeking help from an independent party to solve some of the technical issues. SpaceX, which along with Northrop Grumman Corp filed an antitrust complaint with the U.S. Federal Trade Commission over the creation of the ULA, is still trying to perform the first successful mission with its smaller Falcon 1 rocket. At press time, SpaceX hoped to perform its next flight before Sept. 5, and a full success would provide some confidence to the company and the military that the Falcon 9 rocket is on track as well. SpaceX founder Elon Musk views his enterprise as “the scientific method — a trial-and-error approach” that has the support of the Air Force and the Department of Defense.
However, questions remain. Price means nothing to customers if it does not come along with reliability, and SpaceX must have a successful flight of its Falcon 1 and deliver the Falcon 9 rocket to Cape Canaveral by the end of 2008 to build some momentum and some confidence. “SpaceX is overly ambitious on the price that they will be able to meet, but it is a real company and their vision is entirely possible,” Caceres said. “So far no one can come close to the cost per pound per orbit that Elon Musk has offered which is usually about 50 percent or less than the ULA’s heaviest vehicle. Still Elon continues to revise upward the projected prices, but is that based on eight or 10 launches per year?” Sowers also sees a difficult task ahead of SpaceX. “Reliability is the one thing that our customers in the military launch market value more than any other quality and ULA’s key focus,” he says. “…We are an observer of what they are doing and we wish them the best. This is a tough business and SpaceX still has a way to go.”
Shotwell believes “our detractors are always going to be skeptical about our statements and progress that we make. You have to look at what we have achieved and in what time frame,” she says. “We started the company in June of 2002. By May of 2005, we had a qualification-level vehicle firing first stage engine. …We built a new launch pad in five months and activated and readied it for first lift off in November 2005. In less than three years, we designed, built a vehicle, and created two launch sites and had our first liftoff attempt. That is record-breaking. We had a lot to learn and to work on, such as process and procedural control. We then got back to the pad in less than a year for flight two. Our progress was enormous.”
 

Other Possibilities

A cost-cutting possibility that remains a long shot is the use of international launch vehicles to launch U.S. government payloads, but to many, the risk of classified U.S. technology being shipped overseas outweighs any potential cost benefits. The logistical, operational and security factors would create great challenges for the Air Force that could potentially add to the cost of the launches themselves.
But not everyone is writing off the international competitors. “I think we definitely have to take them seriously,” says Heinly. “Perhaps not this decade, but we will have to consider them eventually. As you know, many satellites are being constructed with U.S. components, and that has slowed down the ability to import those into places like China and launch them from there. I don’t see it as something we have to think about too much either this year or next, but they could definitely be players in the market sometime in the future.”

Conclusion

In the short and long term, a new wave of advanced military satellites means launch services will be in great demand. Launch market demand is driven not only by cost but reliability, flexibility, military budgets, national security and economic stability also are important factors. The profitability of U.S. military launch companies depends on technical expertise and the ability to accurately price contracts. Boeing and Lockheed Martin enjoy economies of scale in design, manufacturing, and purchasing. SpaceX wants to compete by concentrating on low price, flexible mission configurations, selected components and systems. If SpaceX fails, and Russian and European launch vehicles continue to be prohibited, then Boeing and Lockheed Martin will be the true financial winners in the U.S. market.