Steve Bochinger. Photo: Euroconsult

[Via Satellite 04-02-2014] Euroconsult’s recent research report “Profiles of Government Space Programs,” has revealed a decline in global budgets for space programs, decreasing from $72.9 billion in 2012 to $72.1 billion in 2013. This is the first time that public space programs worldwide have entered a downward trend since 1995, and is a result of both the cyclical nature of investments in space-based infrastructures, along with the decrease in overall government spending as a result of the difficult economy.

The United States alone reported spending $38.7 billion on its civil and defense space programs in 2013, an $8.8 billion decrease from its peak spending of $47.5 billion in 2009. Steve Bochinger, COO of Euroconsult, blamed this decrease on the drop in the United States Department of Defense (DOD) budget that now represents 66 percent — down from its former 90 percent — of global military space funding.

Bochinger said this economic downturn is forcing all companies in the industry to adapt their business strategy in order to keep their business afloat.

“Reduction of government spending … can lead companies to merge, especially when their business depends on government customers,” said Bochinger. “If pressure on government business persists, we may see further consolidation in other segments of the space industry.”

He also said that, besides the possibility of more acquisitions and mergers, industry contractors could begin seeing additional pressure from governments to undertake more risks and responsibilities within programs causing a shift from traditional cost-plus procurement to forms of public-private partnerships. These changing relationships between public agencies and those in the private sector are expected to have lasting effects on how governments perceive their space programs and how contractors design government business.

“In countries with a strong private space sector, the current tough budgetary situation can have many positive effects in the long term. … In order to increase spending efficiency and ROI, many governments must rethink the way they manage their space programs and procure to the industry,” said Bochinger. “They will often seek more outsourcing opportunities to the private sector that has to take more responsibilities on government projects.”

However, even during this downturn, Russia reported an increase in public investment with 2013 budgets at $11 billion and a 32 percent compound annual growth rate (CAGR) over the last five years. Bochinger attributes this to Russia’s efforts to “guarantee its independence and improve its position in the global market.”

“Russia is currently considered to be the first country in terms of space spending on GDP, ahead of the U.S. The budget increase is the result of the country’s recent revision of its space policy in 2011 and 2013,” said Bochinger. “The Russian government has shown a significant effort to upgrade and expand its civil and military space capabilities for communications, Earth observation, surveillance, satellite navigation and launch vehicles.”

In terms of absolute growth, China and India, according to Bochinger, have also experienced growth both in capabilities and funding over the last decade. Euroconsult has estimated that China has passed the $4 billion cap with a growth of more than 15 percent per year over the past five years, making it the third largest space program worldwide. India has experienced the same 15 percent growth in the last five years, and both countries are focusing more on “prestige-type programs” such as space exploration and manned spaceflight. This is expected to “drive budget growth in the coming years,” said Bochinger.

Bochinger also said he expects that countries with a strong private space sector could actually benefit from the current economic downturn. Since governments are forced to rethink how they manage their space programs in order to increase spending efficiency and ROI, they “will often seek more outsourcing opportunities to the private sector that has to take more responsibilities on government projects,” he said.

Bochinger added that countries are now using unconventional methods to manage their space programs. As the industry changes, partnerships are becoming a more popular approach to creating new projects and initiatives, such as NASA’s CATALYST Commercial Lunar Lander initiative, where the agency sent out a call for proposals from the U.S. private sector that would lead to no-funds exchanged Space Act Agreements (SAA).

“Today, with the current limitations on public spending, other countries that used traditional procurement mechanisms, such as Japan or the U.S., are seeking innovative ways to manage their space programs too, also in domains seen until now as a government core business,” he said. “NASA’s CATALYST Commercial Lunar Lander initiative is a typical example of how a tough budget environment can create long-term industry opportunities.”

These types of partnerships will also play an important role for business between commercial satellite operators and governments around the world. Despite the budget cuts, Intelsat General’s President Kay Sears, said in a previous interview with Via Satellite that, in the United States, the Hosted Payload Solutions (HoPS) Request for Proposals (RFP), the Pathfinder Request for Information (RFI), and the recent Commercially Hosted Infrared Payload (CHIRP) award are all strong indicators that the U.S. government has confidence in the ability of commercial operators to provide reliable, cost effective, state-of-the art communications solutions to the government.