Big remains beautiful in the satellite business, but launch vehicle operators are preparing new offerings to meet expected demand from commercial and government customers for small- and medium-class rockets that can deliver smaller payloads more cost-effectively.

Demand for large spacecraft will hold true for operators placing communications spacecraft in geostationary orbit, but the overall picture of satellite manufacturing trends — and consequent demand of launch services — is rather more complicated. “We see a continuation in the growth of mass of geo satellites, at least for applications such as mobile satellite services that require powerful payloads. At the same time, demand for smaller satellite payloads remains strong,” says Rachel Villain, director of space and communications at Euroconsult. “The fact is that different types of payloads meet different needs and respond to different logics. New entrants or operators in no-growth markets, for example, might decide that it makes more sense for them to invest in smaller satellites.”

In other words, only an analysis of satellite demand to see how this is segmented into large, medium and small platforms can give a measure of the consequent demand for launch services. But what is the overall demand for satellites? In a study released in March, the Teal Group, a defense and aerospace consulting firm, listed a total of 2,033 payloads proposed to be developed worldwide through 2009-2028. “This is what we call a mission model, that is to say a big picture of what is proposed to be built. Naturally, it does not mean that all payloads accounted for in the model will see the light of day,” says Marco Caceres, senior analyst and director of space studies at the Teal Group. “We estimate that only a quarter of the payloads listed in our mission model requires heavy-lift launchers to geostationary transfer orbit.”

This leaves a potentially vast market for small- and medium-class launchers: spacecraft spanning from nanosatellites and microsatellites built for scientific missions by universities and research institutions to larger commercial spacecraft for applications such as Earth observation, communication and navigation. Yet, numbers can be deceiving. The crucial issue is that it will be up to payload owners to decide whether to have them delivered in large batches on heavy-lift rockets or in smaller batches or individual launches by smaller rockets. Several factors are likely to inform these decisions, of which price is a major one.

Traditionally, small launchers have proved to be more expensive than larger rockets in terms of price per weight unit. This is likely to remain the case in the near future, as the case of the Arianespace family of launchers clearly illustrates. “Ariane 5, Soyuz and Vega offer a three-fold step increase in performance: Ariane 5 is three times more powerful than Soyuz, which is three times more powerful than Vega,” says Jean-Yves Le Gall, CEO and chairman of Arianespace. “However, this three-to-one ratio does not exactly apply to prices, because we have fixed costs that remain the same no matter which launcher is used.”

However, launch costs are only one of the factors to be taken into consideration. The number of dual or multiple missions on heavy-lift rockets likely will diminish in the future, as the trend towards heavier payloads continues — besides, it is not always possible or easy for multiple satellites to share the same payload bay. In addition, while there are modular vehicles in the market that could be scaled down to accommodate small payloads (such as the Delta 4 and Atlas 5, for example), they might not always represent a cost-effective solution. “Modularity has a cost,” says Villain. In other words, while price likely will remain a factor affecting the commercial success of small and medium launchers, it is not going to be the only decider when it comes to choosing a launch vehicle. Issues such as the types of missions and applications satellites are built for, their countries of origin, and the general economic climate also need to be taken into account. All things considered, it is a complex and varied picture emerges.

Seeking a Ticket to Orbit

A satellite market segment that almost certainly will require the services of small and medium class launchers is that of satellite constellations. “Constellations are key to the commercial success of small- and medium-class launchers,” says Caceres. A quick look at the numbers involved shows why. Iridium, the first satellite constellation developed and launched to offer mobile satellite services (MSS), needs to replace its satellite fleet of a total of 66 spacecraft between 2013 and 2017. Globalstar’s fleet of more than 50 first-generation satellites are to be replaced beginning in 2010. With its 40-kilogram satellites, Orbcomm also is looking for launch services for its second-generation constellation. Satellite constellations for navigation also are set to have a major impact on the launch market. Galileo’s 30 satellites to be deployed in medium-Earth orbit, for example, are expected to generate significant business for the industry. Similarly, the programs under development by the national authorities of India, the Indian Regional Navigational Satellite System (IRNSS), and China, the Beidou Navigation System, also known as Compass, will require several launches.

Besides the sheer number of satellites and consequent launches involved, constellations are critical to the success of the small- and medium-class launcher market because so many of them are scheduled over the next few years. As such, their orders could literally make or break launch programs over the next few years. However, it should be noted that constellations, whether for MSS, navigation or other applications, are not the only customers to interest the small- and medium-class launch market segment. Government missions, whether civilian or military, also are going to be crucial. “The trend in the government market is toward smaller satellites,” says Orbital Sciences Corp. spokesman Barron Beneski. “Smaller satellites present several advantages: They are easier to build and can be delivered in time more easily, making them more affordable and flexible than larger spacecraft. This makes them extremely popular.” The list of applications for government satellites ranges from Earth observation and remote sensing to communication and scientific missions, so demand is there from satellite manufacturers and operators to sign up to small- and medium-class launches services. But how much is this market worth? And how does this translate into business opportunities for commercial companies?

“To see what will happen in the future, first we need to see what happened in the past,” says Caceres. According to the Teal Group, throughout the past five years, the global satellite industry recorded an average of 55 to 60 missions per year, half of which were carried out by small and medium launchers. On average, these were worth about $50 million per mission, for an estimated total of $1.4 billion to $1.5 billion. According to the Teal Group, this is likely to remain the market size for this class of launchers throughout the coming years. “I do not anticipate much change, in that there are no major advances foreseen in the satellite industry. There will be growth, but it will be moderate,” he says.

How this $1.5 billion cake will be divided, however, is the critical question hanging over this market segment.

A Not So Crowded Marketplace After All

Traditionally, the supply side of the marketplace for small- and medium- class satellite launchers is a busier and more competitive environment than that of heavy-lift launchers. Powerful vehicles capable of delivering large payloads to geostationary orbit are difficult to build and operate. In addition, the market segment for small and medium launchers is disturbed by what could be defined as non-commercial elements: Soviet-era vehicles, often stock left over from military projects, that are reconditioned, augmented with new technologies and put on the market at highly competitive prices. “In many cases the rockets have already been built. All they need is a modified fairing and improved avionics after they have been purchased from the Russians,” says Caceres.

Vehicles such as the Dnepr and the Rockot, which belong to this class of launchers, offer a cheap route to low-Earth orbit. The Dnepr is derived from the R-36M ballistic missile, of which a stock of around 300 vehicles existed at the end of the Cold War. The Dnepr is marketed by Kosmotras, a Russian-Ukrainian company, and is operated from Kazakhstan’s Baikonur Cosmodrome. Rockot, on the other hand, is a three-stage, liquid propellant launcher based on the Russian SS-19 Intercontinental Ballistic Missile. It is operated from the Plesetsk Cosmodrome in northern Russia and marketed by Eurockot Launch Services, a joint venture between EADS Astrium of Germany and Khrunichev State Research and Production Space Center of Russia. According to the Teal Group, these operators offer launches at a price level of around $15 million to $20 million per mission. However, their role in the marketplace is limited, as they tend to serve nanosatellite and microsatellite missions that are at the fringe of the commercial market. “Often, these satellites do not generate a business big enough for large commercial companies to be actively interested in them,” says Caceres. The commercial impact of these launchers, in other words, is marginal and likely to remain so, as these operators can rely on a finite amount of stock destined to gradually disappear.

The two launchers that have dominated the small- and medium-class launcher sector for years are the Delta 2 and the Soyuz. Both vehicles have a similar history: extremely reliable machines with a long track record developed throughout the years of the Cold War when they were the space workhorses for the United States and the Soviet Union, respectively. Soyuz has carried out more than 1,700 manned and unmanned missions since inaugurating the space age with the launch of Sputnik, the world’s first satellite, in 1957. Delta rockets, on the other hand, have been operated since 1960, when the Thor intermediate-range ballistic missile was modified to become the Delta launch vehicle, which later evolved into the Delta 2.

More recently, however, their destinies are taking them into opposite directions. The Soyuz’s history is about to be enriched with a new chapter, as the vehicle will soon begin commercial services from Europe’s spaceport in French Guiana — the first launch is scheduled for the end of 2009. The Delta 2, on the other hand, seems to have reached the twilight of its long history. According to industry sources, the program is being wound down, as only five inventory units remain to be marketed by United Launch Alliance. After these have been sold, Delta 2 will become history. “With the announced withdrawal of Delta 2, Soyuz will be pretty much alone in this market slot,” says Le Gall. It should be noted, however, that the Delta 2 used to serve first and foremost the U.S. government and had little spare capacity for commercial customers. As such, the impact of its disappearance from the commercial marketplace is likely to be limited. The emergence of other players will have more far-reaching consequences.

New Kids on the Launch Pad

A number of small- and medium-class launchers are emerging from various backgrounds to compete for a share of the marketplace. Arianespace, alongside the European Space Agency (ESA), is developing Vega, a small launcher that will join Ariane 5 and Soyuz in 2010. “Having completed the development of nearly the totality of the launcher components, including all motors, what remains to do is the completion of the launch pad, the launch system verification/simulations and carry out combined tests on the launch pad using a launcher mock-up. At that point, we’ll be ready for a launch campaign,” says Antonio Fabrizi, ESA’s director of launchers. With a capacity of 1,500 kilograms to low-Earth orbit, the Vega will target the government market. “The reason to develop Vega is to provide a tool for access to space in line with the institutional European demand, especially in the field of satellites in” low-Earth orbit, says Fabrizi.

In the meantime, there are other new players that are already active in the marketplace. For example Land Launch, the land-based sister system to Sea Launch, has placed Telstar 11N and Measat-3a in orbit and has another mission planned from Baikonur in the 2009 fourth quarter, says Kjell Karlsen, president and general manager of Sea Launch. Sea Launch filed for bankruptcy projection in U.S. court in June, but operations are expected to continue. For Land Launch, supply issues are likely to affect the vehicle’s launch tempo. “We are anticipating one Land Launch mission in 2010,” Karlsen says.

A player consolidating and expanding its position in the marketplace is Orbital Sciences. The company already boasts three vehicles: the air-launched Pegasus, the Minotaur 1 and the Taurus XL. Minotaur 4 is expected to join the ranks later this year, while Taurus 2, a Delta 2-class vehicle, is under development and scheduled to see the light of day in 2010. The Taurus 2, however, already is earmarked for institutional clients such as NASA and the U.S. Department of Defense. “We already have a backlog of nine missions: one for NASA and a Commercial Orbital Transportation Services (COTS) contract to launch eight cargo missions to the International Space Station,” says Beneski. While in the past Orbital Sciences has launched payloads for international customers, in the future, its launch capacity likely will be taken up by U.S. government missions.

Some experts argue that competition could come from Asia, not so much from Japan’s M-5, which remains limited to the domestic market, but from India’s Polar Satellite Launch Vehicle (PSLV) and China’s Long March family of launchers. But such competition likely will remain extremely limited, at least for the foreseeable future. “As a player in the launch market, India is absorbed by internal demand,” says Caceres. In addition, PSLV’s launch tempo of around a mission a year does not offer enough capacity for commercial customers, and the 2008 launch of an Israeli military satellite aboard a PSLV appears to have been an exception rather than the norm. China, on the other hand, could be a player but is barred from launching U.S. satellites by International Traffic in Arms Regulations (ITAR). “It remains to be seen what happens to ITAR under the Obama administration,” says Caceres. However, vehicles from both countries certainly will remain in support of their national space programs and domestic satellite operators. One day, they also might become a factor in the marketplace.

An Institutional Role

The overall consideration to be made in relation to the launch industry in general and the small- and medium-class segment in particular is the fact that commercial satellites tend to concentrate in geostationary orbit. All other orbits, including low-Earth, medium-Earth and highly elliptical orbit, on the other hand, are dominated by government and institutional satellites — with the notable exception of MSS constellations and a few other exceptions. “These orbits remain largely the domain of governments, be it for civilian or military missions,” says Villain. And this is the defining issue for small- and medium-class launchers. While medium launchers such as the Soyuz can deliver payloads to geostationary transfer orbit, the underlying trend of increase in satellite mass means that their role for these types of missions likely will diminish in the future. They remain a factor in the delivery of satellites to lower orbits, and as such their future will be defined by the commissions coming from government and institutional customers.