A glimmer of hope for satellite manufacturers?

Last year, satellite manufacturers booked only 15 commercially competed geostationary satellite orders, marking the industry’s weakest order book since 2012. Was 2015 a mere blip, or a leading indicator of a more durable industry trend?global-sat

For optimists, there are several reasons to believe that 2015 may have been an outlier. Weak global economic conditions, combined with abnormally high exchange rate volatility prompted several satellite operators to hit the pause button on their growth plans. In addition, the industry lost an important source of financing July 1 when the U.S. Export-Import Bank ceased issuing new loans due to a congressional budget impasse. Finally, the industry’s launch capacity was impaired by two major launch failures (ILS Proton in May 2015 and the SpaceX Falcon 9 in June 2015) that shaved a combined nine months of critical heavy-lift launch activity from the 2015 calendar.

For the pessimists, however, there are also legitimate reasons for concern. Over the past 20 years, the average power of a GEO satellite bus has more than tripled to 15-plus kilowatts, with average spacecraft life also growing modestly. Furthermore, on the demand side, the recent emergence of high -throughput satellites has caused unprecedented pricing erosion for satellite operators, raising concerns that a near-term supply/demand imbalance could prompt a further retrenchment in satellite orders.

Adding to industry uncertainty, the competitive field is likely to intensify over the next several years as companies such as OHB and Surrey Satellite Technology Ltd. introduce new GEO buses, Lockheed Martin attempts to re-enter the commercial market, and regional players such as Mitsubishi Electric and China Great Wall Industry Corp. seek to expand beyond their home markets.

Legacy satellite manufactures have responded to these threats through a combination of cost-cutting (Boeing layoffs), product innovation (all-electric and software-defined satellites), and market repositioning (Orbital ATK moving up-market and Space Systems Loral moving down-market). That said, “the big eight” satellite manufacturers have historically experienced a profit squeeze when satellite orders drop below the 20 to 22 annual norm.

Could the nascent LEO market provide a backstop in the event of a prolonged GEO market downturn? Possibly, but the recent historical record suggests a mixed prognosis. Boeing actually anticipated the LEO trend, announcing its Phantom Phoenix small satellite family in April 2013, but has been unable to secure a customer order. Likewise, Thales’ success with “old” NewSpace companies (Globalstar, Iridium, O3b) hasn’t yet translated into follow-on business. The (legacy) industry’s one notable success story, Airbus’ satellite manufacturing contract with OneWeb, was secured in 1990s fashion … with an equity investment in the customer. That strategy eventually boomeranged on the industry when the Internet bubble popped, but perhaps this time will be different?chris-quilty

Even if 2015 was a mere anomaly, satellite manufacturers are likely to face a more challenging competitive environment in the years ahead as new competitors enter the market and LEO
constellations (potentially) take a bite out of the GEO pie. Consequently, the industry’s future growth prospects may depend on the ability of lower launch costs, combined with plummeting bandwidth costs, to “grow the industry pie.”

Chris Quilty is the president of Quilty Analytics, an independent research and consulting firm specializing in satellites and space.