Saturday, July 8, 2017

Thoughts on Commercial Space, Part IIB

            The next four posts will be a detailed account of each of the four phases of commercial space starting with the communications satellite market, Commercial Space 1.0.  My career has spanned all four phases.  After a two-year stint working for Martin Marietta on Titan III and 34D in the early 1980’s, I spent five years in graduate school learning about quantum field theory.  I returned to Martin to work on the Commercial Titan program, Martin’s entry into the (launch) supply side of Commercial Space 1.0.  I then shifted to military space with Titan IV.  In the late 1990’s I moved to the Atlas V development program where we aggressively pursued both Commercial Space 1.0 and 2.0.  In the 2000’s, I spent much time and energy helping create—and chasing—Commercial Space 3.0.  Most recently, I’ve partnered with and competed with Commercial Space 4.0.  The remainder of my career will be spent trying to get Commercial Space 5.0 (the cislunar economy) off the ground.

Commercial Space 1.0

The first wave of commercial space began with the launch of the first Intelsat spacecraft in 1965.  Ironically, it wasn’t commercial at all.  Intelsat was formed as an Inter-Governmental Organization (IGO), a consortium of 11 countries.  By the time Intelsat was privatized in 2001, membership had grown to one hundred countries.  Intelsat remains one of the largest communications satellite operators.  Another major player, SES, got its start in 1988 as an initiative of the Luxembourg government who remains a major shareholder of the company.  The company became publicly traded in 1998.  Intelsat and SES currently operate the majority of communications satellites in geosynchronous orbit.

Other major communications satellite players started as IGO’s including Inmarsat and Eutelsat.  Both are now private companies, Inmarsat based in England and Eutelsat in France.

One of the first pure commercial ventures was DirecTV which launched its first satellite in 1993.  Originally a spinoff of Hughes Aircraft, it is now part of AT&T and operates a fleet of 13 satellites.  Another pure commercial satellite venture is Echostar, headquartered in my home state of Colorado.  It launched its first satellite in 1995 and competes with DirecTV through the affiliated DISH Network.

The rise in demand for satellite launches coming initially from IGO’s spurred the development of new launch systems.  The development of the European Ariane family of launchers began in the 1970’s as a mostly French initiative to create an indigenous European space launch capability.  Arianespace was formed in 1980 by CNES (the French Space Agency) to market the Ariane family of launchers worldwide.  Arianespace is now majority owned by Safran Airbus, the primary manufacturer of Ariane launch vehicles.

Funds to develop the Ariane family of launchers have been almost entirely public (ESA member states).  And though now privatized, Arianespace began as a quasi-governmental entity owned by CNES.  Its customer base is a mix of commercial and government entities.  Over the years, Arianespace has struggled to make a profit, often having been “bailed out” by ESA or CNES.  Nevertheless, it is often viewed as a pillar of the commercial launch business.

The NASA owned and operated Space Shuttle was originally conceived to be a launch systems serving all markets. The first Shuttle launch was in 1981.  The first Shuttle launch carrying commercial communications satellites (two) was STS-5 in 1982. Eleven Shuttle launches carried commercial satellites through 1986.  The 1986 Challenger accident put an end to the Space Shuttle as a commercial launcher.  After the return to flight in 1988, the Shuttle was only used for government missions.

After the Challenger accident, the United States entry into the commercial launch market came from the private sector: McDonnell Douglas with the Delta, General Dynamics with the Atlas and Martin Marietta with the Commercial Titan, all vied to fill the gap in commercial launch capability left by the exit of the Shuttle.  (The US national security community also scrambled to get off the Shuttle, starting the Titan IV program and scrapping its plans for an all military “Blue Shuttle.”)

I spent several years on the Commercial Titan program in the late 1980’s.  One failure in four flights and very risk intolerant management spelled a quick demise.  Though commercial Titan didn’t make it, commercial Atlas and commercial Delta survived.  Commercial Atlas had a rocky start with three failures in the first few years.  In part, this poor track record resulted in the sale of Atlas to Martin Marietta in 1993—though Martin really wanted the Centaur upper stage for Titan IV and took Atlas as part of the negotiation.  It is notable that all the debt accrued by General Dynamics during the development of Atlas I, II, IIA and IIAS remained behind and was written off.  With the debt written off, Atlas became nicely profitable for its new owners through the remainder of the nineties and into the early 2000’s.  Martin Marietta and Lockheed merged in 1995 to become Lockheed Martin (Lock-mart for short).

By the early 1990’s there were really only three vehicles serving the commercial market:  Ariane (Ariane 4 series), Atlas (Atlas I, II series), and Delta (for smaller spacecraft).  The stage was now set for Commercial Space 2.0.

            I extract two critical lessons from Commercial Space 1.0 through the early 1990’s.           

Lesson Learned #1:  Commercial Space is incredibly risky.  Capital requirements are very high, technology is pushed to the limit, operations are complex and the markets are fragile.

            These facts make it tough for any commercial company to break into commercial space on either the demand side (satellite operations), or the (launch) supply side.  All the initial satellite companies got their start as some sort of IGO or other heavily government supported entity.  The initial launchers were also government.  It was only after the trail was blazed that the private sector could or would step in.

            Even then, profits proved elusive.  Martin Marietta lost close to $100M on the Commercial Titan before they pulled the plug.  Don’t feel sorry for them.  They more than made up for it on the Titan IV program.  General Dynamics also lost hundreds of millions on commercial Atlas before selling it to Martin Marietta.  McDonnell Douglas made small profits on commercial sales of Delta, but the program was heavily supported by US Air Force.  Of course, Arianespace has never consistently delivered any profit.

Lesson Learned #2:  It is very difficult for companies to compete with countries.

            This is a corollary to Lesson Learned #1.   Private companies have limited resources and must deliver healthy financial returns to stay in business.  Governments have no such constraints.  The mere presence of a government entity in a market space will suppress any private sector interest.  An example is the early 1980’s.  So long as the Space Shuttle was launching commercial communications satellites, no US private company was willing to take the risk.  Only Ariane, itself supported by European governments, could compete.