News from the Farnborough International Airshow | Growth Prospects Limited for Israeli Satellite Builder

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FARNBOROUGH, England — Israel Aerospace Industries (IAI), like Canada’s MDA before its purchase of satellite builder Space Systems/Loral of California, risks having its space business growth stunted by a domestic government whose demand is too small to permit expansion, and whose industrial strategy likely would not permit an outright sale of the space division.

Meanwhile, the company is stuck with a production volume, in both communications and Earth observation satellites, that is insufficient to generate even modest space-industry-level scale economies.

IAI Chief Executive Joseph Weiss, a former head of IAI’s space and missile systems division, acknowledged the problem in a July 16 interview at the Farnborough Air Show and said the company is studying several options for increasing its production.

Cutting costs will not only help IAI on the export market, but also make it easier for the company to maintain the loyalty of the Israeli government and Israel’s domestic satellite fleet operator, Spacecom.

Spacecom has been put up for sale by its owners, but while several companies including fleet operator Hispasat of Spain have been linked to negotiations, no deal has been announced. Weiss said that a Spacecom sale could cut either way for IAI.

On the one hand, it could put Israel’s satellite operator in the hands of a company without compelling reasons to maintain the IAI link. Alternatively, Weiss said, a strategic transaction between Spacecom and another fleet operator could give IAI a wider audience for its communications satellites.

The IAI-built Amos 4 satellite, built for Spacecom and for the Israeli government as a dual-use asset, was launched in September 2013 and cost some $365 million — an exceptionally high price for a satellite of its class. Weiss said that embedded in this figure are requirements set by the Israeli government that went beyond the standard commercial satellite design to include, among other things, a digital signal processor to reroute capacity as demand develops.

The satellite’s payload was built by Thales Alenia Space of France and Italy.

Nonetheless, IAI dodged a bullet in the competition for Spacecom’s Amos-6 satellite, with the customer taking a hard look at U.S. alternatives before settling on IAI as the prime contractor in a $200 million contract. MDA Corp. is providing the satellite’s electronics payload, and the Israel Space Agency is financing part of the development costs.

The Amos 5 spacecraft, launched in 2011, was built for Spacecom by ISS Reshetnev of Russia for an unusually low price when measured in per-megahertz capacity.

After the Amos 6 win, IAI promised to find ways to cut its costs, but Weiss said doing so with no guarantee of increased government demand is problematic.

“We know we have the technology capability,” Weiss said. “If you look at Amos-4, you see a medium-size bus that has a very high payload-to-platform ratio. Right now we have a business that sustains itself. It is profitable. But for the future we will need more demand to make investment.”

IAI’s Earth observation satellites, developed under work for the Israeli government’s Ofeq series of optical and radar surveillance craft, are viewed by the company’s competitors as setting the standard for fitting high capacity into a small space. The ability to do this was made necessary by the limits of Israel’s Shafit rocket and the constraints on launches imposed by Israel’s geographic location.

But what started as a necessity is now a market strength as multiple nations in South America, Asia and elsewhere are now demanding their own satellites for civil and military purposes.

IAI has sold the Optsat 3000 satellite to the government of Italy as part of a broader offset package in return for Israel’s purchase of Italian jet trainer aircraft. Optsat 3000’s ground resolution is 50 centimeters at nadir, if not better, meaning it can distinguish objects of that diameter and larger. The satellite is expected to weigh just 380 kilograms and to operate in polar low Earth orbit for between six and eight years.

The TechSAR high-resolution radar satellite product, recently demonstrated with the April launch for the Israeli military of the Ofeq 10 satellite, weighs just 330 kilograms at launch.

IAI has recently been active in international competitions to sell high-resolution optical surveillance satellites. The Peruvian government judged IAI’s final offer second best of four bids for that nation’s submetric spacecraft, beaten only by winner Airbus Defence and Space.

It is difficult to determine what role political guarantees have in evaluating the winners beyond the technical and financial evaluation. Weiss said the company will be investing heavily in the coming competition for a high-resolution optical satellite for the Colombian government.

Peruvian authorities had said they were looking for bidders who could provide immediate access to a satellite constellation in addition to a satellite to be operational in two or three years.

Weiss said IAI is able to provide a similar offer through access to the EROS-A and EROS-B optical Earth observation satellites, owned by IAI’s ImageSat International NV. EROS-B, launched in 2006 on a four-year mission, is now expected to continue operating until 2022 and provides 70-centimeter-resolution imagery with a 7-kilometer swath width.