Top 5 Companies To Watch

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This year’s Top 5 Companies to Watch group has a heavy focus on firms facing challenges that could come to a head in the next year or two.

Orbital Sciences Corp. and Virgin Galactic recently experienced flight hardware failures, which in Orbital’s case will force key decisions in the coming months affecting its Antares rocket and space station logistics business. Virgin Galactic has promised to forge ahead following the fatal crash of its SpaceShipTwo vehicle, but the duration and outcome of the U.S. government-led failure investigation are bound to affect the company’s plans.

Virgin Galactic is one of two companies in this year’s Top 5 that were in the group last year, the other being Globalstar. The selection considerations this year were different for Virgin Galactic, which last November seemed poised to start commercial service, and essentially the same for Globalstar, which is still awaiting a U.S. government spectrum ruling that has important implications for its future.

For perpetually struggling Sea Launch, the question is whether the company can land new business in a shifting market or, if it fails to do so, whether it can survive.

Meanwhile, Iridium Communications is entering a crucial stretch next year with the scheduled start of deployment of its all-important second-generation satellite constellation.

As always, this year’s selections were based largely on subjective rather than measurable objective criteria. Reader feedback is welcome.

 

Orbital Sciences

There is never a good time for a company to suffer a launch failure, but the Oct. 28 loss of an Antares rocket comes at a particularly crucial time for Orbital Sciences Corp. That accident, which destroyed a Cygnus cargo spacecraft bound for the international space station, has implications for the company far beyond a missed delivery of supplies and equipment.

In the near-term, Orbital has to scramble to fulfill one of its largest contracts, the $1.9 billion Commercial Resupply Services (CRS) award from NASA. That means working with companies it might otherwise consider competitors, like Arianespace, Space Exploration Technologies Corp. and United Launch Alliance, to launch one or more Cygnus missions to the ISS in 2015.

The launch failure also has forced Orbital to accelerate its plans to upgrade the Antares. The company already was planning to replace the AJ-26 engines in the rocket’s first stage, but was going to make that transition after completing its CRS contract. It now appears unlikely that another Antares using the AJ-26 will ever launch, as Orbital seeks to start launches of the re-engined Antares in 2016.

As Orbital implements what it calls its “go-forward” plan in the wake of the Antares failure, it must work to secure the vehicle’s long-term future. In September, NASA issued a request for proposals for the follow-on to the CRS contract, called CRS2. Orbital likely will face strong competition from SpaceX, the other company with a CRS contract, as well as Boeing and Sierra Nevada Corp., which may repurpose their commercial crew vehicle designs for cargo delivery.

Orbital so far has been unsuccessful in finding additional customers for the Antares beyond the NASA CRS award. If the company doesn’t win a CRS2 contract, and other customers are reticent to sign up — understandable given that Orbital is effectively developing a new launch vehicle by changing the Antares’ first-stage engine — the company will face some tough decisions about whether to continue the Antares or get out of the medium-lift launch business entirely.

While Orbital deals with the future of Antares, it’s also wrapping up its merger with Alliant Techsystems’ aerospace and defense units. The two companies are scheduled to hold shareholder votes on the merger Dec. 9, and the deal could be closed by the end of the year, assuming no last-minute hiccups with regulatory approvals.

Completing the merger, though, is in many respects only the start of the integration process of what will be known as Orbital ATK Inc. While much of Orbital’s current leadership, including Chief Executive David W. Thompson, will hold similar positions in the merged company, the majority of Orbital ATK’s 13,000 employees will be from ATK. The companies caution that the “full synergies” from the merger may not be achieved until the end of 2016.

The merged company, though, will have considerable strengths in various satellite and launch areas, from small launch vehicles to commercial communications satellites to emerging areas like satellite servicing. How it takes advantage of those strengths may turn out to be as important as how it recovers from the Antares launch failure.

 

Virgin Galactic

Suborbital space tourism hopeful Virgin Galactic appeared to be within months of its long-awaited start of commercial service when its SpaceShipTwo rocket ship broke apart during a powered test flight over California’s Mojave Desert Oct. 31, killing one of two test pilots onboard and badly injuring the other.

In the immediate aftermath of the accident, skeptics of the seemingly forever-nascent commercial spaceflight industry declared Virgin Galactic all but finished, even as its founder, entrepreneur Sir Richard Branson, pledged to forge ahead. Virgin says a second SpaceShipTwo craft is 65 percent complete at the Mojave, California, facilities of its main hardware contractor, Scaled Composites.

While the accident investigation — led by the independent U.S. National Transportation Safety Board (NTSB) — could take up to a year, Virgin Galactic has said team members are “pouring themselves into [the second SpaceShipTwo] with heightened resolve” and that flight tests could resume sometime in 2015.

Still, the investigation’s conclusions likely will trigger a number of decisions and events that could help decide the company’s future. Perhaps chief among them is whether Virgin Galactic’s primary outside investor, Abu Dhabi’s Aabar Investments, will continue sinking money into the project, which by some estimates has cost about $500 million to date.

A report on MENAFN.com, a business and finance website focused on the Middle East and North Africa, quoted an unnamed Aabar source as saying the fund is “concerned” in the wake of the accident but that “nothing can be decided until the investigations are over.”

Another question is how long Branson — notwithstanding his stated desire to stay the course — can continue to sink his own funds into Virgin Galactic given that it will be at least another year, perhaps even two or more, before the company can start generating a return on investment. Virgin Galactic has a workforce of about 430, and obviously has contractors that must be paid as well.

One positive sign is that, according to Virgin Galactic, only a very small percentage of the roughly 700 customers who have plunked down a combined $89 million in down payments for rides on SpaceShipTwo have asked for their money back in the wake of the accident. But again, the outcome of the investigation — and perhaps its duration — could affect how many of these prospective customers stay onboard in the months ahead. Either way, it’s probably reasonable to assume that Virgin won’t be signing many new customers while the investigation is underway.

Virgin Galactic is of course not the only prospective provider of commercial suborbital flights, but it remains the industry’s vanguard, despite having suffered such a huge and tragic setback. As such it has garnered a global following — one that extends well beyond the space community — that will be anxiously awaiting any new development as the NTSB investigation runs its course. 

 

Globalstar

Globalstar saw its share price take a nasty tumble in October after an investment firm hoping for exactly that result went public with assertions that the mobile satellite services provider had no future.

The company’s stock had risen steadily during the previous year, largely on the possibility that the U.S. Federal Communications Commission would grant its request, made in November, to use a portion of its assigned satellite spectrum for a terrestrial wireless service, a development that in the eyes of some market analysts made the struggling firm  an attractive acquisition target. Globalstar also had seen its revenue increase after the deployment of its second-generation satellite contellation, completed in 2013, enabled it to restore its core two-way telephone service.

Kerrisdale Capital Management was decidedly unimpressed, however. In an Oct. 6 webcast, the New York-based investment firm, which had bet that Globalstar’s stock would lose value, declared the spectrum “worthless” to the terrestrial wireless industry and said revenue from the company’s core mobile satellite business was not sufficient to cover its loan covenants.

Globalstar hit back a few days later, telling analysts during a two-hour conference call that Kerrisdale fundamentally misunderstood the wireless industry’s spectrum requirements and that Globalstar has consistently met the repayment terms on its loans. Globalstar Chief Executive Jay Monroe, whose Thermo companies have almost singlehandedly kept Globalstar afloat over the years through some $600 million in investment, said he was sufficiently confident in Globalstar’s prospects to continue buying its shares.

Globalstar’s stock price has since rebounded somewhat — Monroe in November made good on his pledge to buy more of the company’s stock — even if Wall Street remains somewhat skeptical of its long-term prospects. The company on Nov. 6 reported revenue of $23.4 million for the quarter ending Sept. 30, a 4 percent increase over the same period last year.

But it remains to be seen whether the returns from Globalstar’s recovering satellite telephony business will enable the company to repay its debts without having to raise new equity. The answer to that question could come in the next year or so.

Meanwhile, Globalstar is hoping for a favorable FCC decision by the end of the year on its proposal to use spectrum for a terrestrial wireless service, although the timing of that process is uncertain. “Post-approval, we plan to seek to establish one or more partnerships to deploy commercial service successfully and promptly,” Globalstar said in a Nov. 6 press release on its third-quarter earnings.  

 

Sea Launch

This past May brought two events with the potential to boost the fortunes of the long-struggling Sea Launch company: the return to flight of its Zenit-3SL rocket following an early 2013 failure, and yet another mishap involving the Russian Proton rocket, which is sold commercially by Sea Launch competitor International Launch Services.

Among the customers awaiting Proton launches when that vehicle failed — it was the sixth anomaly since 2010 for the venerable workhorse — was Inmarsat, which is eager to begin monetizing its $1.4 billion investment in its three-satellite Global Xpress broadband constellation. At the time, Inmarsat had one Global Xpress satellite in orbit, with two more slated for Proton launches this year or early next year.

The uncertainty surrounding Proton appeared to be an opportunity for Sea Launch, which specializes in launching large telecommunications satellites from a floating platform in the Pacific near the equator. Sea Launch Chief Executive Sergey Gugkaev said in June that the company had at least one, and possibly two, launch slots available in 2015 and was in discussions with anxious ILS customers about near-term flight opportunities.

Proton has since returned to flight, however, launching Russian government satellites in September and October, and is slated to carry out a commercial launch for SES in November or December. Inmarsat appears to be sticking with ILS, which expects to have the two Global Xpress satellites in orbit in 2015.

In the meantime, Switzerland-based Sea Launch has trimmed staff and taken other cost-cutting measures including putting its two main operating vessels in standby mode at its home port in Long Beach, California.

Sea Launch’s Russian ownership and desire to win Russian-government business — unlike its competitors, Sea Launch’s business today is purely commercial — had prompted speculation of a move to Russian territorial waters, something Gugkaev in March acknowledged as a possibility. Gugkaev more recently has said Russia’s main satellite operator, Russian Satellite Communications Co., which to date has launched exclusively on Proton, could have the flexibility in the future to choose Sea Launch and that these launches would not require abandoning Long Beach.

Something to keep an eye on in the coming months is pending litigation between Sea Launch and Space International Services, which is claiming the right to use the Zenit-3SL to launch commercial satellites from the Russian-run Baikonur Cosmodrome in Kazakhstan. Zenit-3SL rockets launched from Baikonur have less performance to geostationary orbit than those operated from the equator, but the commercial market has shifted in recent years toward smaller satellites.

Sea Launch has one announced mission on its manifest, but that’s not until 2016, when the company is slated to launch satellites for AngolaSat and its majority shareholder, RSC Energia of Moscow, in what would be the company’s first dual-launch mission — a capability that could be advantageous given recent market trends. 

But time would appear to be running out for landing a customer for 2015, something that would provide Sea Launch with a near-term infusion of badly needed revenue.

The global commercial launch market is in a state of flux as the existing competitors cope with shifting customer preferences and the relatively recent arrival of Space Exploration Technologies Corp. as a full-fledged player. Sea Launch’s ability to hang on, and in what capacity, could well depend on events as they unfold over the next year or two.

 

Iridium

Space is almost by definition a white-knuckle business, but Iridium Communications may well be in a class by itself when it comes to margin for error, especially for a company of its size.

The mobile satellite services operator has milked its original satellites for longer than anyone had a right to expect as it awaits deployment of its second-generation constellation starting next year. But time is running short: The first-generation constellation, launched in the 1990s, is down to its last on-orbit spare after having lost two during the quarter that ended Sept. 30.

The first pair of 72 Iridium Next satellites, under construction by Thales Alenia Space, is scheduled for launch in June 2015 aboard a Russian Dnepr rocket. But the real heavy lifting begins toward the end of the year, when the satellites start launching 10 at a time aboard Space Exploration Technologies Corp. Falcon 9 rockets.

SpaceX appears to be answering skeptics who doubt its ability to launch at a high tempo — the company conducted four launches in a three-month period this year — but its manifest shows an impossible nine missions remaining for 2014. Many if not most of those launches will spill into 2015, a year in which SpaceX has 16 missions scheduled, including two for Iridium.

If the launches are conducted in the order depicted on the manifest, SpaceX would seem hard pressed to launch any Iridium satellites next year under the best of circumstances, let alone if it suffers a failure. In all, seven Falcon 9 Iridium launches are planned: two in 2015, three in 2016 and two in 2017.

Meanwhile, Iridium has related business initiatives in the works that could begin to bear fruit in the next year or two. Among them is the Aireon venture, which aims to provide air-navigation services using hosted payloads aboard the Iridium Next satellites. 

Founded by Iridium and Canada’s air traffic management authority, Nav Canada, in 2012, Aireon has since signed up other quasi-national air navigation service providers in Europe as stakeholders. The next year is expected to bring further announcements as Aireon works to establish a toehold in Asia and to enlist the U.S. Federal Aviation Administration as a customer.

The Iridium Next satellites also have room remaining for additional hosted payloads, and Iridium is marketing that space through partner Harris Corp., which is building the Aireon payloads. Iridium recently said Harris is making progress in these efforts, although nothing has been formally announced. With the satellites slated to begin launching next year, however, the window on that opportunity is closing rapidly.

Success on the Aireon and hosted payload fronts is important insofar as the resulting revenue will help Iridium service its considerable debt. Construction of the Iridium Next satellites was financed through a $1.8 billion loan backed by France’s Coface export-credit agency. 

Earlier this year Iridium was able to secure some relief on its near-term debt servicing requirements, but these are only going to grow in the next couple of years. Needless to say, Iridium has a lot on its plate in each of the next few years, and can ill afford any setbacks.