China Eyes Purchase of Sea Launch Assets

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PARIS — Struggling commercial launch-service provider Sea Launch AG and its owner, Energia of Russia, are in talks with the Chinese government on selling the Sea Launch command ship and launch platform to Chinese interests that would station the system in international waters offshore China, industry officials said.

A sale to China would need to traverse a minefield of regulatory and political issues in Russia, China and the United States. Sea Launch is headquartered in Bern, Switzerland, but its home port is Long Beach, California.

The Sea Launch Zenit-3SL rocket is built by state-owned Ukrainian and Russian manufacturers, with Boeing acting as the company’s original prime contractor. Sorting out the effects of U.S. technology-transfer restrictions relating to satellite and rocket hardware – the International Traffic in Arms (ITAR) regime – would be complicated, officials said.

The situation likely would not be simple in China, either, where the Chinese Long March rocket family has demonstrated a reliable track record based almost exclusively on China’s domestic demand. China is denied access to most of the commercial market because ITAR rules forbid any U.S. satellite parts from being exported to China.

How far ITAR would reach into the operations of a mainly Russian-Ukrainian vehicle launched from international waters under Chinese ownership is uknown.

Using a large command ship that houses launch personnel and runs the launch operations, Sea Launch is operated in Pacific Ocean international waters on the equator. It uses a converted Norwegian mobile oil platform as a launch pad.

With launches occurring from international waters and no government customers, Sea Launch was forced to survive only on commercial orders. No launch vehicle has been able to sustain itself over time without government business.

The company once had ambitions of being a major force in the commercial launch market, specializing in heavy telecommunications satellites operating in geostationary orbit, before its high debt load and a 2007 launch failure forced it into bankruptcy.

A unit of RSC Energia of Korolev, Russia, purchased Sea Launch from bankruptcy and moved its legal headquarters to Switzerland. A 2013 failure of a launch carrying an Intelsat satellite soured Washington-based Intelsat, a major Sea Launch supporter, and the last Sea Launch campaign was the successful launch of a Eutelsat satellite in May 2014.

Since then, Sea Launch has been twisting in the wind, awaiting fresh support from the commercial market – which has not been forthcoming – and a clear indication from Energia and the Russian government about its future. That, too, is not settled as the Russian space industrial base is being reorganized around the country’s space agency, Roscosmos.

In the meantime, Sea Launch has begun selling off nonessential assets at its Long Beach base to reduce cash burn as it awaits a final decision on its fate, Sea Launch Chief Executive Sergey Gugkaev said.

In a July 17 interview, Gugkaev said the company would expend the minimum funding needed to maintain its command vessel and launch pad in operational readiness at the Long Beach site. Gugkaev declined to comment on negotiations with potential Sea Launch buyers, and specifically declined to comment on Chinese interest in the company.

Sergey Gugkaev
Sergey Gugkaev. Credit: Sea Launch

“It is costly,” Gugkaev said of even these reduced-level operations in Long Beach. “But we are keeping our principal assets in safe mode and they are in good condition. There are many scenarios for our future, in terms of ownership structure and location. In the meantime we are conducting garage sales of nonessential equipment such as a spare spacecraft adaptor.”

Sea Launch still has four Zenit rockets in production at prime contractor Yuzhnoye of Dnepropetrovsk, Ukraine, with one nearly finished. Production work has been slowed, however, as Sea Launch seeks a way forward.

More than a year after its last launch, and with a manifest that has shrunk to only one customer, Energia, Sea Launch is in dire straits, Gugkaev said.

Gugkaev did not hide his exasperation at the fact that a commercial satellite industry that has seen two of its three other active launch vehicles – the SpaceX Falcon 9 and Russia’s Proton – grounded following June and May failures, respectively, has not come to the salvation of Sea Launch.

“The only operator who has supported us is Eutelsat,” Gugkaev said. “The others have talked about the need to maintain a diverse vehicle supply but they have not been thinking strategically. They have been thinking short-term and taking advantage of the low prices of our competitor.”

Hawthorne, California-based SpaceX has effectively divided the commercial market with Europe’s Arianespace consortium over the past two years due to a string of Proton failures, mostly on Russian government missions, over the last several years. Satellite fleet operators have stressed the need for at least three reliable rockets at what they view as competitive prices, yet have not booked orders with Sea Launch.

The Russian government’s view of Sea Launch has been ambiguous. Russian officials have suggested the Sea Launch operation be moved to a location offshore Russia for greater Russian use, but Russia has never ordered a launch from the ocean-based operation.

The end result of Russia’s space-sector reorganization is not clear, but Russia appears to be moving toward a space-industry landscape resembling India’s and China’s, in which the government agency acts both as a regulator and as the prime contractor of satellites, rockets and launch services.

Gugkaev said it is still uncertain how Sea Launch will fit into this larger reorganization. But he said relations between Energia and Yuzhnoye, the Zenit 3SL rocket’s main Ukrainian manufacturer, remain solid. He said he regretted that prospective customers have assumed that all of Ukraine is in turmoil, not just the extreme western piece of the country.

Yuzhnoye is located in eastern Ukraine.

Alexander Degtyarev, general director of the Yuzhnoye Design Office, echoed Gugkaev’s remarks.

In addition to building a large portion of the Zenit rocket, Yuzhnoye is involved in the Dnepr small-launch vehicle, operated under Russian supervision, and is providing significant elements to the Antares rocket owned by Orbital ATK of Dulles, Virginia, and Europe’s Italian-led Vega rocket.

Ukraine’s longstanding agreement with Brazil to provide a Cyclone rocket for Brazil’s Alcantara spaceport appears to be on hold, with Brazilian officials saying earlier this year they planned to scrap the accord.

In an interview, Degtyarev said his company, which now counts 5,165 people, has increased its backlog by around 50 percent in the past year and has boosted employment by 12 percent.

Degtyarev said Yuzhnoye continues to invest in research and development to keep its skills honed and is not dependent on Russia for key technologies – except for spaceports. “We build launchers and provide launch services, but unfortunately we do not have a launch site,” he said.

He said he has watched the development of SpaceX with equal parts admiration – “they have given a real boost to the market” – and concern.

“Right now it seems to me the company is not yet stable,” Degtyarev said of SpaceX. “Our assessment is that they are not making money with the launches at current prices. They are operating a kind of pyramid in which contract revenue pays for operations but nothing more.”

SpaceX is privately held and does not publish financial results, but its officials have said the company is profitable with its current pricing policy.