MDA Sees Rebound in U.S. Earth Observation Market

by

PARIS — Satellite manufacturer MDA Corp. of Canada on Feb. 25 said the U.S. government is back in the market as a big customer for Earth observation data after a U.S. budget sequestration-caused slump in 2014.

The development, combined with Canada’s slowdown in new exploration or robotics programs, is accelerating the company’s reallocation of resources outside Canada, to Brazil and India in addition to the United States.

Richmond, B.C.-based MDA, which owns satellite manufacturer Space Systems/Loral (SSL) of Palo Alto, California, also said SSL has repositioned itself to capture not only smaller geostationary-orbiting telecommunications satellites, but also Earth observation and telecommunications spacecraft in low Earth orbit.

MDA Corp. is coming off a dynamic 2014, a year in which it booked nine new geostationary-orbit telecommunications satellite orders, including several that are smaller than those historically built by SSL. In addition, SSL is building 13 small optical Earth observation satellites for Skybox Imaging, now owned by Google.

With its satellite business profiting from a couple of years of strong orders, MDA reported total revenue of 2.1 billion Canadian dollars ($1.9 billion) for 2014, up 15 percent from 2013. Operating earnings, at 208 million Canadian dollars, were up 16 percent, with backlog stable at 3.1 billion Canadian dollars.

The company operates two divisions. The Communications division, with SSL and the company’s Montreal operation both building satellites; and the Surveillance and Intelligence division, which includes geospatial imaging services.

In 2014, the Communications division accounted for 71 percent of revenue and 54 percent of the company’s operational EBITDA, or earnings before interest, taxes, depreciation and amortization. Surveillance and Intelligence produced 29 percent of the revenue but 46 percent of the operational EBITDA.

In a Feb. 25 conference call with investors, MDA Chief Executive Daniel E. Friedmann said the geospatial services division is off to a fast start in 2015 on the strength of renewed U.S. government spending.

“Procurements were slow in 2014 but that has changed,” Friedmann said of the U.S. government contract activity. “In January we had record bookings, which we can’t disclose because they’re classified. The U.S. market is returning for geospatial.”

Friedmann said the company has outstanding bids for 1 billion Canadian dollars in U.S. business, government and commercial combined, of which 20 percent was for Earth observation. Globally, he said, the company has 1.9 billion Canadian dollars in bids outstanding.

These figures do not include former bids for six geostationary orbiting satellites already ordered this year. SSL won none of them but made attempts for all of them and had hoped for two, he said.

“We don’t walk away from anything,” Friedmann said. “We fight to the end and we live or die at the end. We died this time.”

MDA Corp. has long viewed itself as a mid- to large-size space hardware manufacturer stuck in a relatively small spacefaring nation. To win many export orders it must set up shop in customer nations – which explains the purchase of SSL in 2012. Smaller U.S. purchases have followed, most recently a $40 million cash purchase of General Dynamics Advanced Systems, a purchase designed to bolster MDA’s Surveillance and Intelligence business with the U.S. government.

Outside the United States, the model is joint ventures, not acquisitions. MDA is setting up joint ventures in Brazil and India to pursue work there.

It is preparing on a major bid for a Brazilian coastal-surveillance project, and is setting up a joint venture in India. In parallel to the Indian joint venture, Friedmann said the company is preparing to bid on an Indian geostationary-orbit telecommunications satellite. That’s a rare development in India, where the government has discouraged non-Indian satellite manufacturing projects.

In Turkey, MDA announced it had won a contract with Aselsan Electronics Industries to provide a Ku-band payload for the Turksat 6A telecommunications satellite. The order follows a similar contract for an X-band payload, also for Aselsan, which is spearheading Turkey’s move from satellite purchaser to satellite manufacturer.

MDA used to book about 200 million Canadian dollars in Canadian government business per year. That has recently been cut in half and is likely to slide further because there are no robotics or exploration programs on the horizon.

“This is in the process of disappearing,” Friedmann said of Canada’s established base in space robotics and exploration. “Basically we have lost our indigenous customer.”

If Canada has been a disappointment, Russia was a no-show during the conference call. MDA had targeted Russia and the rest of the Commonwealth of Independent States as a major satellite opportunity, mainly for communications but also for radar Earth observation.

A Ukrainian telecommunications satellite, now finished, is in storage pending ground-segment-related payments by the Ukrainian government. There were no indications that payment would arrive anytime soon, and MDA did not evoke the possibility of repurposing the satellite for another customer.

Friedmann made clear that MDA believes that several huge low-Earth-orbit communications satellite orders are on the horizon. SpaceX and Google, OneWeb and Qualcomm/Virgin Group and others have evoked constellations of hundreds, even thousands, of satellites.

Hawthorne, California-based SpaceX has made clear it doesn’t much care for established satellite builders and will do much of the work on its 4,000-satellite Ka-band constellation on its own. But OneWeb, based in Britain’s Channel Islands, has issued a bid requests for a 650-satellite constellation.

“For those companies out to procure, we’re bidding,” Friedmann said. “Not everybody is out to procure. Some want to build in-house. But there are some very exciting procurements under way as we speak.”