Space Profit Soars at Orbital ATK

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PARIS — Orbital ATK on Aug. 6 reported sharply higher operating profit in its Space Systems division based on improved performance in both military and commercial satellite contracts.

The company also said its Antares rocket, to be fitted with new first-stage engines, is on track for a first launch in early 2016 as part of a multi-launch contract with NASA to supply cargo to the International Space Station.

Despite the October 2014 Antares failure on a station-supply mission – tentatively blamed on the older Russian engines Orbital has now scrapped in favor of different Russian engines – Orbital said its NASA station-resupply contract profitability is improving.

As is the case with fellow station-resupply contractor SpaceX of Hawthorne, California – whose latest resupply mission in June resulted in failure – Orbital has won an extension of its contract, which will now stretch until mid-2018.

Orbital officials declined to disclose the value of the station-resupply extension, but said the company’s Space Systems division booked $260 million in new orders in the three months ending June 30. The NASA contract presumably accounts for a large part of that sum.

SpaceX won a contract extension equivalent to three launches, which the company valued at $150 million per launch. SpaceX’s Dragon cargo carrier returns payload to Earth; Orbital’s Cygnus is filled with garbage and then destroyed on re-entry into the Earth’s atmosphere.

In a conference call with investors, Orbital ATK Chief Executive David W. Thompson said the new Antares engines successfully completed testing in May, with the first pair – Antares uses two per launch – arriving at the Mid-Atlantic Regional Spaceport at Wallops Island, Virginia, in July.

Launch complex repairs following the fiery failure will be completed by October, Thompson said. The engines will be fitted onto the Antares rocket, with testing to occur through the autumn. The vehicle then will be rolled out to the launch pad for further tests by early January.

To make up for its failure, Orbital ATK contracted with United Launch Alliance of Centennial, Colorado, for an Atlas 5 rocket to launch Cygnus on a space station cargo run. That launch is scheduled for early December, Thompson said.

NASA is managing a second station-resupply contract competition, with winners to be selected by late September or early October, Thompson said. Orbital is re-bidding its Antares-Cygnus system.

Orbital ATK Chief Financial Officer Garrett E. Pierce said the company’s station-resupply contract is becoming more profitable as Orbital reaches milestones and retires risk. The company is likely to book additional profit once the re-engined Antares completes development.

As is typical of companies managing small-series projects with technology risk, Orbital maintains a management reserve to be used in the event it encounters problems in development. As the program proceeds without incident, companies at their discretion can book portions of this reserve as profit.

That is what is happening with Orbital’s Commercial Resupply Services contract with NASA, despite the October failure, which had no material negative impact on Orbital ATK’s finances or the program’s profitability.

Orbital’s commercial telecommunications satellite division is seeing the same buoying effect of the release of management reserve.

For the three months ending June 30, Orbital’s Space Systems division, which includes undisclosed government contracts as well as commercial spacecraft, reported a 17 percent increase in revenue, to $310 million, compared to the same period a year ago.

But operating profit was up 167 percent – “I’m going to repeat that, 167 percent” – Pierce said during the conference call, to $41.4 million, for an operating profit margin of 13.4 percent.

How much of this was due to commercial satellites and how much to military work is unknown. But Thompson said the SkyM-1 satellite built for satellite-television provider DirecTV completed development and production smoothly and quickly, allowing the company to book a higher profit.

Thompson said that by Orbital’s count, 10 commercial geostationary-orbit satellites have been ordered worldwide so far in 2015, of which Orbital has won two. Only seven of the 10 have been announced, and one of the Orbital satellites is among the three not yet made public, Thompson said.

Orbital competitor MDA Corp. of Canada, which owns satellite Space Systems/Loral of Palo Alto, California, told investors recently that the unannounced satellites are not fully financed and may or may not be built.

Thompson did not address this point, but said Orbital’s unannounced win is not dependent on Export-Import Bank financing. The Ex-Im Bank was closed to new business on July 1 by the U.S. Congress’ refusal to reauthorize it.

Thompson said that since 2008, six Orbital-built satellites have been built for customers that made use of the U.S. export-credit agency.