PARIS — Satellite and rocket builder Orbital Sciences Corp. on April 23 reported sharply higher operating income on flat revenue for the three months ending March 31 as all three of its divisions improved their operating margins.
In a conference call with investors, Orbital officials said the good news — a 9.3 percent operating margin, the highest in about five years — in the first three months of the year cannot yet be extrapolated to the full year because of uncertainties about the effects of U.S. government cutbacks and negotiations on future year budgets.
Orbital Chief Executive David W. Thompson nonetheless reiterated that from where Orbital sits, the NASA and U.S. Defense Department budgets, including U.S. Missile Defense Agency spending, constitute good news. Programs matching Orbital’s product mix appear to have been spared, he said, and a planned expansion of the Ground-Based Midcourse Defense system, the primary U.S. territorial shield, should lead to more orders for the interceptors and target vehicles built by Orbital.
The company also said it has begun work on an all-electric satellite design to compete with’ 702SP commercial telecommunications satellite product, which appears to have gained traction in the market judging from Boeing’s statements about customer inquiries.
An all-electric design permits satellites to shed hundreds of kilograms of launch weight devoted to carrying conventional fuel, meaning more satellite power and payload can be fit into a smaller package that can launch on a smaller rocket. The tradeoff is that satellites with all-electric propulsion systems take longer to reach their operating position in geostationary orbit.
The arrival of the Boeing all-electric product on the commercial market permits Boeing to offer a satellite with a reduced weight that puts it closer to Dulles, Va.-based Orbital’s established market niche at the lighter end of the commercial satellite market.
“We are investing in an electric satellite of our own,” Thompson said, cautioning that he did not believe all-electric spacecraft were about to dominate the market for commercial geostationary-orbiting satellites.
The commercial satellite market has been in the low part of its traditional cycle for the past year and Thompson said 2013 would not see a rebound. He estimated that 16-20 geostationary telecommunications satellites would be ordered in 2013. Orbital hopes to win three of these.
Orbital completed construction of several satellites in early 2012, which partly explains the 9 percent drop in satellite revenue in the three months ending March 31 compared to the same period a year ago. But operating income for the division was up 47 percent, to $10.9 million, and the operating profit margin was 10.8 percent of revenue, compared to 6.6 percent a year ago.
Thompson said the two Orbital-built satellites that recently entered service are functioning well, allowing the company to release management reserves that had been withheld from the programs in case of a last-minute glitch. These reserves now go to the bottom line.
Thompson said he was hopeful that the satellite division will be able to maintain high profit margins, which it reached starting in late 2012, but that it was too early to assume similar performance in coming quarters.
Orbital’s launch vehicle division was expected to be the main event in 2013 with the debut of the company’s Antares rocket, developed with NASA funding assistance to deliver supplies to the international space station. The demonstration launch April 21 from Wallops Island, Va., which carried a dummy payload, was a success and should lead to a mid-July launch of a Cygnus cargo canister to the space station, Thompson said.
Antares’ first stage is powered by two AJ26 liquid oxygen/kerosene engines built in Russia. The AJ26 is delivered to Orbital by Aerojet of Sacramento, Calif., which modifies the Russian NK-33 engine for the Antares program.
Aerojet has purchased about 40 NK-33 engines from its Russian supplier. How many additional engines will be available, and for which customer, in the coming years is a question Thompson said Orbital will begin to address later this year.
Thompson said Orbital has taken delivery of 20 AJ26 engines, enough for 10 Antares launches to carry Orbital through its initial NASA contracts for space station supply. He said there is “a limited number” — no more than 10 — additional functional AJ26 units at Aerojet available to Orbital, enough to carry the Antares program through 2016.
“We need to make a decision on a long-term propulsion system over the course of the next year,” Thompson said. He said there is “a good chance” that NASA will exercise, this year or in 2014, an option to add a ninth launch to the current $1.9 billion Commercial Resupply Services (CRS) contract, which covers eight Antares launches carrying Cygnus cargo vehicles to the space station.
The CRS contract is the main component of Orbital’s nearly $578 million in receivables as of March 31. The company has been investing in the Antares/Cygnus program but is paid only 75 percent of the incurred costs. The remaining 25 percent owed under the contract is paid out proportionately after each successful launch. Thompson said it remains unclear how profitable the CRS program will turn out to be.