Gunning for U.S. Government Business, Canada’s MDA Retools Calif. Satellite Factory

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PARIS — Canadian space hardware and services provider MDA Corp., which in November purchased U.S. commercial satellite builder Space Systems/Loral (SS/L), is making capital investments at SS/L’s California campus to position the company for U.S. government business in surveillance and space robotics, MDA officials said.

The investments include a second thermal-vacuum satellite test facility to increase the Palo Alto, Calif., plant’s annual production capacity, and both plant and personnel investments to give SS/L the same space-robotics capability that MDA has in Canada.

The investments are occurring even as SS/L’s core market of commercial telecommunications satellites goes through a global dry spell in advance of what MDA and other satellite industry officials say will be a return to the annual 20-plus satellites ordered each year.

Depending on the satellites’ size and complexity, SS/L needs four or five orders a year for optimal use of its plant facilities.

In a May 2 conference call with investors, MDA Corp. Chief Executive Daniel E. Friedmann said that by MDA’s count, only nine commercial geostationary-orbiting satellites have been ordered in the 12 months ending April 30.

As it happens, he said, that was a period when SS/L was sorting out a difficult solar-array manufacturing defect that had caused some customers to hesitate before making orders. With that issue now resolved, and given the pent-up market demand and the number of customer requests for proposals in play, SS/L should be able to book several orders this year, he said.

SS/L and MDA, separately or together, have submitted 18 satellite contract bids that remain outstanding, plus 10 more that the company is tracking, Friedmann said. The bids already submitted have a combined value of about 2 billion Canadian dollars ($2 billion), he said.

The new thermal-vacuum chamber being built at SS/L will allow the company to handle 10 satellites a year without outsourcing the thermal-vacuum work to a third party, Friedmann said, a practice SS/L resorts to on a regular basis to meet delivery schedules. Thermal-vacuum tests often take several weeks and block the progress of other satellites in the factory.

Another advantage of the new test facility is to enable SS/L to cordon off U.S. government satellite work from the rest of the factory to meet security requirements.

MDA’s November purchase of SS/L was intended to remove barriers that had prevented the Canadian company from bidding as a prime contractor on U.S. government satellites, space robotics and other programs.

MDA has a long history in space robotics, notably at the international space station, and it hopes to leverage that to win U.S. government contracts that are restricted to U.S. companies.

MDA is creating a proxy company to give its California operation a U.S. legal status. A special security arrangement with the U.S. government was concluded in March, and the relevant structures inside MDA will be created to operate it. 

MDA is sending space-robotics experts from its Canadian facilities to SS/L to take advantage of early U.S. government robotics contract opportunities. In addition, MDA’s surveillance and intelligence division is counting on the new U.S. links to enlarge its market with the U.S. government.

MDA’s highest priority is “to penetrate the U.S. government market,” Friedmann said during the conference call. “We are putting tremendous effort and expense into that.”

MDA in February won a long-delayed contract with the Canadian Space Agency to build and launch the three-satellite Radarsat Constellation Mission (RCM). Valued at 706 million Canadian dollars, the contract had been scheduled to move into high gear by March.

That has not happened, MDA said in its statement to shareholders, mainly because of continued RCM negotiations with the Canadian Space Agency and with prospective subcontractors on “an alternative approach to manufacturing the spacecraft bus.”

MDA and the Canadian government have been talking with Astrium Services of Europe and the German government about a partnership in radar Earth observation that could include RCM and a second-generation of Germany’s TerraSAR-X radar satellite and its twin, TanDEM-X, both of which are in orbit.

Astrium and the German government have yet to agree on how much government investment will be made in a second-generation TerraSAR-X. Up to now, the plan had been for Astrium to own the satellite and operate it on a commercial basis.

RCM started out as a “cost-plus” contract to MDA from the Canadian Space Agency, which limits MDA’s potential losses in the event of cost overruns related to introducing new technologies. The RCM contract in mid-2012 was converted to a fixed-price contract, which increases the risk assumed by MDA.

“We’re just taking the time to get this right,” Friedmann said of the delay in the RCM contract, which meant little revenue from it recorded in the three months ending March 31.

MDA reported total revenue of 428.6 million Canadian dollars for the three months ending March 31, compared with 172 million Canadian dollars a year ago — a measure of the effects of the SS/L acquisition.

MDA’s own satellite communications business, run from Montreal, reported a 41 percent increase in revenue during the period, to 61 million Canadian dollars, MDA Chief Financial Officer Anil Wirasekara said during the call. 

SS/L revenue totaled 270 million for the three months ending March 31. The SS/L operation has an EBITDA, or earnings before interest, taxes, depreciation and amortization, equivalent to about 12.5 percent of revenue, Wirasekara said.

MDA’s surveillance and intelligence business reported a 25 percent drop in revenue, to 98 million Canadian dollars, because of reduced Canadian government robotics work and the unexpectedly slow growth in the RCM contract.