For many top U.S. government space contractors, earnings season under this period of shrinking budgets has been an occasion to reassure investors that when it comes to revenue growth, “flat is the new up.” Ball Aerospace & Technologies Corp., however, is a notable exception.
The Boulder, Colo.-based spacecraft manufacturer and instrument builder’s sales grew by 11 percent in 2012 after jumping nearly 10 percent the year before. Ball also is off to a good start for 2013; first quarter sales were up nearly 15 percent year over year.
Ball’s recently installed president, Rob Strain, attributes much of this growth to the company’s deliberate focus on national security markets, where it appears there’s still a lot of opportunity — especially in the intel world — for agile companies with innovative solutions that are willing to do fixed-price contracts.
On the civil side, Earth science and astronomy continue to be Ball’s bread and butter. The company is building the optics for the $8.8 billion James Webb Space Telescope mission launching in 2018 and serving as prime contractor for the Joint Polar Satellite System-1 (JPSS-1) spacecraft NASA is procuring on behalf of the National Oceanic and Atmospheric Administration. Luckily for Ball, the White House and Congress continue to shield James Webb and JPSS-1 from the widespread budget cutting that’s putting a dent in the portfolios of many of Ball’s competitors and teammates — Strain, in a nod to the friend-and-foe nature of aerospace business relationships, calls them “competi-mates.”
A rare aerospace executive who doesn’t have an engineering degree, Strain joined Ball in March 2012 as chief operating officer after back-to-back stints as director of NASA’s Goddard Space Flight Center and head of the Johns Hopkins University Applied Physics Laboratory’s Space Department. After less than a year in Boulder, Ball announced in February that Strain — a Michigan native — would be replacing the company’s retiring chief executive, Dave Taylor, as president.
Strain talked with SpaceNews Executive Editor Warren Ferster and Staff Writer Mike Gruss during a recent visit to Ball’s office in Arlington, Va.
The last couple of years have brought Ball double-digit growth, and 2013 numbers are up even higher. What’s going on?
I’ve looked across all of our competi-mates and their revenues are down 5-7 percent. We don’t see that. We’ve been picking up market share. We’ve been outperforming the market by more than a little and we’re hoping to continue that.
What do you attribute that to?
We’ve been very fortunate. We’re positioned on some very important programs that seem to be very well supported, both in our Department of Defense (DoD) community as well as in our civilian programs, like JPSS, the James Webb Space Telescope and some of our planetary missions. Intelligence community programs are the top handful of protected missions. So we’ve been fortunate to be on the right programs. And we’ve been very competitive. We’re the smallest of some of those primes, and we think we’re pretty clever. We provide some pretty competitive, affordable missions and we land more than our fair share.
What’s been the biggest driver? You mention two civil programs. But we get the sense DoD/intel is driving this.
For us right now, it is. For over the last five years, maybe seven years, we’ve almost inverted our mix from 30/70 to 70/30. About 70 percent of our business right now is DoD/intelligence and that’s almost inverse to what it would have been seven years ago.
We’re guessing most of that business is intelligence because when we look at the DoD side we don’t see a huge program. Are we missing something?
You are not missing something.
Is that 30/70 mix the result of a conscious effort to focus on national security business, or did it just happen that way?
It’s a little of both. We have a niche and a way of doing of business. We’ll sell to anyone who can take advantage of our product. In the last five years, the DoD and intelligence community have been particularly interested in what we have. We put more energy five years ago into the DoD world. We were positioned well. Some is gratuitous, for sure. Some of it we put more energy into the sector.
Is this also because the government is changing the way it’s buying stuff?
I think that has a lot to do with it. I think it ties in to what we’re seeing in some cases, Air Force and the intelligence community, and in some part we’re taking advantage of the change in their strategy to disaggregation — smaller, mid-size programs, which are our sweet spot. We’ve sort of grown up and they’ve come back. For now, there’s an intersection of what they’re looking for and what we have.
How long would you say this has been going on?
For the last three or four years.
Are you detecting more interest on the government’s part?
We are. We take a tiny bit of pride that we were on the leading edge — or some people think Ball was the first to do fixed price — but we’ve been doing fixed-price spacecraft for some time. Almost 40 percent of our work right now is fixed price. We do fixed-price development programs that a lot of people avoid like the plague. We are very comfortable in that space.
Has Ball been hurt by fixed-price contracts where there was cost growth?
No, we haven’t. We’ve had very good success. Of course, if we had been burned on the first two horribly we might have a very different view. But it’s worked out very well for us. Our customers appreciate it. When we give people a fixed price, it’s a fixed price. There are some people that give a fixed price and then there are changes and things. We’re a good contractor. When we say we can do it, we do it.
Is fixed price part of the strategy going forward?
Absolutely. We were offering it in some cases where customers weren’t comfortable with it yet. Now we see NOAA, NASA, DoD and the intelligence community very much more interested in it. Also, as part of the affordability mantra that we hear in our community, people want rebuilds of stuff. They don’t want a lot of development. They want stuff that’s predictable in schedule and in cost and that fits better with a fixed-price strategy.
Looking at NASA and the overall science budget, President Barack Obama clearly made climate research a priority, but it hasn’t brought a bow wave of new missions. Why do you think that’s the case?
I’m not close enough to that. I see what you see: words and not a lot of new money. Are we disappointed? Yeah. Sure. I think when you give that much conversation about it you’d imagine more missions, more opportunities for industry and others. But we have not seen it.
How much of an opportunity do you see in hosted payloads?
The fact is it’s really expensive to put stuff in space. If we have space on a launch vehicle not being used, and we collectively can find ways to use it, why the heck not? So we’re very encouraged there’s more thinking in this arena. We, and lots of people in academia and industry, are much more willing to think about hosted payloads as a strategy because the more stuff that fits can be taken advantage of.
There doesn’t seem to be a lot going on at DoD with hosted payloads and other forms of disaggregation. Are there things happening we’re just not seeing?
Maybe just a little. We’re just on the leading edge, whether it be civil or DoD, of people building hosted payloads into their missions. I think that’s just evolving. It’ll be a little while before we all see that. And frankly, the industry needs some success with it. I don’t think everyone’s going to jump for that strategy en masse. I think we’re going to creep into it.
How concerned are you about DoD proposals to kill off the Space Test Program and the Operationally Responsive Space Office?
I think the nation, space, our industry, needs those kinds of programs. We do not have a launch rate that allows young people to work on programs that are not going to screw up a trillion-dollar launch. NASA has the smaller lines. You can do real science, cheaply, more frequently. You give more people opportunities to work on missions. What we don’t want, as a nation, is to have so few true missions going on that in a whole career you might only get to work on one mission.