There is no point in trying to sugarcoat it: The past year has been rough for commercial launch services provider International Launch Services.
The same Russian heavy-lift Proton rocket that ILS sells commercially has suffered repeated failures in Russian government launches, which, though not handled by ILS, have cast a pall over overall Proton quality. Proton is a tougher sell in the global commercial market as a result, and its customers’ launch insurance premiums have risen as well.
As if that weren’t enough, Reston, Virginia-based ILS this year has had to contend with U.S. and Western sanctions against Russia in response to the crisis in Ukraine. The threat of delayed U.S. government approvals to ship satellites has rattled customers’ nerves but up to now has not had any impact on launch schedules, according to ILS President Philip Slack.
ILS is also challenged by what may be a temporary shift in market demand toward smaller satellites, a trend accelerated by the advent of satellites that use electric propulsion to reach their operating positions in geostationary orbit. This can dramatically reduce a satellite’s launch mass, making Proton a less-competitive launch option.
Slack recently announced that ILS would be cutting staff by about 25 percent in response to the market’s new direction, but said the decision could be reversed if and when heavier satellites return to favor with commercial satellite fleet operators.
Slack spoke recently with SpaceNews staff writer Peter B. de Selding.
How much of the downturn in your market segment of heavier commercial telecommunications satellites is structural, and how much is a cyclical market trend?
We think it’s primarily a cyclical phenomenon. If you look back, in the late 1990s, early 2000s, Proton was just one of many competitors out there. Proton was launching three to four per year in the early 2000s, and then more in the late 2000s, due to limited competition. ILS and Arianespace dominated the heavy-lift market.
At that time, Proton was launching seven to eight commercial launches per year.
Now, as a result of several factors — including the Proton failure rate and the fact that this year there have been more smaller satellites coming on the market — the projected commercial launch requirements for 2016-2017 are currently in the three to four range for Proton.
Much of our work is done in the years before launch, not the year of launch — with contracts, integration, licensing and so forth. So we’ll have a lower rate in the 2016 and possibly the 2017 time frame, and we’ve made downward adjustments in staffing to account for that.
We think Proton’s reliability record will come back to historical levels. We are also hopeful that the tension between the U.S. and Russia resolves itself. If the market were to change, with a return to higher demand for heavier satellites, and as a result we have more launches, we will resize staff to support the business.
You see no longer-term structural changes in the market that might pose a problem?
If we have three or four players in the heavy-lift market, we would expect a lower ILS Proton launch rate. But on the heavy-lift side, Falcon Heavy is not yet proven. Some customers are betting on that but to date there has been no quantum shift to Falcon Heavy.
Electric propulsion for satellites is changing the launch equation, resulting in interesting contract wins for Space Exploration Technologies Corp. — both for satellite pairs and for dedicated launches of heavier satellites. How do you see electric propulsion’s entry into the commercial satellite sector?
Using electric propulsion for satellites reduces the mass of the satellite and allows the use of a lower-performing rocket. But the big issue is the amount of time to get to orbit — months instead of weeks — which adds risk to the satellite and delays the start of revenue generation. So it will be very telling to see how that develops. Each specific program will be subject to its own risk-reward analysis.
A 25 percent drop in staff gets you to what employment level?
We’ll have about 35-40 staff when the layoffs are complete.
Are there any corresponding staff cuts at Khrunichev State Research and Production Space Center, Proton’s Moscow-based prime contractor?
For Khrunichev, the vehicle production through at least 2015 is going to remain fairly busy. They still have a very robust federal government manifest and they have accommodated the increase in production with extensive use of overtime, so that is likely where the first cuts would be made.
When ILS was launching seven or eight times a year you accounted for half of Proton’s manifest. If you are heading down by 50 percent, then the total Proton manifest is down 25 percent absent a big uptick in Russian government missions.
There has been more federal demand in the past couple of years. This year we won’t hit a double-digit Proton launch level as we have averaged since 2008, but 2015 is expected to be at a double digit-level again.
Are you seeing any impact on your business owing to U.S. and Western sanctions on Russia regarding Ukraine?
In the near term it is fair to say sanctions have made customers more cautious about placing new business. But the existing business is proceeding. We are getting new licenses approved. DTSA [the U.S. Defense Technology Security Administration] continues to support our technical meetings, including the upcoming failure review oversight board [FROB] looking at the May Proton failure. While there were initially some concerns with spacecraft licenses, those have been overcome and we have not had any missions delayed due to denial of any license activity.
And we think there are measures we can take from a contractual standpoint to help new customers feel less concerned about potential sanctions impacts.
The inquiry into the May Proton failure has taken an unusually long time compared with previous failure reviews, which have approved fixes and returns to flight in short order. Why is it that three months after the failure, as of late August, there is no failure review report?
Every failure is unique and there is no set timetable for return to flight. In the past, there has been a root cause quickly identified, and corrective actions quickly implemented, but that was a result of the unique circumstances associated with those specific failures.
For every failure, Khrunichev, Roscosmos [Russia’s space agency] and ILS always assure that a thorough investigation is conducted without any time constraints. In this case, a federal interagency commission completed its work in July and they handed that over to Khrunichev to define the corrective actions. Khrunichev has been running analyses and tests to validate the corrective actions and they have completed that and are preparing material to support the FROB.
The FROB is planned to start on Sept. 1.
Will the return-to-flight mission be a federal mission?
Is that RSCC’s Express-AM6?
No, it is a ministry of defense mission and it is expected to be late September or early October. But until we have concluded the FROB, all launch schedules are tentative.
Russian satellite fleet operator RSCC wants to get into orbit with AM6 as soon as possible. A couple of your customers are also anxious to launch. Where do you fit into the current return-to-flight schedule?
We think there will be up to four launches during the rest of 2014. The military mission and Express-AM6 spacecraft are both in Baikonur right now and I would expect those to be the first. After these, we would expect there would be at least one ILS launch, or maybe two.
Your return-to-flight manifest starts with Astra 2G for SES of Luxembourg?
Who would be next — Mitsubishi Electric with Turksat, or Inmarsat’s Global Xpress?
The manifest beyond the Astra 2G launch will be determined in the next couple of months. In 2015, we would expect at least 10 Proton launches — up to six commercial and four to six federal missions — so another robust launch year.
Europe’s Arianespace has cut prices for the lower berth on Ariane 5, where the lighter satellites are housed during launch, in part as a response to SpaceX. Do you need to cut prices as well?
Arianespace appears to have adopted a more competitive stance with SpaceX for the lower berth, and compensated by higher prices on the upper berth.
We’re not in the mode of cutting prices drastically. We think we’re competitive given our performance capability. From a long-term view, we are not going to take on business below cost. Today, we are more expensive than Falcon 9, but we have greater lift capability than they do. But we’re definitely less expensive than the Ariane upper berth.
So if Falcon Heavy is introduced in 2015 you don’t see a need to bring down prices substantially?
No, I don’t see prices being reduced drastically.