ATK Sees MDA as Key To Winning Classified U.S. Satellite Program

PARIS —


AlliantTechsystems (ATK) will judge the success of its purchase of Canada’s largest space-hardware builder by whether the acquisition helps the company win a large U.S. classified satellite program, ATK Chief Financial Officer John Shroyer said Feb. 6.

Speaking to a Cowen and Co. investor conference in New York, Shroyer defended the terms of ATK’s purchase of MacDonald, Dettwiler and Associates (MDA), saying the Canadian company is already a sizable and profitable business. The two MDA divisions that Minnesota-based ATK has agreed to purchase for $1.33 billion together have about $450 million in annual revenue, Shroyer said. In addition, MDA’s December purchase of Alliance Spacesystems LLC of California will add about $40 million in annual revenue. The Alliance assets are part of the MDA business that ATK is buying.

Added to these businesses, Shroyer said, will be the new revenue




expected from Canada’s civil-commercial Radarsat-2 radar Earth observation satellite, which was launched in December and is expected to begin full operations in April.

This approximately $500 million in MDA revenue should be stable in the coming years, Shroyer said. He repeated ATK’s earlier statements that MDA has pretax profit margins of about 20 percent, a figure that elicited skepticism from Orbital Sciences Corp. Chief Financial Officer Garrett E. Pierce, who addressed the same investor conference




Feb. 5.

Dulles, Va.-based Orbital Sciences owned MDA from 1995 to 2001.




“I’m the guy who sold the business,” Pierce told the conference Feb. 5. “We know the company very well. That’s a pretty hefty price to pay. And the margins – I have not seen those kinds of margins in our industry. I am sure there is a good rationale for it but I don’t see it impacting our company.”

Pierce said Dulles, Va.-based Orbital Sciences Corp. is maintaining its goal of keeping at least a 50 percent share of the global market for small commercial telecommunications satellites, whose total value he estimated at about $600 million annually.

Orbital Sciences




won contracts for five such satellites in 2007 out of the eight that were ordered, Pierce said.

Shroyer
said MDA also should help ATK win contracts for small satellites intended for low Earth orbit as the U.S. Defense Department focuses on what is known as operationally responsive space – an ability to build and launch satellites in short order.

But for ATK, Shroyer said, the key to the MDA purchase is technology the Canadian company owns that ATK expects to use to land a classified U.S. government contract that it otherwise could not hope to win.

“What we need over the next 2-3 years, for this to be a successful acquisition, is to win at least one fairly large U.S. classified program,” Shroyer said. “




The real nugget is for us to be able to use that [MDA] technology, bring it down and compete effectively in this classified space, which again we see as a very large growth area for us.”

As a Canadian company, MDA has had only limited access to U.S. Defense Department and other U.S. government satellite contracts. ATK believes that with its existing U.S. government clearances, it can open this market for MDA goods. It is unclear whether ATK believes that the MDA products it hopes to sell to the U.S. government might




need to be built on U.S. soil or whether the company could continue to manufacture them




in Canada.

“We at ATK, in our Space Group, we have those tickets” that give access to government work, Shroyer said. “So the key for us is to be able to move that technology, transfer that technology, into the ATK U.S. space, and go after what we believe is a very significant growing U.S. classified market.”

When combined with ATK’s previous purchase of Swales Aerospace, the new capacity will make ATK a competitor for small- and mid-size satellites intended for low




Earth orbit, Shroyer said.

Shroyer
also said ATK does not think a U.S. Air Force decision to put ATK’s Launch Systems Group on what is known as an “Excluded Parties List” for future contracts will have a material effect on ATK’s business.

The Air Force decision, which ATK announced Feb. 6, means the company’s Launch Systems Group will be excluded from bids for future contracts unless the agency running the contract grants a specific waiver. The move does not affect existing contracts.

The decision is the latest development in a lawsuit regarding the performance of ATK-built LUU-19 illumination flares in the late 1990s. Shroyer said the company will be meeting with the Air Force “as early as next week to get this [exclusion] lifted. In a Feb. 6 statement, ATK called the Air Force action “unjustified.”