David W. Thompson , Chairman and Chief Executive Officer, Orbital Sciences Corp.

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Less than a decade ago, Orbital Sciences Corp., a Wall Street darling during much of the 1990s, was on the rocks, battered by big commercial investments turned sour, technical difficulties on key programs and accounting missteps.

The company stabilized itself by selling its non-core businesses and then capitalized on a surge in U.S. military space and missile defense spending as well as its own investment in a new line of small to medium-size commercial telecommunications satellites. The company also secured a toehold in the human spaceflight business through contracts to build the escape system for NASA’s Orion crew capsule and to deliver cargo to the international space station with its Taurus 2 rocket and Cygnus cargo capsule, both of which are under development.

But as Orbital prepares to close the books on another strong year, capped by three commercial satellite orders in December alone, there are some clouds on the horizon. Development programs that drove much of the company’s missile defense revenue are winding down or have been canceled outright; defense spending is expected to flatten if not decline in the coming years; the White House appears intent on revamping NASA’s human spaceflight program; and commercial satellite operators are reaching the end of their fleet-recapitalization cycle.

If this worries David Thompson, Orbital’s co-founder and longtime chief executive, it doesn’t show. He predicts continued growth in the coming years, driven by NASA’s human spaceflight program, national security space spending and commercial satellites. In fact, he says, Orbital is in the midst of investing $500 million in its new product lines, mostly on the Taurus 2 and Cygnus, with a “few tens of millions of dollars” on a more powerful version of its Star telecommunications satellite platform, dubbed Star 2.7.

Thompson spoke recently with the Space News editorial staff.

 

You’re projecting 8 percent to 10 percent growth in the next few years. What’s going to drive that?

In the near term, three market areas are going to generate the lion’s share of our growth: commercial communications satellites, human spaceflight systems and military and intelligence space programs. Combined, those three will offset what we see as continued weakness, at least in the near term, in missile defense programs and a steady business, perhaps with some modest growth, in space and Earth science programs.

 

So you’re not worried about a decline in
U.S.
military space spending?

When you look at things at the aggregate level, just looking at largely the unclassified accounts, mostly run by the Air Force, they were $12 billion or $13 billion in 2010. That’s a little better than twice the size of NASA’s robotic program and probably three times the size of the commercial satellite business from a manufacturing perspective. Even if the overall growth rate slows down or spending drops off as some of the new generation of military satellites are fielded and move into operation, I think there’s a lot of room for Orbital to expand our business in that area. We’ve made some very good inroads in a couple of mission areas within the broad defense and intelligence space sector, and I think we’ll continue to enjoy good growth in that area. Remember, unlike some of the work that we love to do in the civil space sector, there’s very little about the military and intelligence space applications that can be considered discretionary.

 

We heard there was a setback during testing on the Taurus 2 main engine in
Russia
. What happened?

We were running one of the engines out to about two times its normal life and about 10 percent or 12 percent higher thrust levels, and we found the limit of the turbo pump in the process. There was also probably some contribution from a test stand setup problem, and the engineers are still debating whether that had an adverse influence. But what we really wanted to do was to see if this engine was going to have problems at 3 percent or 5 percent higher thrust levels and 20 percent longer durations than we intend to use it for, and the answer was no. It powered right through those levels.

 

Do you still expect to win three commercial communications satellite orders in 2010?

That’s still our target for this year. We had a good month in December, and in fact it’s even a little better than you know — we booked one more order not yet announced. So we booked five orders last year, three that are ramped up right away — they’re fully funded — and two that still have some contingencies attached to them in terms of funding by the customers.

 

Do you expect the overall market in 2010 to be as strong as 2009?

I was quite surprised this year that the market was as strong as it was, but I’d be surprised if we repeat at the level of 30 [satellites ordered]. I would think it would be more in the 20-to-22 range for the total market. My crystal ball would say somewhere in the low to mid-20s on average for the next couple of years and then maybe a little drop-off after that.

 

How do you view the role export credit agencies have been playing recently in the commercial satellite market?

We’ve certainly seen a step up in activity by the export agencies of three or four different countries, and I think perhaps it just reflects a continuing trend toward maturity in the satellite business — as long as they don’t go overboard with it to really distort the market. I don’t think we’re close to that, at least in the main, in communications satellites.

 

Orbital is working with International Launch Services on a dual payload adapter for the commercial Proton rocket. What’s the thought process there?

We’d like to provide the satellite operators with a little broader range of choices at the lowest possible launch cost that can be sustained. And the Proton in a dual-payload configuration may open up the menu a little bit better in that respect. It’s not going to generate four or five launches per year for Proton, but it could generate a launch or two a year beginning a few years from now.

 

What concerns you most as the White House prepares to put its stamp on NASA’s human spaceflight program?

The data suggest that even though human spaceflight doesn’t contribute a huge fraction of the total economic activity that takes place in space — depending on the numbers you use, it’s probably 10 percent or so of the total space market — it does serve as an important source of early inspiration for the future engineers and scientists that enter the field. So even if only 10 percent of the work force works on human spaceflight, 40 percent of the pipeline was inspired by it. Given the other very urgent problems that our country’s highest political leaders have to deal with, what worries me is that it never quite makes it onto the agenda and we tread water for a year or two longer, which has the effect of postponing the advent of whatever that next generation of U.S. human spaceflight capability is going to be. I think it’s inevitable that we’re going to have to get through a five- or six-year gap. As long as we have something under way that will materialize not too long after mid-decade, that gap won’t be catastrophic. But if we kind of muddle along here for another year or two and no clear decisions are made, then that gap could end up stretching to the better part of a decade. If that happens, then I think it might turn into something more serious, and that would, I think, be bad, certainly for the space industry and I think it would be bad on a bigger scale than that.

 

How would you assess the outlook for Cygnus and the Orion crew escape system in this uncertain environment?

It’s good for both of them. Right now, other than the fact that it is a very challenging job, the Cygnus program is very stable. As far as I can tell there’s no risk either in terms of NASA not being able to follow through on its side of things or Orbital not being able to follow through on ours. The launch escape work on Orion is about as stable as Orion is. Whatever the next-generation U.S. human spaceflight system looks like, it will probably separate crew and cargo, and it will probably have a means of extracting the crew compartment or capsule from the launch vehicle in the event that there was a launch problem. The know-how we’ve built up on the launch escape program for Orion could be used in other slightly different forms if NASA were to make a decision to discontinue its current approach. If they continue it, we’re in good shape. If they go in a different direction, I think we still have pretty good opportunities.

 

What can the
U.S.
government do to buttress its space launch industrial base?

At some point it sure would be advantageous to the U.S. launch industry and propulsion sector if we could develop a new booster engine in the 1 million-pound thrust class that could somehow be modular enough that it could support both Taurus 2 and [United Launch Alliance’s] Atlas 5. I know the Air Force has a study under way now looking at things like identifying the real soft spots in the rocket propulsion industrial base. So in both small launchers and strategic launchers on the solid side and medium- and large-class launchers on the space side, there are a couple of pretty weak spots.

 

Do you believe another wave of industry consolidation is imminent and if so, is Orbital a potential buyer or seller?

We’ll have to be careful because there are some important pockets in the industry where consolidation has probably gone as far as it reasonably can. Go to propulsion for a minute. In the U.S. today — both on the liquid and on the solid side — there are basically only two suppliers. And they’re not exactly symmetrical. But yes, I think in the next three to five years some additional consolidation on a substantial scale is probably more likely than not. As for Orbital, we’d probably be more interested in being a buyer than a buyee.

 

What’s missing from Orbital’s portfolio?

There are about 10 — in fact there are exactly 10 — market segments that make up what over the longer term should be areas that we’re active in. Today we’re active in maybe seven of those 10. Now in some of the seven we’re nowhere near as active as I’d like us to be, so we have at least growth aspirations within those areas.

 

Can you give an example of where you’d like to be active?

Let me see if I can give you a benign one. Military satellite communications. We’re a major satellite builder for the commercial communications providers but we’re not there at all when it comes to dedicated government-owned satellites, and we’re only there to a very limited degree with the transponder leasing providers that provide capacity to the military. In the intelligence, surveillance and reconnaissance area, without getting into the details, there’s opportunity that we’re not currently addressing.

 

What, exactly, is your relationship to
U.S.
Space?

We are not an investor in U.S. Space; we don’t have any management interaction with them. If they succeed, we hope to be a supplier of satellites to them. As we do for virtually all of our commercial customers, we’ve done some conceptual and preliminary design work to help them flesh out their business planning, but we do that for any commercial customer that can benefit from that. The other thing that’s a little bit unusual, although not unprecedented, is they lease a little bit of space from us here on the campus.