Defense Decline Helps Push Boeing to Commercial Market

by

The coming decline in satellite orders from U.S. defense and intelligence agencies, coupled with a helping hand from commercial fleet operator Intelsat, brought Boeing Space and Intelligence Systems back into the commercial telecommunications satellite market.

Will Lockheed Martin Space Systems follow the same route? Like Boeing, Sunnyvale, Calif.-based Lockheed Martin Space Systems has spent most of the last decade focusing on U.S. government demand.

And while Lockheed Martin’s A2100 satellite product line has demonstrated its continued appeal in some competitions — notably Japan and, more recently, in Vietnam — the company has been on the sidelines for most commercial satellite competitions. The recent two-satellite competition from the Turkish government, which was ultimately won by Japan’s Mitsubishi Electric Corp., was an exception.

“We won a large percentage of the government market, a situation where we didn’t necessarily have to be really creative on the commercial side,” Chris Baran, vice president of business development for Lockheed Martin Commercial Space Systems, said.

In Sept. 12 remarks, Baran said Lockheed Martin has closely looked at Boeing’s recent approach to the commercial market and is weighing whether to do likewise.

El Segundo, Calif.-based Boeing won a three-satellite order from mobile satellite services operator Inmarsat of London in part because Boeing agreed to purchase part of the fleet’s Ka-band capacity and take responsibility for its sale, principally to the U.S. government.

The agreement added substantial risk to the contract but assured Boeing of a big commercial win and gave the company a slice of the potential upside in services sales if, as Inmarsat believes, the U.S. Defense Department proves hungry for Ka-band bandwidth for mobile applications.

“We have not been as creative” as Boeing in chasing commercial business, Baran said. “But now, with the U.S. government buying clones and there likely to be no big new program starts, we are looking at different alternatives.”

Baran conceded that the low-single-digit operating-profit margin of many commercial satellite contracts is not hugely appealing. But “by being creative,” he said, a commercial program might be more profitable to the prime contractor.

Boeing’s return to the commercial market was facilitated by the company’s design of a new satellite product line, the 702B, and the active encouragement of the world’s largest commercial satellite fleet operator, Intelsat of Luxembourg and Washington.

Intelsat ordered four 702MP satellites — the 702MP is one of several 702B variants — from Boeing in 2009 in a procurement that diverted from Intelsat’s normal procedure. Boeing’s competitors raised their eyebrows and said Intelsat never conducted a full-blown competitive procurement.

Intelsat officials insisted they had indeed solicited other bids, even if they did not go through the usual request-for-proposals, best-and-final-offers sequence.

During a Sept. 14 briefing organized by commercial satellite builder Space Systems/Loral of Palo Alto, Calif., Intelsat Chief Technology Officer Thierry Guillemin said the Boeing deal, for which three of the four satellites have been ordered, was managed outside normal procurement procedures.

“We entered into a strategic agreement with Boeing to get Boeing back into the market,” Guillemin said. “They had retired pretty much. We have seven satellites due for launch in the next 18 months, and we actually did need an additional player in the market.”

A Loral official muttered after the briefing: “We’d like to thank Intelsat” for helping Boeing.

One industry official said that with Loral and Orbital Sciences Corp. of Dulles, Va., actively in the commercial market alongside Astrium Satellites and Thales Alenia Space of Europe, plus occasional entrants such as Lockheed, Mitsubishi and, in the future, OHB AG of Germany, the industry was not suffering from an undercapacity.

But Intelsat, which is consolidating its fleet into fewer, larger satellites, is an unlikely source of business for small-satellite builders like Orbital Sciences and OHB. And with Lockheed and Boeing mainly out of the market, that had left Loral as the sole U.S.-dollar-based provider for Intelsat against the two euro-based manufacturers, Astrium and Thales Alenia Space.

“Depending on where you think the euro will be against the dollar, you need a dollar-based alternative,” this industry official said. “Astrium and Thales Alenia will be too expensive. So if you need a dollar provider, you’d want at least two providers of large, high-power satellites. So [Intelsat] went to Boeing.”

Whether Lockheed Martin will need an Intelsat-type deal to fully engage with the commercial market, or will take risks such as Boeing did with the Inmarsat contract, is unclear. The company has already demonstrated, with its win of the Vinasat-2 contract for the government of Vietnam, that its A2100 platform can slim down to compete in the lower weight class.

Joseph Rickers, president of Lockheed Martin Commercial Space Systems, was circumspect when asked Sept. 13 if his company was preparing to raise its commercial market profile. “We do want to modestly grow our commercial business,” he said.