WASHINGTON Procurement in the unclassified U.S. military space sector has come to a near standstill now that all major elements of the Pentagon’s satellite-fleet replenishment effort are under contract, but the classified side of the ledger is still seeing significant activity, with more on the horizon.

Several industry sources agree that classified space budgets are at best flat, and said replacement of existing capabilities is driving the current contracting activity. In effect, there is a bit of lag between the fleet sustainment effort of the U.S. National Reconnaissance Office (NRO) and that of the U.S. Air Force, whose budget for unclassified space programs also is flat to declining.

“Most of the marginal dollar is sustaining current programs,” said one industry source. “It’s maintaining what’s up there now and making it marginally better.”

“There are not a lot of new-new satellites” in the classified world, said another industry source.

But even though sustainment of legacy programs is the driving factor, there is more procurement activity going on in the classified world than in the unclassified world, several industry sources agreed.

A number of U.S. agencies, including the Air Force, run classified satellite programs, but the NRO, which buys and operates the nation’s spy satellites, is the biggest player in that arena.

Although classified procurement activities are difficult to track, nuggets of information crop up from time to time in various public statements and documents, including the financial reports of the companies being awarded the work. Examples include Lockheed Martin’s disclosure that it expects to win a multibillion-dollar imaging satellite contract in 2012, and classified bookings that have shown up in recent quarterly reports of Northrop Grumman and Raytheon.

By all accounts, the contract expected by Sunnyvale, Calif.-based Lockheed Martin Space Systems is for the so-called next-generation optical imaging satellite system, which will replace legacy systems built by the same company. The timing of that contract award reflects the failure of the optical portion of the NRO’s Future Imagery Architecture (FIA), led by Boeing Space and Intelligence Systems of Seal Beach, Calif.

“We got into a ditch with a couple of our systems and we’re digging out of that,” a source said.

Lockheed Martin will be the prime contractor on the next-generation optical system, which represents an evolutionary upgrade to the NRO’s current optical imaging systems. Other companies positioned for a major role in the effort include ITT Geospatial Systems of Rochester, N.Y., a longtime builder of optical sensors for classified satellites.

Northrop Grumman, meanwhile, in July attributed revenue and profit growth in its Los Angeles-based Aerospace Systems division during the second quarter of 2010 to a classified program. The company was not specific, but industry sources said the company is building a replacement for an existing system. Northrop Grumman Aerospace is a traditional builder of signals-intelligence gathering satellites for the NRO.

“That’s a long program for them,” one source said. “It will go on for many years.”

According to sources, there is another major classified contract on the horizon that likely would go to Northrop Grumman, but they cautioned that the program is the subject of a dispute between the White House and Congress. One source was highly skeptical that the program ultimately will be approved. In the current political and budgetary climate, “these kinds of [programs] almost never succeed,” this source said. “Congress just isn’t going to allow any new starts to take place.”

Raytheon, meanwhile, reported winning more than $900 million in new classified business during the second quarter of 2010. Denver-based Raytheon Intelligence and Information Systems, a supplier of satellite ground-control systems, accounted for $371 million of that business. Industry sources said Raytheon recently won a contract for work as part of the NRO’s effort to move away from proprietary control systems for each satellite program and toward a common architecture.

Sensor maker Raytheon Space and Airborne Systems of El Segundo, Calif., booked $563 million in new classified business during the quarter, including $355 million on a single contract.

Meanwhile, research and development activity at the NRO is slated for a funding boost in the next couple of years to between 8 and 10 percent of the agency’s overall budget, NRO Director Bruce Carlson said in a speech here Sept. 13. That traditionally has been the proportion, but in recent years the figure has fallen to roughly 5 percent of the NRO budget, which is classified.

Carlson said 60 percent of the technology that is launched on NRO satellites was developed internally. “If we’re almost going to cut science and technology funding in half today, what’s going to be the seed corn for the satellites we’re going to launch 10 years from now?” he said. “The answer came back, ‘Well, we really don’t know.’”

Warren Ferster is the Editor-in-Chief of SpaceNews and is responsible for all the news and editorial coverage in the weekly newspaper, the spacenews.com Web site and variety of specialty publications such as show dailies. He manages a staff of seven reporters...