Analysts have warned for some time that the smallsat market cannot support the dozens of companies currently developing small launch vehicles. The consensus is that only a handful will survive, and the U.S. government, particularly the Defense Department, will play a decisive role in selecting the ones that stay in business.
The Pentagon has already signaled its intent to support the industry, even if the means by which it’s sought to do so have invited controversy. Undersecretary of Defense for Acquisition and Sustainment Ellen Lord in April identified small launch as one of the sectors of the defense industrial base most adversely impacted by the coronavirus pandemic’s economic fallout.
The Pentagon in June announced its intent to award $116 million worth of contracts to six small launch providers using funds authorized under the Defense Production Act, a Cold War-era law intended to marshall domestic production during times of need. The Trump administration invoked the Defense Production Act (DPA) in April to ramp up production of medical equipment to combat the pandemic. The law also gives the Pentagon leeway to invest in domestic industries it considers critical to national security.
However, the small launch contracts were withdrawn in July amid an uproar over how the recipients were selected, something that the Pentagon never explained. The Air Force’s top procurement official, Will Roper, said DoD decided to reallocate the funds to other priorities and that the small launch contracts would have to wait until funding became available.
Janice Starzyk, vice president of commercial space at the market research firm Bryce Space and Technology, told SpaceNews that the DPA small launch affair was “bizarre, to say the least.”
The process and criteria for the selection of the six companies — Aevum, Astra, X-Bow, Rocket Lab, Space Vector and VOX Space — remains a mystery, Starzyk said.
Chuck Beames, chairman of the SmallSat Alliance, an trade group that counts several of those launch providers among its members, said DoD wants to support the industry but unfortunately mishandled the DPA contracts.
“I think they messed up,” Beames said during a recent Mitchell Institute webinar. The contracts, he said, should have been competed so the selection process would have been more transparent.
Fred Kennedy, vice president of future missions at Astra, one of the six originally selected for a DPA contract, agreed that DoD had noble intentions but failed at the implementation.
“It’s one thing to say you want to help the industry and it’s another to actually do it in the appropriate process,” Kennedy told SpaceNews. “Do we think DoD wants to help the industry? We’ll believe it when we see it.”
Mandy Vaughn, president of VOX Space, another company picked for a DPA award, said the Pentagon sent “mixed signals” to the industry by saying it wants to help and then rescinding the contracts. Doing so, she said during a virtual forum hosted by the Center for Strategic and International Studies, showed “a little bit of discombobulation.”
NASA JOINS THE FRAY
The Defense Department is not the only government agency shaping the small launch vehicle industry. NASA is playing a supporting role with a new launch procurement.
NASA released in early July a draft request for proposals for its Venture Class Launch Service (VCLS) Demonstration 2 program, seeking proposals for launches of clusters of small satellites. A final version is slated for release at the end of July, with proposals due by late August.
VCLS Demo 2 is a revival of the agency’s original VCLS program, which NASA started in 2015 to help promote development of small launch vehicles. It awarded contracts to Firefly Space, Rocket Lab and Virgin Galactic in 2015 for one launch from each company.
The results of that program are mixed. Rocket Lab performed its VCLS mission in December 2018, successfully launching 10 cubesats for NASA’s CubeSat Launch Initiative program and three more for other customers. Virgin Orbit, the smallsat launch company spun out of Virgin Galactic, plans to carry out its VCLS mission shortly after its LauncherOne enters commercial service. But Firefly Space lost its VCLS award in 2016 as it filed for bankruptcy, emerging in 2017 as Firefly Aerospace.
The VCLS Demo 2 program looks to take advantage of an expanding small launch vehicle industry. One of the objectives of the program, besides the actual launch of satellites, is to “allow NASA to understand the new launch industry’s commercial practices for future mission planning,” according to the draft request.
The request outlines two separate missions. The first would be a dedicated launch of 30 kilograms of cubesats into a mid-inclination orbit. The second would deploy two separate constellations of cubesats, one weighing 75 kilograms and the other 20 kilograms, into sun-synchronous orbits.
NASA expects the winning companies to perform the launches by June 2022. Unlike the original VCLS awards, though, which had no real penalties for delays, the Demo 2 program will require companies to perform free “consideration flights” of satellites if they miss the deadline, starting with a three-unit cubesat and growing to as many as 12 units of cubesats depending on the length of the delay.
NASA hasn’t identified what satellites it plans to fly on those missions, or why it chose that particular combination of payload masses and orbits. An industry day in early July, though, attracted about two dozen companies, including small launch vehicle developers as well as larger companies like Northrop Grumman and SpaceX.
NASA’s requirements may differ from what the Pentagon wants, which could force companies to make decisions on which government markets to pursue. Kennedy said that such conflicts are inevitable, although “there’s probably more overlap than not” between NASA and the Pentagon when it comes to small launch.
“Will the private sector be kind of pushed and pulled by various signals from civil or defense, or their own customer bases? Absolutely,” he said.
SMALL LAUNCHERS STRUGGLE TO FIND A MARKET FOOTHOLD
Some analysts say government agencies must support small launch developers because there isn’t enough demand from the private sector alone. “Small launch capability is important to the government and has become more of a national security asset,” Starzyk said. “They cannot count on the commercial market supporting these companies. They have to know that without the government as an anchor tenant these companies won’t survive.”
A rush of private investment into the small launch industry in recent years was fueled by the belief that there would be both significant commercial and government demand, she noted. But Starzyk argued that circumstances have changed. “There’s no commercial market that is going to support multiple small launchers by any means.”
The most disruptive event has been SpaceX offering rideshare services at a cadence and price point that small launch providers could not possibly compete against, she said.
A key selling point for small launchers is that it give satellite operators more control over orbit and schedules compared to secondary payload opportunities that traditionally have been few and far between. “That advantage is wiped out by SpaceX offering flights every two weeks,” she added. “SpaceX answers most of the wants of the smallsat community. So where is the value added of the small launch on the commercial side?”
Roper said the thinking inside DoD is that the small launch industry needs government support because the commercial market is uncertain. “I’m very aware that this market is early to need,” he said. “It’s here anticipating the very large proliferated LEO [low Earth orbit] constellations,” Roper added. “Small launch providers will be the ones putting up satellites in small quantities to deal with attrition.”
But until those large constellations materialize, “how the government interacts with the small launch sector will have a huge bearing on how the market evolves,” Roper said.
Both government and commercial megaconstellations, though, are unlikely to use small launchers for initial deployment, opting instead to use larger rockets to launch them in big batches. “It’s a lot cheaper for them to launch dozens of spares than it is to buy a small launcher and put up one,” said Chris Quilty of Quilty Analytics.
He said he does not see a large demand for commercial small launch other than perhaps a handful of operators building remote sensing or device-connectivity-constellations that generally require fewer satellites than broadband systems. “There might be opportunities down the road to selectively launch a satellite here or there.”
WHY THE GOVERNMENT IS STEPPING IN
The Defense Advanced Research Projects Agency sponsored a competition in 2018 offering prizes for responsive launch systems that could get satellites to orbit quickly and inexpensively.
“I thought the DARPA Challenge was important then because I believe there’s a significant role for responsive launch,” said Kennedy, who established the competition as director of DARPA’s Tactical Technology Office. Responsive launch is going to be “critical to the national security space architecture that I believe is going to have a significant amount of small, inexpensive satellites.
“And responsiveness is sort of inversely proportional to size and complexity,” he said. “What is most likely to be launched responsively are small things on small rockets.”
Rocket Lab so far is the only new U.S. small launch provider that has deployed satellites to orbit but DoD will need more than one supplier, Kennedy said. “We probably want a more resilient launch industry than just one or two.”
Kennedy said the industry is healthier when it has a mix of government and commercial work. DoD can be a customer and still “steer the industry just a little bit” because it has specific requirements that commercial operators do not.
Government support can also make it easier for launch companies to attract private investors, Quilty said. “Government funding incentivizes investors to follow up with an additional equity round.”
Even government support, from the Defense Department or NASA, won’t prevent a long-awaited winnowing of the market, with a few launch providers emerging from the dozens of contenders today. The question is how many will make it.
VOX Space’s Vaughn agrees with analysts who predict a major shakeout in the industry, “but I don’t believe it’s necessarily a bubble where nobody succeeds,” she said.
There will be mergers, acquisitions and “some contraction,” she predicted. While there is military utility for small launch, “there is no room for 100 competitors.”
This article originally appeared in the Aug. 3, 2020 issue of SpaceNews magazine.