John Paffett, Chief Executive Officer, Surrey Satellite Technology-US

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For all the success Surrey Satellite Technology Ltd. has enjoyed over the years, the biggest space market of them all — the United States — has been relatively elusive to the United Kingdom-based small satellite specialist, which was acquired last year by Astrium of Europe.

Surrey has built 34 satellites in all, but just three for U.S. customers. The most recent ones were PICOSat, built for the U.S. Air Force Research Laboratory and launched in 2001; and CFESat, built for the U.S. Department of Energy’s Los Alamos National Laboratory and lofted in 2007.

In early 2008, Surrey opened a subsidiary aimed at capturing more U.S. business, not just from government customers like the Defense Department and NASA but also from commercial and entrepreneurial ventures. The aim is to replicate the small-company philosophy and low-cost processes that have made Surrey so successful internationally.

Based in Englewood, Colo., SST-US currently is a small shop with five full-time employees, about $5 million in revenue and no domestic production capability. The plan is to have a full U.S. manufacturing operation by 2014 with 150-200 employees, $100 million in annual revenue and offices in Washington and California.

John Paffett says SST-US initially will rely on the manufacturing capacity of its parent company and build up its U.S. infrastructure in phases as business dictates.

The Pentagon in recent years has shown interest in small, low-cost satellites that can be deployed quickly in response to emerging needs, but Paffett says that market has been slow to materialize. Part of SST-US’s challenge is to drive home the point that small satellites are not just for experiments anymore.

Paffett recently spoke with Space News Editor Warren Ferster.

Were the U.S. International Traffic in Arms Regulations (ITAR) export rules a factor in Surrey’s decision to open up a U.S. subsidiary?
Definitely. ITAR, buy-American policy, all those elements make it very inefficient for a foreign company — especially a foreign company overseas — to do business in the U.S. market. And that’s why we’ve set up a U.S. company — so it’s U.S. controlled albeit with foreign ownership. We’re very conscious that it needs to be an American company. I’m the only non-U.S. citizen, and over time it will transition to be purely a U.S.-managed, U.S.-controlled, U.S.-staffed company. I think it’s inevitable that I’ll pass the chief executive position over to an American citizen in probably the two- to three-year timeframe.

Why is this so important?
For a certain group of customers it is important that the person standing up and talking is a U.S. national with a U.S. accent. It’s a perception thing, but it’s very, very important. So my role is to get the company bedded in, get the culture, ethos and approach transferred across so that we can take the same business model and apply it in the U.S. market.

What is your manufacturing plan given that currently SST-US has no production capacity?
In the short term a lot of it is done overseas; in the medium term, there’s a mixture; and then in the longer term, it’s all executed in the U.S. My goal really is to bring the long-term forwards as quickly as possible. The quicker we become a U.S. supplier, manufacturing, building and operating spacecraft in the U.S., the more successful we’ll be.

What I’m also looking at doing is looking for opportunities where I can accelerate that plan. So, for example, when we put [a bid] in on Orbcomm’s second-generation satellites, we actually offered a suite of avionics.

If we’d have won that contract, we’d have brought forward the manufacturing piece and manufactured those subsystems in the U.S. How is it going so far?
It’s going really well. We have current revenues of about $5 million. It’s a range of commercial and civil programs — predominantly commercial programs at the moment. We’ve got some elements in Orbcomm, but we’ve also got elements on programs for Ball Aerospace for example. The end customer in that instance is the Defense Department. It’s a mixture at the moment of subsystem provision and study work where the study work is looking at the suitability of Surrey products to address U.S. market opportunities in the future.

The Pentagon’s Operationally Responsive Space efforts seem like an obvious fit for Surrey’s capabilities. Has the defense market materialized in the way you expected?
It’s slowly getting there … It certainly wasn’t our only rationale for coming to the U.S. The U.S. has always been a hotbed for entrepreneurs, for want of a better term. As we’ve managed to stimulate commercial uses of small satellites — we did it initially with communications spacecraft and now we’ve done it with Earth observation spacecraft — a lot of the business-driven entrepreneurs come out of the U.S. market.

Is there still a bias against small satellites?
There’s still very much a mindset within a lot of the customer base that space is expensive, long-duration and complicated. So when you start explaining to people that you can put a spacecraft in orbit for $10 million, $15 million, $20 million depending on the payload, there’s almost a disbelief. So there’s a whole education that we’re having to do to try and explain to people that actually the programs don’t need to be big and expensive.

What do you envision as the business mix once SST-US is up and operating with 150-200 people?
I think it’s on the order of 40 percent commercial to 60 percent government. And then within that government segment, I can see the bulk of it sort of being civil and maybe 20 percent defense. It gets a little bit complicated because we’re looking at commercial opportunities to address some government requirements for example.

I would have thought the Pentagon would be a bigger factor in your plans.
I guess it will transition and the mix will change and may become a bit more even over time, but the sorts of programs we’re trying to encourage them to take are smaller in financial value than some of the commercial programs we’re pursuing.

What opportunities are you chasing currently?
There are a number of payloads that are being developed that currently don’t have flight opportunities so we’ve got a very cost-effective solution for putting some of those payloads into orbit.

I’ve got to be a bit vague because some of it’s us cultivating our own opportunities rather than responding to requests for information. But certainly the National Oceanic and Atmospheric Administration, the Air Force Research Laboratory and a number of parties within the U.S. have payloads looking for flight opportunities. If it costs $100 million to put your payload in orbit, you’re going to struggle, but if you could get that price down to less than $10 million, then it starts becoming a viable option.

Surrey has kept costs down in part through deals with Russian launch providers. What’s your strategy for U.S.-built hardware, where use of Russian vehicles can be problematic?
You’ve got a couple of things occurring in the U.S. You’ve obviously got Space Exploration Technologies (SpaceX) — it’s good to see those guys get up successfully. You also have secondary launch capability with existing launch vehicles. So we’re beginning to try and tap into those in order to provide secondary launch opportunities.

Aren’t government satellite program managers typically reluctant to make accommodations for secondary payloads?
Absolutely. People have very much taken this approach that it’s just too much hassle to launch the small spacecraft, so one of the things that we want to do through SST-US is try and change that mindset. One way of changing that mindset is to remove that hassle factor.

How do you do that?
When budgets aren’t an issue, people just say we can’t be bothered; it’s too much of a hassle. But when budgets start becoming an issue and people start scrutinizing the costs of some of these things, some of the revenue that can be brought in by launching secondary payloads helps.

SST-US obviously is interested in strategic partnerships. Do you envision one with a U.S. domestic launch provider such as SpaceX?
It would make sense. We’re very similar in our mindsets and our outlook and there’s a good strategic partnership there potentially at some point in the future. That’s an example; there’s nothing there solid at the moment but I think we’re very keen to work with a range of different people in the U.S.

In recent years NASA has not shown much interest in small satellites. Is this changing?
Certainly their focus has been more toward the larger spacecraft in recent years. We will be responding into the NASA Rapid 3 catalog with two or three of the products that we have and continue to try and encourage NASA to utilize the small satellite technology. It’s the same sort of issue that Surrey has in Europe — in encouraging the European Space Agency, for example, to use the smaller spacecraft. There are missions that come along that are well-suited to that size of spacecraft and we’ll continue to try and stimulate them within NASA. I think the [Rapid 3] request for information is due out shortly. We responded as Surrey in the United Kingdom a number of years ago. This year obviously being a U.S. supplier, it makes it a lot easier for the U.S. clientele to buy from us.