Launch Price Increases Expected Despite Overcapacity

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Providers of commercial launch services, in a development that few would have predicted, have been able to cease their price war and raise the average price paid per launch in the past year, according to industry officials.

The turnaround has occurred despite the continued lull in the commercial-satellite telecommunications market and despite repeated assessments — notably by Owen D. Kurtin of the law firm Brown Raysman of New York — that the commercial space-launch market has 70 percent more capacity than it needs.

Gone — at least for now — are the days when the owner of a 4,000-kilogram telecommunications satellite could secure a launch aboard an International Launch Services (ILS) Proton M vehicle for $45 million.

“Prices are going up,” said Mark J. Albrecht, president of McLean, Va.-based ILS, which also markets commercial launches of the Lockheed Martin Atlas 5 rocket. “In some cases we have actually seen shortages. Customers have difficulty finding the launch date they want.”

Albrecht said the ILS manifest for 2006 is full.

Officials from the other two major commercial launch companies — Sea Launch Co. , LLC of Long Beach, Calif., and the Arianespace consortium of Evry, France — agreed that some satellite-fleet operators are confronting a shortfall of space-launch capacity in late 2005 and 2006.

Sea Launch President Jim Maser said his company also is fully booked for 2006 — in part because satellite delays kept it from launching as often as scheduled in 2005.

The launch-price rebound, which began in 2004, initially was viewed by satellite operators as a temporary phenomenon due to the difficulties Arianespace encountered with the Ariane 5 ECA vehicle, which was grounded after a launch failure in December 2002. The Ariane 5 ECA was crucial to the company’s business plan because it is capable of carrying two satellites with a combined weight of around 9,500 kilograms to geostationary transfer orbit in a single mission.

With the Ariane 5 ECA’s grounding, the commercial satellite market’s alternative was suppliers able to launch only one heavy telecommunications satellite at a time. The Ariane 5 ECA now has completed one successful post-accident mission and is expected to make its second qualification launch later this year.

But for now, prices are remaining firm and have even shown signs of increasing in recent months, a trend launch suppliers did not expect.

Philippe Berterottiere, senior vice president at Arianespace, was forced to make a last-minute change to a market forecast he presented here Sept. 5 during World Satellite Business Week, organized by Euroconsult.

Berterottiere’s original presentation said: “It remains a buyer’s market.” In the forecast he actually made, the document read: “It is probably no more a buyer’s market.”

Now that they have managed to stabilize prices, launch-service suppliers are starting to evaluate how to minimize the impact of satellite delays on their business.

Arianespace Chief Executive Jean-Yves Le Gall said Arianespace must contend with satellites that arrive ready for launch as much as two years behind schedule. Arianespace’s main business model calls for launching two satellites at a time aboard the Ariane 5. If one is late, the other cannot launch.

In many cases, satellite owners do not pay a penalty for being late despite the delay-related costs incurred by launch-service companies.

Maser said Sea Launch is considering a modification to its policy so that satellites are not stacked up in the launcher queue in the order in which they arrive. The current system penalizes customers whose satellites are on time because their slot is taken by another satellite that should have been launched months earlier.

In a Sept. 7 interview, Maser said Sea Launch is considering a standby system that would work this way: A satellite customer would be granted an automatic six-month extension to a contracted satellite launch date without losing its place in the queue. If the satellite is more than six months late, Sea Launch would put it on standby, meaning it will have lost its spot on the manifest, but can select a new spot.

“Once they have shipped the satellite to us, we would then guarantee a new launch date on the standby basis,” Maser said. “Once you get a couple of customers on a standby basis, your manifest is better protected.”

Insisting that satellites arrive within three months of their contract date is probably unfeasible, Maser said when explaining the six-month grace period. Similarly, it is unlikely that launch service companies will impose financial penalties on late-arriving customers. “If we started putting penalties like that into contracts, customers would want the penalties to be reciprocal,” Maser said.