Editorial: Managing the Downturn

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As the world’s leading space company by revenue, Lockheed Martin could be viewed as an industry bellwether — at least in the United States, which spends more on space activity than any other country. If that’s the case, the Aug. 17 announcement by Lockheed Martin Space Systems that it intends to shed some 800 jobs — 4.5 percent of its work force — by year’s end does not bode well.

This company, after all, has had an extraordinary run of success in recent years, having won contracts to build, among other things, NASA’s planned Orion Crew Exploration Vehicle, the U.S. Air Force’s GPS 3 satellite navigation constellation and, most recently, the U.S. National Oceanic and Atmospheric Administration’s next generation of geostationary-orbiting weather satellites. On top of that, the company is all but assured of a big contract — if it hasn’t been awarded one already — to build a new line of complex optical imaging satellites for the U.S. National Reconnaissance Office.

One might think under the circumstances that Lockheed Martin Space Systems would be in hiring rather than firing mode, especially since the company unseated incumbents on some of its recently won contracts, including the GPS 3 and weather satellite systems.

The decision to cut staff, according to a company spokesman, was based on the company’s assessment of its future contracting prospects, and as far as U.S. government programs go, there don’t seem to be that many on the horizon. The GPS 3 contract, for example, capped a recapitalization effort across the Pentagon’s existing satellite fleets that began with the next-generation missile warning system award — also to Lockheed Martin — back in 1996. Replacements for all of the military’s unclassified legacy systems are now under contract.

Meanwhile, there are no longer any major programs in the works representing new capabilities. The Transformational Satellite (T-Sat) communications system, one of two major initiatives hatched during the near-decade-long surge in defense spending now coming to an end, was canceled early this year, shortly after U.S. President Barack Obama took office. The other initiative, the Space Radar, couldn’t survive even while the defense gravy train was still going strong.

For NASA, the contracting outlook is more muddled, but hardly rosier. Significant changes appear to be in store for the agency’s human spaceflight program following the conclusion by an independent panel that NASA’s ambitions for exploration beyond low Earth orbit cannot be achieved within the White House’s projected budgets over the next decade or so. Whether or not the human spaceflight policy crafted in response to this finding will dramatically affect Orion and its planned Ares 1 launcher remains to be seen. But unless NASA gets a substantial funding boost that few believe is in the offing, big new contracting opportunities in civil space also appear to be limited in the years ahead.

To the extent that there are new programs, they are likely to come at the expense of existing ones, or at the margins. The good news is that this type of environment should provide opportunities for smaller or entrepreneurial space companies, which tend to be more agile and less risk-averse than major prime contractors like Lockheed Martin, Boeing and Northrop Grumman.

As everyone knows, U.S. government spending on space and defense tends to be cyclical; belt tightening among the primes is to be expected as federal cash flow moderates following an extended but ultimately unsustainable surge. The challenge for the Obama administration is to orchestrate a soft landing for the space industry that does not rob the nation of vital capabilities that inevitably will be called upon in the future.