Northrop Grumman “bullish but cautious” about satellite servicing

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WASHINGTON — With the success of its first life extension vehicle and a new DARPA award, Northrop Grumman is cautiously optimistic that demand for satellite servicing will grow.

During the company’s first quarter earnings call April 29, Kathy Warden, chairman, president and chief executive of Northrop Grumman, highlighted the company’s achievements in satellite servicing as major milestones for its space systems division.

Those achievements included the successful docking of its Mission Extension Vehicle (MEV) 1 with the Intelsat 901 satellite, moving the satellite to a new location in geostationary orbit to allow it to continue operations. DARPA later selected Northrop as its new commercial partner on the Robotic Servicing of Geosynchronous Satellites (RSGS) program to demonstrate satellite servicing technologies, after Maxar dropped out of the program in early 2019.

“This disruptive technology could significantly expand on-orbit servicing capability to include robotic services,” she said of the RSGS award. “Under the agreement, we will retain the spacecraft, payload and [intellectual property] for commercial use.”

Asked later in the call to provide more details about the opportunity Northrop sees in satellite servicing, Warden did not estimate how large the market would be. However, she noted the RSGS award will allow the company to move beyond life extension to more ambitious satellite servicing activities for government and commercial customers.

“It opens up the market in that regard and clearly is an indicator that we would be able to service not only commercial but potentially government satellites as well,” she said. “When we look at the market, we are bullish but cautious in that this is the first of a kind. We want to continue to march through milestones” of technical development of the system.

Warden was optimistic about demand for life extension services like that demonstrated with MEV-1. “Life extension servicing, which we have already accomplished with the Intelsat satellite, is something we feel comfortable will be a robust and growing market for us,” she said.

Much of the call focused on the effects of the coronavirus pandemic on the company. Warden said that there was no “material operating impact” on the company’s performance in the first quarter of 2020. The company reported a 5% increase in total sales compared to the first quarter of 2019, to $8.62 billion, while net earnings rose 1% to $868 million.

However, the company lowered its sales guidance slightly for the full year, from an original projection of $35.3–35.8 billion to $35.0–35.4 billion. That is largely due to impacts on its aeronautics business, in particular commercial aerostructure work that has been cut severely by the pandemic.

Warden said that Northrop, like many other companies, is keeping a close eye on the health of its suppliers, particularly small and mid-sized companies. “While we’ve not had a material supply chain disruption, some are being impacted more than others,” she said. The company is advancing an average of $30 million per week in payments to those suppliers, passing along increased progress payments it is receiving from the Defense Department.

“We are seeing positive trends, both in our own facilities and with our suppliers,” she said, such as a decline in absenteeism as well as suppliers who had paused operations resume work. “I would say that the trajectory is positive, but we still have uncertainty ahead.”

The company warned that the impact on the company’s finances will be stronger in the second quarter, hence the decision to reduce sales guidance. Dave Keffer, chief financial officer, said the company would look for cost reductions elsewhere in the company to offset costs incurred by its response to the pandemic.

The company’s projections, he said, “assume the supply chain and labor impacts are the greatest in the second quarter, and that the operational pace recovers in the second half of the year.”