Orbital ATK increases government satellite work to make up for commercial shortfall
WASHINGTON — With the commercial satellite market in its deepest doldrums in at least a decade, Orbital ATK says it is making up for the shortfall with increased government satellite business.
Orbital ATK reported revenues of $1.115 billion for the second quarter of 2017 in financial results released Aug. 3, up from $1.084 billion in the same quarter of 2016. Operating income for the quarter was $135.7 million, down from $147.5 million in the same quarter of 2016 because of one-time profit adjustments last year.
In otherwise favorable news about the company’s finances, Orbital ATK President and Chief Executive David Thompson said demand for commercial geostationary orbit communications satellites remained weak.
“The story’s not great there,” he said when asked about the state of the market in an earnings call with analysts. He said was aware of only three satellite orders in the first half of 2017, in line with reports by other satellite manufacturers. “That’s the market’s weakest first half, or yearly start, in over a decade.”
By comparison, by the middle of 2016 there were seven satellites ordered, with a total of 14 at the end of year, still far lower than the 20 or more per year in the recent past. “Our outlook for this year is that it’s likely to be even weaker than last year: maybe 10 orders,” he said. That is on the low end of other industry projections, which have ranged from 10 to 14 orders for 2017.
Most of those satellites will be too large for Orbital ATK to bid for, Thompson said, estimating an addressable market for the company of only two satellites. However, he did not necessarily expect the company to win both those orders. “I think two orders is probably optimistic,” he said. “One we’d have more confidence in.”
Thompson said a lack of commercial satellite orders likely will not be a drag on the company’s finances given the growth it is seeing in government satellite business since early last year. “Continued strength in government satellite activity, particularly military or defense-related satellite activity, should offset or maybe go beyond offsetting any additional weakness on the commercial side,” he said.
He estimated U.S. government satellite business, including both civil and national security work, will generate three times as much revenue as its commercial satellite business this year. “That ratio may potentially shift more firmly towards government work next year and the year after, depending on the pace of recovery in the commercial market,” he said.
Thompson said he could not talk about many of those projects, particularly those in the national security market, because of their classified nature. “Things are going very well there,” he said. “It’s definitively one of the brightest spots in our whole portfolio for this year, and through the end of the decade.”
The weak demand for commercial satellites, he said, had led Orbital ATK to consider options for strategic partnerships or joint ventures with other manufacturers to become more competitive for the limited number of available orders. “We are exploring some possibilities that may come to fruition over the next couple of quarters,” he said, adding that current discussions are still in their early stages.
Thompson said that the next launch of Orbital ATK’s Cygnus cargo spacecraft, on an Antares rocket also developed by the company, would likely slip until October because of scheduling requirements by NASA.
“We were, and are, on schedule to carry that out this month, but I think NASA’s going to delay that probably until October in order to provide a full load of cargo,” he said.
He added that there was one specific “spare part or subsystem for the space station” NASA has asked orbital to fly on the mission, “and that cargo element is going to pace the launch.” Thompson didn’t identify the specific hardware component, other than to say that it was “running a bit later than previously expected.”
Both Orbital ATK and NASA had previously reported that the launch of that mission, designed OA-8, was scheduled for Sept. 12, although Orbital ATK executives said in June that they would be ready for launch as soon as late July if needed. The OA-8 mission is currently set to launch after the next SpaceX Dragon mission, SpX-12, scheduled for launch Aug. 13.
A NASA spokesman did not immediately comment on the schedule for OA-8 mission. However, a July 24 presentation to the NASA Advisory Council’s human exploration and operations committee by Sam Scimemi, ISS director at NASA Headquarters, listed an Oct. 11 launch date for OA-8, with Sept. 12 reserved for a Soyuz launch of three new station crewmembers.
The shift of OA-8 to October, Thompson said, will delay the next cargo resupply mission until early 2018. He said any decline in revenues for this year as a result of pushing back that next cargo mission into 2018 would likely be offset with “other opportunities throughout the company.”
Thompson also highlighted in the earnings call progress on two major space-related research and development projects. One is the Mission Extension Vehicle, the company’s satellite servicing system designed to take over attitude control and maneuvering of geostationary orbit satellites running out of fuel.
“We recently finalized the design and are now well into construction of that first Mission Extension Vehicle,” he said. That vehicle is scheduled to launch in 2018 and begin operations in 2019.
The other is a new large launch vehicle, known as the Next Generation Launch, that the company formally announced in April. Work on the vehicle, funded in part by a U.S. Air Force Rocket Propulsion System award in 2016, is in progress, Thompson said.
“Our investments last year and this year, together with those of the Air Force, have covered the preliminary phases of the design and facility expansion,” he said. “We’re expecting a joint go/no-go between the Air Force and Orbital ATK late this year or early next year concerning the next phase, to actually move into full-scale development and testing of these vehicles.”
That timeframe was consistent with what the company has previously stated about the next milestone of the program. That schedule, Thompson said, would allow the vehicle to be ready for a first launch in 2020 or 2021 if the company and the Air Force do agree to continue development.