Orbital Bullish on U.S. National Security Satellite Market

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PARIS — Rocket and satellite builder Orbital Sciences Corp. is predicting a sharp drop in the number of commercial telecommunications satellites to be ordered worldwide in 2010 following an exceptionally strong 2009, and said it expects to win three or four of those contracts.

In a Feb. 18 conference call on the Dulles, Va.-based company’s 2009 financial results, Orbital Chief Executive David W. Thompson also said the trends in U.S. government spending present more opportunities than threats to Orbital’s business.

In particular, he said the company’s advanced space programs division, which includes classified and unclassified satellites for the U.S. government, increased revenue by 15.6 percent in 2009 and is likely to continue to grow at double-digit rates in 2010 and perhaps beyond.

“The outlook continues to be very encouraging” for orders from the U.S. Air Force, the U.S. Defense Advanced Research Projects Agency and the U.S. Missile Defense Agency, among others, as they continue to place a strong priority on satellite assets, he said.

In addition, he said the proposed 2011 budgets of NASA and the U.S. National Oceanic and Atmospheric Administration (NOAA) both feature sizable increases for satellite programs, a development that opens new opportunities for Orbital.

A White House decision that NASA rely on commercial suppliers to transport cargo and astronauts to and from the international space station is also good news for Orbital, whose Taurus 2 rocket and Cygnus unmanned cargo carrier, both in development, are targeting that business.

Thompson was among the first major U.S. government space-hardware contractors to endorse NASA’s proposed new direction, which includes cancellation of the Orion astronaut-transport capsule for which Orbital was building a crew launch-escape system. Thompson said he is optimistic that the escape system will find an application in future NASA astronaut missions, whatever form they may take.

Orbital Chief Operating Officer J.R. Thompson said the Taurus 2 rocket, which is Orbital’s single largest product now in development, remains on track for an inaugural launch in March 2011 but that any hiccup in the program would push the launch into the second quarter. For the moment, he said, the schedule is “tight, but doable.”

Orbital also is working on a higher-power version of its Star 2 geostationary telecommunications satellite platform, dubbed Star 2.7, and in 2009 completed its design. Only once an order is booked will the company move to complete development.

David Thompson said Orbital has entered one commercial satellite competition using the Star 2.7 design and is awaiting a decision. He said at least one likely bid for 2010 will be made proposing this platform. But until a customer signs a contract, he said, “we are in a holding pattern awaiting market validation.”

The Star 2 platform in recent years has captured about a 40 to 50 percent share of the market for smaller and lower-power commercial satellites. Orbital has solidified its presence in this market niche while maintaining operating-profit margins of about 8 percent for the commercial satellite product line — which many believe to be higher than competing commercial satellite builders in the United States and Europe.

David Thompson said the profit margin on commercial satellites might slip slightly in part because one of Orbital’s commercial satellite orders calls for Orbital to arrange for the satellite’s launch. Orbital’s profit on the launch, he said, will be small and will drag down the commercial satellite division’s overall profitability.

For 2009, Orbital said 30 commercial geostationary satellites were ordered worldwide, of which seven were in Orbital’s weight and power class. The company won four of these satellites, although one of them, for startup operator OverHorizon of the United States, Sweden and Cyprus, has yet to raise the financing needed to fully fund the satellite purchase, according to industry officials.

The 30-satellite total in 2009 includes two four-satellite orders for fleet operators Intelsat of Washington and Bermuda, and SES of Luxembourg. These orders, for satellites built by Boeing of the United States and Astrium Satellites of Europe, respectively, will result in deliveries over several years.

David Thompson said 2010 is likely to see a reversion to mean, with 22 to 24 satellites ordered. Between six and eight of these expected orders will be in Orbital’s class. “We are targeting three, with an upside of four,” Thompson said.