WASHINGTON — Orbital Sciences Corp. is counting on its acquisition of General Dynamics Corp.’s satellite manufacturing business to strengthen its hand in upcoming competitions to build medium-class low-orbiting satellites for U.S. government customers, in both the national security and civil arenas, senior company officials said.

The $55 million all-cash deal, announced March 4, was not aimed at any one competition in particular, David W. Thompson, chairman and chief executive of Dulles, Va.-based Orbital, said in an interview. “More generally … over the next one to two years I think there will be several promising opportunities that this will make us much more capable of pursuing and much more competitive for winning,” he said.

During a conference call with analysts March 5, Thompson said there are six to seven government opportunities over the next 18 months, representing $1.25 billion to $1.5 billion worth of business, that Orbital will be able to address as a result of the acquisition.

Orbital’s national security business has been its fastest growing in the past two years, and Thompson noted that one of the attractive features of the General Dynamics operation is that 80 percent of its employees are cleared for highly classified work. But in the coming years the business mix is expected to be fairly balanced between civil and national security customers, with NASA poised to increase spending on scientific satellites, especially for Earth observation, he said.

During the conference call, Orbital officials said the acquisition, assuming it closes in early April as expected, should add $50 million to the company’s revenue in 2010, and up to $100 million in 2011.

Formerly known as Spectrum Astro, General Dynamics’ satellite division currently is part of GD Advanced Information Systems and is located in Gilbert, Ariz. The company builds small to medium-size satellites, primarily for U.S. government customers but also for the occasional commercial client. Some of its recent satellites include NASA’s Fermi astronomy telescope, the Near Field Infrared Experiment (NFIRE) satellite for the U.S. Missile Defense Agency and the GeoEye-1 commercial imaging satellite for GeoEye of Dulles.

At the end of 2009, the backlog at the General Dynamics group was about $150 million, with the biggest program being the satellite platform for NASA’s Landsat Data Continuity Mission, according to Thompson. He said the program recently passed its design phase, meaning hardware construction is ready to begin. NASA plans to launch the satellite in mid-2013.

It remained unclear at press time whether General Dynamics will build the follow-on to GeoEye’s GeoEye-1 satellite. Speaking March 3 during the International Commercial Remote Sensing Conference here, GeoEye Chief Operating Officer William Schuster said the company had authorized work to begin on the GeoEye-2 satellite platform. However, he did not identify the manufacturer, and GeoEye spokesman Mark Brender declined to provide additional details. Work on GeoEye-2’s main imaging camera began more than two years ago.

The General Dynamics acquisition does not require any external approvals because the price did not meet the required thresholds, Thompson said, adding that it will be financed using cash on hand. Of the purchase price, which is less than half the value of General Dynamics’ $116 million fixed-price contract to build the Landsat platform, Thompson said, “We think it’s a reasonable valuation of the business. We’re happy with it but I don’t think it’s a steal.”

In a press release, Orbital said General Dynamics-built satellites have ranged in mass from 500 kilograms to 4,000 kilograms and typically are designed for three years to seven years of operation in various low Earth orbits. During its history, Orbital has competed with General Dynamics for many of these same kinds of missions, but Thompson said Orbital’s government satellites, particularly in recent years, typically have been toward the smaller end of the scale.

Over the last decade, most of Orbital’s growth has come in building medium-class geostationary orbiting telecommunications satellites for commercial customers, Thompson said in the interview. “On the other hand, GD’s growth by and large has come from developing and building what I would call medium-class low orbiting satellites, which generally we don’t do,” he said.

Orbital could have developed low orbiting satellites in the 2- to 4-metric-ton class on its own, but this would have cost $25 million to $30 million in research and development funding, plus additional costs for capital equipment, and taken up to two-and-a-half years, Thompson told analysts. With the General Dynamics acquisition, Orbital can offer a proven product much sooner to its government customers, he said.

“This is part of a strategic initiative for Orbital which you see reflected in a number of areas,” including the Taurus 2 medium-lift rocket and a larger variant of Orbital’s Star geostationary communications satellite platform, both of which are under development, Thompson said in the interview. “These are all examples of moving, not away from our traditional markets in what you might call small space but adding … a new dimension that might be called medium space,” he added.

During the conference call, Thompson said these moves together should double the size of Orbital’s addressable market in the next few years.

Michael Hamel, Orbital’s senior vice president for strategy and development, said the acquisition serves another element of the company’s growth strategy, which is to “move up the value chain” with key customers. “They’ve [General Dynamics] been intimately involved over a number of years with the Missile Defense Agency, most recently on the NFIRE program, and as we look to the future that seems like an area that the Department of Defense really wants to make greater investments in –- space-based sensing and control elements for the integrated missile defense,” Hamel, a retired U.S. Air Force lieutenant general, told Space News. “That’s just one example.”

During the conference call, Hamel identified missile warning and tracking as well as space surveillance as growth areas that the acquisition will help Orbital address.

Orbital said that as part of the deal, it will get a 12,150-square-meter manufacturing, integration and test facility in Gilbert that was completed in 2005. The state-of-the-art facility, which Orbital said has special security provisions for working on highly classified programs, is located 16 kilometers from Orbital’s rocket-manufacturing plant in Chandler, Ariz.

“Upon closing of the acquisition, about 325 new employees will join Orbital, most of whom are engineers, technicians and program managers, many with security clearances for sensitive U.S. Government programs,” Orbital said in its press release.

Thompson said he did not expect there to be any significant layoffs or facility closures as a result of the acquisition.

Houlihan Lokey, a financial services firm specializing in mergers and acquisitions, advised Orbital on the deal, Orbital said in its press release.

Turner Brinton contributed to this story from Washington.

Warren Ferster is the Editor-in-Chief of SpaceNews and is responsible for all the news and editorial coverage in the weekly newspaper, the spacenews.com Web site and variety of specialty publications such as show dailies. He manages a staff of seven reporters...