New orders for commercial telecommunications satellites have allowed Orbital Sciences Corp. to make better use of its plant and equipment and should make it possible for the company’s satellite division to generate operating profit margins of 5 percent to 5.5 percent in the next couple of years, company officials told financial analysts Feb. 22.
While nothing to celebrate in many businesses, a 5-percent profit margin counts as an exploit in the commercial satellite manufacturing industry.
Dulles, Va.-based Orbital said its commercial satellite work was the major contributor to its strong financial performance in 2005, a year in which a U.S. government investigation into launch vehicle contracting irregularities forced Orbital to spend $2.2 million in legal expenses.
Garrett E. Pierce, Orbital’s chief financial officer, said the company spent $1.5 million in legal fees related to the ongoing investigation in the last three months of 2005 alone, and that further expenses are expected in 2006. The expenses depressed profit margins in Orbital’s launch vehicle division.
“We cannot predict at this time the timeline or the outcome of the inquiry,” Pierce said Feb. 22 in a conference call with financial analysts. “We are fully cooperating with the authorities, and we strongly support the integrity of the U.S. government’s procurement processes. We continue to invest in our people and systems in the government contracting area to ensure the highest levels of compliance.”
Orbital spokesman Barron Beneski said Orbital expects to spend about the same amount in 2006 as it did in 2005 on investigation-related legal costs. He said the company could not comment further on the investigation’s status.
Orbital’s rocket manufacturing facility in Chandler, Ariz., and its Dulles headquarters were searched by government agents in May 2005.
Orbital reported a 2005 operating income of $53 million on revenues of $703.5 million. Operating income was down 4 percent, but revenues increased by 4 percent.
Pierce said that because of current and expected orders for commercial satellites, Orbital is raising its 2006 sales forecast by $10 million, to between $760 million and $780 million in sales.
New orders for satellites — mainly commercial but also including a NASA spacecraft — totaled $250 million in the last three months of 2005, Orbital Chairman David W. Thompson said during the conference call.
Including a work-authorization approval from satellite-fleet operator PanAmSat Corp. of Wilton, Conn., for the PAS-11R satellite, Orbital booked five commercial satellite orders in 2005. By Thompson’s count, Orbital landed all but two of the commercial geostationary small-satellite orders last year.
Thompson said the company expects 2006 to feature continued strong interest in small geostationary communications satellites by the world’s commercial satellite fleet operators, and that Orbital is confident of winning “at least three” of the six to eight orders for spacecraft in Orbital’s product range that are expected this year.
Orbital Science’s Star satellite bus is for satellites typically weighing less than 3,000 kilograms, with on board power of five kilowatts or less.
Thompson’s remarks came just two days after the newest entrant into this segment of the market confirmed its first win.
EADS Astrium of Europe and Antrix Corp. of India — the commercial arm of the Indian Space Research Organi sation — signed a contract Feb. 20 with Eutelsat S.A. of Paris for the W2M satellite. EADS Astrium is providing the satellite’s 26 to 32 Ku-band transponders, with Antrix providing the I-3K satellite platform, which first flew on India’s Insat 4A telecommunications satellite. Antrix also will perform integration and testing of the W2M satellite.
The contract with Eutelsat, which had been announced earlier, was signed in New Delhi in the presence of the French and Indian heads of state. EADS Astrium officials say they hope the new partnership will win one to two satellite orders per year. Orbital Sciences also had competed for the Eutelsat W2M contract.
“We have company,” Thompson said of the EADS Astrium venture and an attempt being made by Alcatel Alenia Space of Europe to enter this market as well. “For the next couple of years, we expect mainly to compete with the two Europeans.”
Alcatel Alenia Space has teamed with Russian satellite-platform builders to provide telecommunications spacecraft for Russia’s domestic satellite market, and more recently to provide a national communications satellite for Kazakhstan. Alcatel Alenia Space also is providing the payload electronics for Israel’s Amos 3 satellite, whose platform is being built by Israel Aircraft Industries.
Thompson said Orbital booked $1.78 billion in new orders, a company record. Of this amount, $875 million were for satellites, both commercial and governmental.
Second in Orbital’s new-orders category for 2005 was its launch vehicle division, which builds Taurus and Pegasus orbital rockets and missile interceptors and the Supersonic Sea-Skimming Target missile for the U.S. Navy.
Pierce said the launcher division would have posted operating-profit margins of close to 12 percent for the fourth quarter were it not for the investigation-related legal charges.
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