Orbital Sciences Corp. said it is nearing a 7 percent operating-profit margin in its commercial telecommunications satellite product line and expects to raise the profit margin to as high as 9 percent by 2009.
In an Oct. 18 conference call presenting the company’s record revenue
and profit for the three months ending Sept. 30, Orbital Sciences CEO David W. Thompson said the Dulles, Va.-based company is more optimistic than ever about building a medium-lift rocket, called Taurus 2, which would replace the Boeing-built 2 launch vehicle for U.S. government and commercial customers. Delta 2 is scheduled to be retired around 2010.
Orbital Sciences plans a preliminary design review of its Taurus 2 project in December. If the technical and financial assessments remain positive, the company will proceed with early development until a final
decision is made in August or September 2008 on whether to proceed with production.
Orbital Sciences has been working on Taurus 2 since April and expects
to spend between $110 million and $130 million on the rocket by the time of its first launch in 2010, Thompson said.
While this investment will eat into the company’s profit margins, Thompson said indications are that Taurus 2, launched 3 to 4 times per year and generating $150 million to $200 million in annual revenues starting in 2012, could generate “quite healthy” profit margins for the company.
Thompson said much of the company’s Taurus 2 investment will be offset before 2010 by advance customer payments and “supplier contributions during the development program.” He did not detail whether Orbital would propose that prospective Taurus 2 component suppliers become strategic partners in the program. Orbital Sciences spokesman Barron Beneski said the company continues to evaluate several options.
Orbital Sciences estimates it will spend $40 million to $45 million on Taurus 2 in 2008, or about half of that amount if it abandons the project at the final review in mid-2008, he said.
It is Orbital Sciences’ success in selling commercial telecommunications satellites, plus its work on NASA’s Orion astronaut-carrying capsule, that has led the growth in the company’s revenues.
For the nine months ending Sept. 30, Orbital Sciences reported total revenues of $791 million, a 35 percent increase over the same period in 2006. Operating income, at $62.3 million, was up 30 percent. Net profit was up 50 percent, to $41 million.
Even as other builders of commercial geostationary-orbiting satellites have said building commercial satellites is only marginally profitable at best, Orbital Sciences has reported increasing profit margins.
Garrett E. Pierce, Orbital Sciences’ chief financial officer, said the geostationary telecommunications satellite division reported a 6.5 percent operating profit for the three months ending Sept. 30. It
still is below the company-wide average of 8 percent, but Thompson said Orbital Sciences’ geostationary telecommunications satellites product line generated
3 percent profit margins a year ago, and that the expected 7 percent margin is not the end of the performance curve.
“We’re not finished there,” Thompson said, adding that the research and development costs of the company’s Star 2.4 higher-power satellite platform kept profit down in 2006 and earlier this year but that Orbital is
booking orders now for satellites that are similar to each other, allowing for higher profit.
Thompson said the division’s profit margin could reach 9 percent by 2009. Orbital Sciences has won orders for five commercial telecommunications satellites so far in 2007 and expects to win four new orders in 2008.
Thompson said the Taurus 2 rocket, which if built would be able to carry a 3,000-kilogram telecommunications satellite into geostationary transfer orbit, could help stimulate demand for the company’s telecommunications satellites. Orbital Sciences’ commercial satellites
generally are lower in power and weight –
and price – than those of
its major U.S. and European competitors.
Orbital Sciences originally estimated that its work on the Orion vehicle would generate some $60 million in revenues in 2007. But the program has moved more quickly than expected and now will result in nearly $125 million in 2007 revenue.