— Orbital Sciences faces lower revenue and profit than expected in the near term because of unrelated factors in satellite, launch vehicle and missile defense programs, but starting in 2010 should resume double-digit revenue growth and increased profitability, company managers said July 28.
In a conference call with investors, officials from Dulles, Va.-based Orbital said that, in contrast to the negative developments, the global commercial telecommunications satellite market appears to be holding up better than expected this year.
Orbital Chief Executive David W. Thompson said 18 commercial geostationary-orbiting telecommunications satellites have been ordered so far in 2009, putting the year on the same pace as 2008 and suggesting that total orders this year would be 21-24 satellites.
“Overall demand for commercial satellites has held up better than I had thought it would,” Thompson said.
Unfortunately for Orbital, he said, only two of the 18 satellites contracted so far this year are in the 5 kilowatt class of spacecraft that is Orbital’s specialty. He said the company is confident it can book three commercial telecommunications satellite orders in 2009 – two from customers that already have Orbital spacecraft, and a third from a satellite operator that will be a new customer for Orbital.
David W. Thompson said the company has booked an “early start contract” for one telecommunications satellite with the work to start late this year.
Orbital Chief Operating Officer J.R. Thompson said the company signed an initial agreement to build a Thor 6R satellite as a hedge against a possible launch failure of the Thor 6 spacecraft. Telenor of Norway has slated the launch of Thor 6, under construction by ThalesAlenia Space of
, for late this year aboard a European Ariane 5 rocket.
A Telenor official confirmed July 29 that the company has signed a contract for initial work on a satellite. Telenor officials have said they have begun studying designs for a Thor 7 satellite that would be ordered even if Thor 6 is successfully placed into operation late this year.
Orbital completed in May a preliminary design of a higher power commercial telecommunications satellite and is awaiting a reaction from one or more commercial satellite fleet operators. J.R. Thompson said he hopes for an inaugural order sometime this year.
The company’s lack of full commercial satellite orders so far this year is one of several factors that caused Orbital to reduce its expected revenue and profit forecasts for the year – an announcement that sent the company’s stock tumbling by 12.5 percent on the New York Stock Exchange July 28.
The U.S. Missile Defense Agency’s May decision to cancel the Kinetic Energy Interceptor (KEI), for which Orbital was one of several contractors, will reduce the company’s firm backlog by $375 million and its options backlog by $320 million.
Orbital Chief Financial Officer Garrett E. Pierce said the KEI cancellation will take about $50 million in expected 2010 and 2011 revenue from Orbital’s planned revenue. David W. Thompson said the company was surprised by the cancellation, but that since it occurred in midyear it will result in no more than $15 million to $20 million in lost revenue in 2009.
Pierce said delays in unnamed satellites being built for the
government will weigh on the company’s profitability this year because Orbital is retaining teams to work on these satellites even though the related contracts have not taken effect.
These diverse elements add to the drag on profit already caused by the development of the Taurus 2 medium-class launch vehicle and its Cygnus cargo module being built to resupply the international space station under a $1.9 billion NASA contract awarded in December.
Orbital is developing Taurus 2 and Cygnus with help from $171 million in NASA funding won in February 2008 under NASA’s Commercial Orbital Transportation Services (COTS) demonstration program.
Taurus 2’s inaugural launch is now slated for early 2011, about three months later than planned, and the delay means Orbital will not reach peak development spending on it until this summer, some three months later than planned.
In addition, the inaugural flight, which originally was to carry an unpressurized cargo module, has been modified to carry a pressurized module to more closely resemble the follow-on launches. NASA has booked eight Commercial Resupply Services launches with Taurus 2 and Cygnus, to occur about every six months after the inaugural flight. Preparing a pressurized module for the first flight has added costs to the program.
David W. Thompson said the three-month launch slip will not threaten NASA’s $171 million in COTS contract payments to Orbital because the other program milestones have been respected. He said Orbital has received about $100 million in NASA COTS payments so far.