Orbital Sciences Officials Bullish on Taurus 2’s Market Potential

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KOUROU, French Guiana —
Orbital Sciences Corp. said it remains on track for a February 2011 inaugural launch of its new Taurus 2 medium-lift launch vehicle and its Cygnus space station resupply vehicle but warned investors that program delays remained a possibility.

In an Oct. 27 conference call with investors, officials from Dulles, Va.-based Orbital sought to reassure investors that while the Taurus 2 rocket is eating into company profit as it proceeds through development, its profit potential is undiminished.

NASA is contributing $171 million towards the development and demonstration of Taurus 2 and Cygnus and has ordered eight cargo-delivery flights to the international space station between 2011 and 2015 for a combined $1.9 billion.

Orbital Chief Executive David W. Thompson said the company forecasts $250 million in annual revenue and “double digit [operating-profit] margins” starting around 2014, once the vehicle reaches steady-state production and launch rhythm.



Thompson said Taurus 2, whose principal market is cargo delivery to the international space station and the launch of other U.S. government missions into low Earth orbit, also could find a niche in the commercial telecommunications satellite market.

Orbital spokesman Barron Beneski said Oct. 29 that the company’s revenue and profit projections for Taurus 2 are based only on the identified government market and do not include consideration of commercial launches.



Thompson said Taurus 2 development is now at its maximum rate of demand on company resources, requiring $7 million in unrecovered research and development spending in the three months ending Sept. 30.



Orbital was shooting for a December 2010 demo flight when it accepted NASA financial assistance last year for Cygnus and Taurus 2 development. Earlier this year Orbital informed NASA it was targeting the demo for February 2011.

But while “the possibility of a couple of months” of additional delay




remains possible, Taurus 2’s market prospects have improved in recent months.

“The return on investment continues to exceed our cost of capital by a factor of 2.5 to three times,” Thompson said during the conference call. “So we are very bullish on the mid-term and long-term outlook for this new product line.”

One reason for the company’s optimism about the prospects for Taurus 2 and the Cygnus unmanned cargo carrier is the likelihood that NASA will agree to continue using the international space station well beyond 2015, to 2020 or perhaps longer.

While no decision has been made, any extension of NASA’s space station use will almost certainly lead to new business for Orbital Sciences and Space Exploration Technologies (SpaceX) of Hawthorne, Calif., which are under contract to NASA to provide cargo transport to the station.



Thompson said Orbital is spending about $285 million on the Cygnus program, including the carrier’s service module, the pressurized cargo container being built by Thales Alenia Space of Italy, and instrumentation.



Thompson said the gathering momentum in Washington on behalf of extending the station’s service life “gives us a great opportunity to see our CRS [Cargo Resupply Services] program run




 not just for the next 6-7 years, but for the next dozen or so years.” The contract with NASA is currently calls for delivering some 20 tons of cargo to the station




between 2011 and 2015.

Orbital’s commercial telecommunications satellite division has won no firm orders so far in 2009 despite the fact that the global market has confirmed some 22 satellites this year — about the same as in 2008. But the satellites ordered in 2009 are generally in the larger, higher-power class than Orbital’s current Star 2 product line.

Thompson said the company nonetheless expects to book three commercial telecommunications satellite orders by the end of this year, and a total of six orders between now and the end of 2010.



J.R. Thompson, Orbital’s chief operating officer, said during the conference call that the AzerSat-1 telecommunications satellite for the Azerbaijan government was recently added to Orbital’s backlog. Beneski cautioned that the satellite remains only an option and that the production contract has not yet been signed.

Industry officials have questioned whether the Azerbaijan satellite project will go forward without substantial loan-guarantee support from the U.S. Export-Import Bank. One industry official said Orbital is almost certain to win the AzerSat contract if the loan guarantees




 materialize




, and that the company also appears well-placed to win satellite contracts in Brazil and Japan in the coming weeks.



J.R. Thompson said Orbital’s best near-term satellite prospects are for U.S. national security missions, not commercial satellites. “It appears that the trend established over the past two years will continue and perhaps accelerate,” he said of likely U.S. national security satellite orders.