Orbital’s Revenue Hits Record High but Earnings Fall

by





PARIS — Satellite and launch-vehicle manufacturer Orbital Sciences Corp. on July 22 reported record quarterly revenue but said earnings were eroded by a work stoppage on NASA’s Orion crew transport vehicle, the in-orbit failure of the Intelsat Galaxy 15 satellite and acquisition charges following the purchase of General Dynamics’ satellite business.

For the three months ending June 30, the Dulles, Va.-based company’s revenue were $337.7 million, up 25 percent compared with $270.1 million for the same period in 2009. But net income fell to $6.3 million, down from $8.7 million a year ago.

The General Dynamics satellite business looks to be generating more revenue than expected in the civil-government satellite sector and has added some $100 million to Orbital’s backlog. In addition, the company said that ultimately it should recover most of the Orion-related charges from NASA, which told contractors in May to set aside program funds in anticipation of the project’s cancellation. That directive forced Orbital to stop work on the Orion launch abort system it was building as a subcontractor to Lockheed Martin Space Systems.

In a conference call with investors reporting the company’s results for the three months ending June 30, Orbital officials said the company has incurred $2.5 million in unexpected costs following the April failure of the Galaxy 15 commercial telecommunications satellite.

Orbital Chief Executive David W. Thompson, who previously said solar activity the first week of April was the most likely cause of the failure, said that in the three months since told analysts July 22 the company has been unable to settle on “a single root cause.

“There are a handful of possible causes that cannot be eliminated. We have a leading theory,” he said.

Galaxy 15 stopped responding to commands April 5 and has been on an eastward drift along the geostationary arc 36,000 kilometers over the equator. But while out of control, the satellite’s C-band communications system has continued to function.

C-band satellites in Galaxy 15’s path have been obliged to perform orbital gymnastics to maintain communications with their customers and at the same time avoid signal interference as Galaxy 15 crosses their orbital positions.

David Thompson said that in late August or early September, Galaxy 15 should automatically reset its power system, at which time Orbital will learn whether the satellite can be returned to service. “We’re cautiously optimistic” about the chances, he said. The company expects to spend another $1 million or so in the next three months on the Galaxy 15 problem.

Orbital faces the loss of its $7 million incentive payment from Luxembourg- and Washington-based Intelsat if Galaxy 15 is not recovered, but Orbital has insured itself against the loss of this orbital-incentive payment.

Orbital has proceeded to retrofit all satellites under construction with additional protections to prevent a recurrence of the Galaxy 15 failure on another Orbital satellite, Orbital President J.R. Thompson said during the conference call.

David Thompson said Orbital is still hoping to win three geostationary commercial satellite orders this year, especially since the global market appears more dynamic than Orbital had predicted.

The company had expected a total of 22 to 25 commercial geostationary telecommunications satellites to be ordered in 2010 and is now raising its estimate to 25 to 27 satellites, of which seven or eight would be in Orbital’s weight class of smaller, lower-power spacecraft.

He said the situation for 2011-2012 remains less clear as several of the largest satellite fleet operators will be completing their fleet renewal and expansion plans.

J.R. Thompson said the company’s two biggest ongoing development programs — the Taurus 2 rocket and the Cygnus space station cargo carrier that Taurus 2 will launch -– are proceeding on schedule for a launch between April and June 2011.

Orbital officials are closely watching the evolution of NASA’s budget in the U.S. Congress and are hopeful that NASA’s commercial space station cargo-supply program will secure additional funds to reduce its risk. For Orbital, that would mean launching the inaugural Taurus 2 rocket in June without Cygnus to prove the vehicle’s performance. The vehicle then could be launched three or four months later with a Cygnus supply vehicle.

Orbital Chief Financial Officer Garrett E. Pierce said research and development spending on the Taurus 2 and Cygnus programs has passed its peak, as expected, and will drop sharply in the coming months as the programs move toward operation.

Thompson said the company expects its launch vehicle business in 2010 to report an operating margin of between 4.5 percent and 5 percent. The satellites and space systems division’s margin, he said, should be 6 percent or a little higher, while the advanced space division should have a 4 percent operating profit margin.