NEW YORK — Demand for new satellites to replace spacecraft in aging constellations will carry large satellite manufacturers through the U.S. financial crisis, while the market looks less promising for start-ups and companies owned by private equity firms, industry officials gathered here for the 2008 SatCon conference said.
Start-ups likely will be the hardest hit by the shaky economy resulting from the collapse of major financial institutions, the volatile stock market and a clamp on credit, said Steve O’Neill, president of Boeing Satellite Systems International in El Segundo, Calif.
“If you’re in the business right now where you’ve been spending money in order to raise money, like [mobile satellite services companies have been doing], or if you haven’t started at all, what gives me great pause is it costs $150 million to $250 million for the satellite and $150 million for the launch vehicle,” O’Neill said. “So you’re three years away [from launch] and already need $400 million in capital expenditures.”
Well-established companies with cash flow might ratchet down the frequency of their new and replacement satellite orders, but they can survive, he said.
Several companies are in the midst of replacing their geosynchronous satellite constellations or are in a growth phase, said Arnold Friedman, senior vice president of marketing and sales at Space Systems/Loral in Palo Alto, Calif. “There will be 26 contract awards in the industry [this year], and the next couple of years should still be strong,” Friedman said, adding that two-thirds of the market involves replenishment satellites.
Friedman cited SES of Luxembourg and Echostar Communications Corp. of Englewood, Colo., as examples of companies that are growing or replacing satellites, Arnold said.
Because of the length of time between contract awards and completion for satellites and launch vehicles, it could be a year before the industry begins to realize any effects of the economic downturn, said Clayton Mowry, president of Arianespace Inc.
“There is still a fair number of orders for replacement satellites,” Mowry said in an Oct. 17 interview.
Contract orders are good news for satellite operators, who want to preserve lease contracts for their orbital slots, he said.
Companies that could feel more immediate effects are those that are owned by private equity companies, which might be looking to cash out, or companies trying to raise capital or credit, panelists said.
“It’s a tough time to raise debt or sell equity,” said Larry Williams, vice president of international and government affairs for Space Exploration Technologies in Hawthorne, Calif.
Some of those companies planning to launch satellites into low Earth orbit might look strong now but could fold without notice, Roger Rusch, president of satellite consulting firm TelAstra Inc. in Palos Verdes, Calif. “The weight of the financial situation now means most of those companies are going to expire in the same way the dot.coms did,” Rusch said in an Oct. 17 interview. “It’s always possible in this climate that a company that seems to be under way is terminated. … Sometimes it isn’t even announced, they just fade away.”
For now, there are positive signs in the low Earth orbit satellite market. Fort Lee, N.J.-based Orbcomm, which operates a fleet of 29 low-orbiting satellites that provide two-way messaging, announced in May its selection of Sierra Nevada Corp. and MicroSat Systems to build 18 second-generation satellites for about $6.5 million each, with an option to purchase up to 30 more.
Pricing could become an issue if satellite orders slow down and capacity begins to dry up.
Panelists at SatCon said the key to keeping pricing stable is to continue producing enough capacity to meet demand even in a period of cutbacks. The balance of supply and demand has been fairly stable during the past few years, said David McGlade, chief executive of Intelsat
“If we take it too far we’re going to see pricing grow,” McGlade said. “We have to be smart about how we put capacity on orbit.”