Shakeout in small launch industry is coming but nobody can predict when

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Rocket Lab CEO Peter Beck: "The market needs to grow a lot to sustain more than two companies."

WASHINGTON — The Pentagon recently singled out small launch as one of the most fragile sectors of the defense industrial base.

“And it is,” says Peter Beck, founder and CEO of small satellite launch provider Rocket Lab.

Because of the economic crisis caused by the coronavirus, space companies that rely on venture capital are not going to see any funding for at least a year, or a year and a half, Beck told SpaceNews.

In the small satellite launcher sector the outlook is especially dire because “too many companies are going after a market opportunity that’s only really big enough for two,” Beck said.

A recent study by Quilty Analytics estimated there are well over 100 small launch companies. “Nearly all of the contenders will fail, though there is room for perhaps two winners among the venture space launch field,” said the study.

Beck, who founded RocketLab in 2006, expects his company to be among the dominant players.

He said the company is financially strong and trying to get back on schedule after its primary launch site in New Zealand was shut down due to the pandemic. The pad reopened May 7 and Rocket Lab plans to soon launch the 12th mission of its Electron rocket that was originally scheduled for March 27. The mission will launch payloads for the National Reconnaissance Office, NASA and the University of New South Wales Canberra Space.

Beck mentioned the recently released RAND Corp. study that estimated there is only enough demand in the global market to sustain two U.S. heavy lift launch providers. The same holds for the small launch sector, he said.

“The market needs to grow a lot to sustain more than two,” Beck said. “The next six months will be kind of the peak of failure” for many of the companies in the industry.

Beck insisted that he does not wish ill on anyone. “I think competition is healthy,’ he said. “What I’m saying is that I don’t think it’s a good idea to pour a whole lot of money into small launch. Then you create a bunch of companies that have nothing to fly.”

Beck said he could not explain why there’s a hundred companies in small launch. “We’ve asked the same question,” he said. One possible explanation is that investors assumed there would be lots of companies building mega constellations and there would be a large demand for launch vehicles. “A lot of business plans are predicated on ridiculously large numbers of launches,” he said.

The Defense Department is viewed as a key customer for the industry and the Pentagon is discussing actions it could take to help suppliers.

Specifically for small launch, the most helpful thing the Pentagon and other agencies could do is fund space programs that will generate demand for launch, said Beck.

“If the government invests in a program, the program creates spacecraft, that spacecraft needs a launch, that supply chain is stimulated all the way down,” he said.

Beck is optimistic about the DoD and NRO business. Rocket Lab recently completed construction of a launch complex at Wallops Island, Virginia, where it plans to launch an Air Force satellite in August.

The company sees a bigger future in the combination of its launch services with its Photon small satellites offering both as an integrated “one stop shop” service.

When Rocket Lab in 2019 launched a Radio Frequency Risk Reduction Deployment Demonstration (R3D2) satellite for the Defense Advanced Research Projects Agency, “that program opened people’s eyes to how quickly you can build a spacecraft and get it on orbit,” he said. “That was one of the impetus for us to develop the Photon platform.”

“We see that the government has a need for LEO platforms,” he said. The problem is that the government has separate bureaucracies handling the procurement of satellites, integration and launch services. “So it takes two years to prove some capability or create it. We can do it within a matter of months. We can develop the satellite and launch it.”

A larger market for small launch is possible

Fred Kennedy, a former DARPA and DoD official and now vice president of Astra, a small launch vehicle startup in the San Francisco Bay Area, does not buy predictions about only two companies surviving in this market.

“We don’t know yet how many launch service providers can be sustained at the low end,” Kennedy told SpaceNews. “We just don’t know. I don’t have a crystal ball, and I don’t think that Peter [Beck] really does either. So we’re just gonna have to wait and see.”

Astra’s small satellite launcher failed earlier this year an attempt to win the $2 million DARPA Launch Challenge at the Pacific Spaceport Complex at Kodiak Island, Alaska. The company is said to be having financial difficulties although Kennedy said he could not comment on those reports.

He said Astra is preparing to attempt another launch in the near future.

Once the vehicle starts flying, Kennedy predicts Astra will be able to win business. “I do believe that what’s going to dictate how many can play is whether we are sufficiently price competitive and whether or not we can address the issue of time to market,” he said.

Customers are going to ultimately dictate what companies survive, said Kennedy. “That’s why I don’t think anybody has a good handle yet on exactly what can be provided and what the market can sustain,” he said. Broadly speaking, “the federal government needs to step up and decide if it wants to support a new space industry if they think that there’s a unique value to it.”

Rocket Lab’s thinking about providing integrated satellite and launch services is “very interesting,” said Kennedy.

Commercial or government customers who just want to test an idea or service would be candidates for “fully integrated solutions,” he said. That type of turnkey service could “change the nature of the way we do business.”

Right now it’s very fragmented. Some companies specialize in satellite buses, others in payloads, launch or ground systems. “At some point somebody’s gonna get smart about this and figure out how to present those capabilities as full-on services. And when they do, that will make a big difference because you’re going to lower the barrier to entry. People are going to be able to come up with really innovative cool ideas, and they’re going to be able to essentially get capability on orbit, and test out their ideas very quickly. And that could get very exciting.”