Smallsat’s supply chain woes
Not long ago, small satellite manufacturers were confident their suppliers would deliver needed parts and components on schedule. Sure, there were hiccups. But overall, supply was sufficient to meet demand.
Then the COVID-19 pandemic followed by the war in Ukraine dealt a one-two punch to the global supply chain at a time when demand was surging due to ever-growing small satellite constellations.
“Everything is balancing on us to be able to provide what is needed because if we don’t, it will have a domino effect and the whole NewSpace industry will come close to collapse,” said Istvan Lorinz, Morpheus Space president and co-founder.
Microchips are in short supply. So are electronic components, certain thrusters, steel bearings for reaction wheels and various gases.
“We get surprised sometimes because there are certain things that we think should be available and they aren’t,” said Luis Gomes, AAC Clyde Space chief executive. “On other occasions, it is the opposite. For certain parts, we have heard that there is a shortage and there isn’t.”
Supply chain issues are cropping up at an inflection point for the small satellite industry. Launch capacity is increasing alongside demand for Earth-observation data and satellite communications. Meanwhile, the ongoing miniaturization of electronic components enables manufacturers to build increasingly capable small satellites.
Euroconsult expects companies and government agencies worldwide to launch 1,846 small satellites annually, an average of five per day, compared with slightly more than one a day from 2012 to 2021. (Euroconsult defines small satellites as those weighing up to 500 kilograms.) That will only happen, though, if manufacturers can find the necessary parts.
Even before COVID and the war, analysts warned suppliers would be hard-pressed to satisfy the soaring demands of the small satellite manufacturing sector.
“A market that has historically been relatively slow to develop will now experience an accelerated expansion,” analyst Shagun Sachdeva wrote in “SmallSat Growth on Shaky Foundation,” a 2019 report for consulting firm Northern Sky Research. “This is bound to put immense pressure on the existing infrastructure and the different stakeholders in the supply and value chain.”
Specifically, the report warned that the limited pool of satellite suppliers would struggle to keep up with demand. At the same time, new entrants would have trouble gaining a foothold in a market that puts a premium on proven components and long-term relationships. Further complicating the equation are export-control rules like the U.S. International Traffic in Arms Regulations that limit global trade of certain spacecraft subsystems.
PANDEMIC AND WAR
Demand for space-related parts and materials “was exploding before COVID and before the war,” which “have exacerbated the supply issues,” said Alexandre Najjar, Euroconsult senior consultant. “Overall, the supply issues are driving cost increases and lead time. We see delays, delays, delays everywhere.”
Successive pandemic waves temporarily halted the mining of gold, copper and platinum group metals needed for batteries and electronic devices. As schools and offices closed, heightened demand for computers, game consoles and mobile devices raised demand for microchips.
Meanwhile, the pandemic wreaked havoc on the aviation sector. A slump in passenger traffic and a rise in cargo transportation forced firms that supplied components for aircraft and spacecraft to look for new markets or halt production altogether.
Just as some of those issues were abating, Russia invaded Ukraine, the world’s dominant supplier of noble gases, including neon, xenon and krypton. Xenon and krypton are common propellants for electric satellite thrusters, and all three gases are used in semiconductor manufacturing.
Western sanctions to penalize Russia for its invasion of Ukraine are preventing OneWeb and other satellite manufacturers from buying thrusters from Russia-based electric propulsion company EDB Fakel. Meanwhile, steel production is suffering because Ukraine and Russia provide raw materials and finished products.
In recent years, Blue Canyon Technologies, a Raytheon subsidiary, has doubled its sales forecast for reaction wheels, which the company’s component business produces for its own buses and sells to other satellite manufacturers. For the moment, though, it’s hard to find enough steel bearings.
“That is one of the specific challenges that we’ve had with our local vendors,” said Jeff Schrader, Blue Canyon Technologies president.
It often takes twice or three times as long as before the pandemic to acquire materials, components and subsystems.
“You have to design around the supply chain bottlenecks,” said Joel Sercel, Trans Astronautica Corp. president and CEO.
Blue Canyon is combining orders stemming from different contracts to stock up on everything from solar arrays to screws. “That helps the supply chain, and it helps us make sure that we can hit the schedule,” Schrader said.
Blue Canyon also is leaning on Raytheon’s supply chain expertise. “They help us focus on things like long-term agreements and negotiations with our subcontractors, so they benefit, we benefit, and our customer benefits,” Schrader said.
NanoAvionics began bulk buying components in 2020. “Back then, we noticed the first signs of unusual market behavior and took steps to invest in our stock,” Regimantas Gervelis, NanoAvionics head of production, said by email. “The difference we see now when ordering a part or component is that it takes much more effort to achieve the same results. For example, it requires more calls and more persistence to buy some components.”
Xplore employees constantly check in with suppliers to get schedule updates. “I think that’s how any business has to be run right now, especially in the space industry,” said Lisa Rich, Xplore founder and chief operating officer.
Worse than delays and price hikes is uncertainty. AAC Clyde suppliers sometime can’t quote prices or commit to delivery schedules for future orders.
“It can be quite challenging,” Gomes said. “We have changed some designs. In other cases, we are placing orders in advance of needing anything that is long lead or on the critical path of design.”
Supply chain constraints are helping fuel a trend toward vertical integration in satellite manufacturing.
“This was already a significant trend before COVID and before the war,” Najjar said. “This is just going to become the new norm.”
Satellogic has a dedicated team managing its global supply chain, but it is largely focused on buying parts because Satellogic produces its own subsystems.
“Companies that are less vertically integrated are suffering a little bit more,” said Emiliano Kargieman, Satellogic founder and CEO.
Blue Canyon executives also see the benefits of vertical integration. “We’re more agile because of our components,” Schrader said. “That’s one of the reasons Raytheon procured Blue Canyon.”
This article originally appeared in the August 2022 issue of SpaceNews magazine.