Xtar’s Lack of DoD Business Sends Chilling Message

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A U.S.-Spanish joint-venture company that financed its own X-band communications satellite on the assumption that U.S. military orders would follow has failed to book any contracts with the U.S. Defense Department, company officials said.

Xtar LLC’s experience to date is viewed in the industry as a cautionary tale that will dissuade commercial satellite operators from taking similar risks.

Nine months after its first satellite was launched, Xtar is still waiting for its first U.S. military order despite previous indications from Defense Department officials that orders would flow once the spacecraft, Xtar-Eur, was in orbit, Xtar Chief Operating Officer Denis Curtin said.

“We have made lots of demonstrations of our capacity to the DoD, and they like what they see, but no capacity has yet been sold,” Curtin said here Nov. 7 at the SMi Global Milsatcom conference. I know a lot of companies in the U.S. and Europe are looking at this and say, ‘Xtar took the gamble.’ It’s kind of wait and see.”

Xtar, based in Rockville, Md., and Madrid, is 56 percent owned by Loral Space and Communications of New York and 44 percent by Hisdesat S.A., a consortium of Spanish companies.

The Spanish Defense Ministry is the anchor customer for Xtar. Spanish military authorities have booked much of the capacity on the Spainsat satellite, scheduled for launch in January or February, and also have leased several transponders on the Xtar-Eur satellite.

X-band is a portion of the radio spectrum reserved primarily for military use. It is covered by multilateral Status of Forces Agreements, a package of accords that eliminate much of the regulatory red tape in getting landing rights in a given coverage area.

Xtar-Eur demonstrations at U.S. Army sites have proved the system’s far-higher transmission capacity than the aging U.S. Defense Satellite Communications System spacecraft, which transmit in X-band, according to Xtar and U.S. Army officials.

Commercial satellite-fleet operators are looking closely at the Xtar experience to gauge whether they should take a similar gamble on launching satellites — not only in X-band — on the assumption of future U.S. Defense Department contracts.

The U.S. government, mainly because of the Defense Department, has become the largest single customer for global commercial satellite capacity. U.S. government officials say military use of commercial systems will remain high even after a new generation of U.S. military communications satellites is launched.

“There is still going to be a huge need for commercial capability,” said Richard W. McKinney, director of the U.S. Air Force Directorate of Space Acquisition.

McKinney told the conference that the U.S. government has no legal restrictions barring long-term contracts for commercial satellite capacity, but said U.S. budget procedures make such arrangements difficult.

The U.S. government’s disinclination to sign multiyear satellite-lease contracts despite its acknowledged long-term demand for capacity has long been criticized by commercial satellite operators.

In return for the predictability of multiyear commitments, these companies grant substantial discounts to their commercial broadcast customers and have offered the same to the U.S. government.

McKinney said the commercial sector will have to keep pressing the case before U.S. government agencies.

Col. Patrick Rayermann, chief of the space and missile defense division at U.S. Army Space and Missile Defense Command, agreed that “there is no absolute prohibition of multiyear leases, but there are some impediments.”

Rayermann said collating the different military services’ demand requirements into a single order that would justify a long-term lease has been difficult. “But we’re working on it,” he said.

Rayermann said Nov. 8 here that one way forward would be to permit a U.S. government customer to terminate a satellite lease to secure capacity somewhere else without the penalties that would be incurred if a commercial customer did the same thing.

Rayermann said capacity leased by the Defense Department often ends up being used less than half the time because demand has shifted to another area or dropped off in a way that could not be foreseen.

David Helfgott, president of Americom Government Services, a subsidiary of Luxembourg-based SES Global’s SES Americom division, said even a company like SES Global — which occasionally finances satellites well before they are booked — cannot take the kind of risk that Xtar has taken.

“We’re talking about a $250 million investment here,” Helfgott said. “Our finance committee wants to see some guarantee of business before signing off on a project.”

Richard DalBello, vice president of government relations at Intelsat General, a subsidiary of satellite-fleet operator Intelsat of Washington and Bermuda, said Intelsat too is concerned that building a satellite on speculation of U.S. government demand would be too risky.

Rayermann said it is too soon to say that Xtar will not find a big customer at the U.S. Defense Department.

“Xtar is a work in progress,” Rayermann said. “The U.S. Army has done experiments using Xtar to validate its performance, and we have seen it can provide a tremendous increase in throughput. [The Army] is looking to see if there are smart ways of using Xtar. But the enduring reality is that if I go up on [the Defense Satellite Communications System], I don’t have to pay for it.”

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