Launching into an uncertain New Year

Despite the global economic downturn, the launch service providers are bracing themselves for another busy year but how will they weather the current financial crisis?

Proof that satellite systems and services are still in high demand can be found in the launch service providers backlogs. The major international providers have an impressive line-up of launches for the New Year. ILS presently has a backlog of 21 missions. Arianespace expect to go ahead with 27 launches into geostationary orbit, 8 government launches on Ariane 5 (six for the ATV) and seven dedicated Soyuz launches. Sea Launch also anticipates three launches from sea and 3-4 land-based launches from their site in Baikonour. So considering that other technology industries are preparing themselves to be hit relatively hard by the economic downturn, there are signs that the satellite industry, and therefore the launch service industry, could be fairly well insulated. Is this true?

From the operator’s point of view, according to a newly released report from Northern Sky Research, the fifth edition of ‘Global Assessment of Satellite Demand’, the main operators are feeling fairly buoyant. However, the report urges caution as they may be ‘yet to see any substantial impact from the major global downturn’ but this should be ‘taken with a grain of salt’. However, the market research and consulting firm says that their research does actually back up these claims.

This obviously bodes well for the launch industry with many pre-launch contracts signed. Demand for capacity for video distribution, DTH services, HD and also for other applications such as cellular backhaul, VSAT services and government and military is encouraging. It means the manufacture of new satellites that must be launched. Something that has been said over and over again recently is that the satellite industry has been through hard times before after the dot.com bubble burst and therefore feels bullish towards this crisis.

However, Frank McKenna, President of International Launch Services, told Satellite Evolution that despite the contracts that have been signed, there may be some delays as their customers seek out financing: “Since the subprime crisis in August 2007, ILS has been predicting a downward turn in satellite launches in 2011 and recent news is bearing this out. Several satellite operators have stated in December that they are postponing orders for new satellites. Launcher orders tend to lag satellite orders by about a year, so the drop off will be reflected in 2010-2011”.
Mr. McKenna continued: “The launch sector is relatively fragile and not totally rationalised as demand drops; one only needs to look at the publicly available financial disclosures. The market leader requires significant subsidies to financially break even and another has significant balance sheet exposure. Meanwhile the two major U.S. launch systems basically exited the unprofitable commercial market to serve a government market that has a better return to their shareholders. Launch providers such as ILS with substantial commercial and sustained government backlog with Khrunichev will fare best in this environment”.

So although signs for the satellite industry as a whole appear to be quite positive considering the situation the global economy finds itself in, the launch service industry could be feeling the effects well into the next 2-3 years. There are certainly exciting times ahead for the launch service providers with the introduction of new launch vehicles such as Vega and Angara, for example. However, there may be disappointment as well, resulting from the postponement and potential cancellation of missions – a direct result of the operators’ struggle to source finance.

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