Space Firm's Outlook Hampered by New Rocket Costs, Economy

STRASBOURG, France - Orbital Sciences Corp. warned investors on Feb. 19 that the company?s spending on the new Taurus 2 rocket and?Cygnus cargo-supply vehicle it?is building to service the International Space Station will continue as a drag on profit in 2009, and that the commercial satellite market is likely this year to show the effects of a poor global economy.

In a conference call with investors, Orbital officials said that after 2009, their spending on Taurus 2 and Cygnus will fall off as the systems prepare for operations, permitting the Dulles, Va.-based company to return to revenue and profit growth.

Orbital Chief Executive David W. Thompson said Orbital likely will show ?double-digit revenue growth, and a substantial profit margin rebound for 2010 and the years beyond? once the Taurus 2-related development is?completed.

Orbital is in the midst of one of the most aggressive hiring programs in the space industry. The company increased its headcount by 600 in 2008, including 135 in the last three months of the year, and the work force now totals about 3,600, Chief Operating Officer J.R. Thompson said. Orbital plans to add 350-400 new employees in 2009, he said.

J.R. Thompson said the Taurus 2 development schedule remains tight but that the company believes the remaining design reviews and vehicle assembly can be completed in time for an inaugural flight in late 2010.

Orbital booked roughly?$2?billion?in Taurus 2 and Cygnus orders from NASA in late 2008 as part of a Commercial Resupply Services contract to deliver cargo to and from the International Space Station. Orbital is facing a delay in revenue from the contract following a bid protest?by Planetspace Inc., a Chicago-based firm that submitted a cargo-resupply proposal that scored higher and cost less than Orbital?s.

David W. said the protest should be resolved by April and that he expected NASA?s choice to be confirmed then. After its 2010 demonstration flight, Orbital is contracted to launch eight Taurus 2 Cygnus missions between 2011 and 2015.

Thompson said Orbital, which continues to increase the profitability of its commercial geostationary communications satellite product, expects a global economic downturn to reduce the number of commercial contracts ordered in 2009, to between 17 and 20 compared to 25 in 2008 and 23 in 2007, by Orbital?s count.

While the major satellite-fleet operators have said they are continuing their fleet expansions, the start-up operators, whose entry into the market has accounted for two or three satellites per year in recent years, likely will be unable to secure financing to order spacecraft in 2009, Thompson said.

In addition, he said, the market this year probably cannot count on the decision by governments to sponsor commercial telecommunications satellite development as a symbol of national pride and technological standing. Such satellites, often backed by dubious business plans, have been a feature in recent years in several nations, including Venezuela, Nigeria and Kazakhstan.

Orbital is maintaining its goal of securing three new commercial satellite orders in 2009, one of which will be an option exercised on an existing contract. Orbital has signed a contract for five satellites, including options, with SES of Luxembourg. SES has said it is all but certain to exercise all its options under the contract. Orbital booked orders for four commercial telecommunications satellites in 2008.

Orbital Chief Financial Officer Garrett E. Pierce said Orbital in late 2008 further increased its operating profit margin in commercial telecommunications satellites?to 7.6 percent. Thompson said further increases in profitability are likely in 2009 and 2010. The company?s last two commercial satellites, NSS-9 and Optus D3 for SingTel Optus of Australia, were completed in 23 months, which was ahead of schedule, Thompson said.

Orbital is alone among the principal U.S. and European commercial satellite manufacturers to regularly announce its profit margins, but industry officials said the company?s generally small satellites are built more profitably than the larger spacecraft built by Orbital?s competitors.

The NSS-9 satellite owned by SES, which was launched Feb. 12, is the 16th commercial geostationary telecommunications satellite built by Orbital.

Thompson said the space-spending priorities of U.S. President Barack Obama are likely to be positive for the company, with increased spending on Earth observation satellites at NASA and the U.S. National Oceanic and Atmospheric Administration more than compensating for any reductions in missile?defense spending.

The most likely cuts in the $9 billion Missile Defense Agency budget could affect Orbital?s work on the Kinetic Energy Interceptor and Ground-based Midcourse Defense systems, but early indications are that these effects will not be dramatic for the company, he said.

Orbital reported 2008 revenue of $1.17 billion, a 14 percent increase over 2007. Operating income, at $89.9 million, was up 11 percent over the previous year.

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