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

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

In aconference call with investors, Orbital officials said that after 2009, their spendingonTaurus 2 and Cygnus will fall off as the systems prepare for operations,permitting the Dulles, Va.-based company to return to revenue and profitgrowth.

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

Orbital isin the midst of one of the most aggressive hiring programs in the spaceindustry. The company increased its headcount by 600 in 2008, including 135 inthe 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 newemployees in 2009, he said.

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

Orbitalbooked roughly?$2?billion?in Taurus 2 and Cygnus orders fromNASA in late 2008 as part of a CommercialResupply Services contract to deliver cargo to and from the International SpaceStation. Orbital is facing a delay in revenue from the contract following a bidprotest?by Planetspace Inc., a Chicago-based firm that submitted acargo-resupply proposal that scored higher and cost less than Orbital?s.

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

Thompsonsaid Orbital, which continues to increase the profitability of its commercialgeostationary communications satellite product, expects a global economicdownturn to reduce the number of commercial contracts ordered in 2009, tobetween 17 and 20 compared to 25 in 2008 and 23 in 2007, by Orbital?s count.

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

In addition, he said, the marketthis year probably cannot count on the decision by governments to sponsorcommercial telecommunications satellite development as a symbol of nationalpride and technological standing. Such satellites, often backed by dubiousbusiness plans, have been a feature in recent years in several nations,including Venezuela, Nigeria and Kazakhstan.

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

OrbitalChief Financial Officer Garrett E. Pierce said Orbital in late 2008 furtherincreased its operating profit margin in commercial telecommunicationssatellites?to 7.6 percent. Thompson saidfurther increases in profitability are likely in 2009 and 2010. The company?s lasttwo 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 isalone among the principal U.S. and European commercial satellite manufacturersto regularly announce its profit margins, but industry officials said thecompany?s generally small satellites are built more profitably than the largerspacecraft built by Orbital?s competitors.

The NSS-9satellite owned by SES, whichwas launched Feb. 12, is the 16th commercial geostationarytelecommunications satellite built by Orbital.

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

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

Orbitalreported 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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