Launch-services suppliers found themselves on the defensive the week of Sept. 8 as satellite-fleet operators and satellite manufacturers said rocket reliability and supply was the Achilles heel of the otherwise robust commercial telecommunications satellite market.
Repeatedly during the World Satellite Business Week here Sept. 8-11 organized by Euroconsult, satellite operators said the availability of rockets is the principal risk to their growth prospects.
One operator went so far as to suggest that rocket builders build an inventory of vehicles that would be ready for launch in the event of a failure a proposal that a commercial launch-services company official said is "beyond belief. Has he looked at our operating margins recently? Who is supposed to finance that inventory?"
Satellite manufacturers joined the debate, and most of them pointed to rocket builders as the biggest problem currently facing the industry.
"The biggest problem for us is the launcher issue," said Evert Dudok, chief executive of Astrium Satellites of Europe. "The Ariane 5 vehicle [Astrium's sister company, Astrium Space Transportation, is the Ariane 5 prime contractor] is increasing its launch rate from seven this year to eight in 2009, but the other two [principal commercial] vehicles, Sea Launch and Proton, have had a big problem with failures."
Stephen T. O'Neill, president of Boeing Satellite Systems International of El Segundo, Calif., asked: "How did we, as an industry, get to where we have only three launch-vehicle providers? I've said it before: Launcher availability is a big issue."
Satellite operators, including Intelsat Chief Executive Dave McGlade and Eutelsat Chief Executive Giuliano Berretta, said launch prices have skyrocketed in the last couple of years, well beyond the rate of inflation. Eutelsat Strategic Planning Director Yves Blanc said the problem is "there is no real certainty in the schedule. Access to space is a real challenge for us."
Several officials noted that in a normal market, surging demand would trigger, sooner or later, a corresponding increase in supply and lead to a price drop. But that is not the case in the global commercial launch market, at least not yet.
"Somewhere along the line, the laws of economics don't apply when it comes to launch vehicles," said Marshall Byrd, general manager of satellite manufacturer Lockheed Martin Commercial Space Systems of Newtown, Pa.
The three principal suppliers of rockets for commercial telecommunications satellites Arianespace of Evry, France; Sea Launch Co. of Long Beach, Calif.; and International Launch Services (ILS) of Reston, Va., all took issue with what the satellite operators and manufacturers were saying.
Arianespace Chief Executive Jean-Yves Le Gall said the current market remains one in which there is an oversupply of rockets. "The demand forecasts all say the market is around 20 commercial satellites per year," Le Gall said. "But if you add our capacity and that of Sea Launch and ILS, you come to a total of 30 to 40 launches per year. If the market is 20 or so per year and the supply is more than 30, I call that a situation of oversupply."
Le Gall said the apparent anomaly of rising prices in an oversupplied market is merely a reversion to mean as the market recovers from a period of abnormally low launch prices several years ago.
Sea Launch Chief Executive Kjell Karlsen agreed. "We are now working through a backlog that includes contracts in which we are losing money," Karlsen said in a Sept. 11 interview. "The more recent contracts reflect what I consider to be a relative equilibrium between supply and demand."
ILS Chief Executive Frank McKenna said the prices of several years ago were too low to permit launch-vehicle suppliers to remain in the market over the long term. Recent prices, he said, reflect the understanding of both providers and suppliers that squeezing the supplier base too hard is in no one's long-term interest.
Le Gall and Karlsen agreed that prices likely will continue to rise, albeit modestly, in the coming months. "Raw materials costs alone will force prices up a bit," Karlsen said.
Arianespace and Sea Launch are also developing new capacity to launch lighter satellites. Russia's Soyuz rocket is being introduced to Europe's equatorial Guiana Space Center spaceport in late 2009, and Sea Launch is introducing its Land Launch variant, operated from Russia's Baikonur Cosmodrome in Kazakhstan, this year.
Karlsen said Sea Launch, which is recovering from a supply-chain hiccup that reduced its production capacity, expects to conduct three heavy-lift Sea Launch missions in 2009, and three Land Launch missions. Sea Launch's regular capacity is six per year for the ocean-launched heavy-lift Zenit 3 SL per year.
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