The Final Frontier of the Private Sector

Space is a really big business. But predicting the size of the commercial space market is tricky.

Governments and military services are still the big players, and when economies contract, so do space budgets.

NASA has turned to promoting private space companies for the very reason that its budgets are always uncertain.

3,164 “space payloads” will be built and launched into Earth or space orbits by 2032.

That said, expansion of Earth-orbit satellite technology and services is a certainty.

There are more than 420 satellites in geostationary orbit alone. There are more than 2,300 satellites in orbit around the Earth, and none of them has a life expectancy of much more than 20 years, with the average life somewhere between 10-15 years.

That’s a lot of business without counting objects sent into outer space for scientific purposes.

Teal Group Space is a company in Virginia that makes its living by counting such things.

In November, the firm identified 3,164 “space payloads” that will be built and launched into Earth or space orbits by 2032. The value of these objects is $235 billion.

Teal estimates 481 payloads will be launched in 2014, 481 in 2015 and 389 in 2016.

The numbers start to decline after 2016, to only 85 in 2032, because the farther out you go in years, the less likely it is that a firm has announced its launch.

The extraordinary number here is that 85 payloads are already scheduled for the year 2032.

Notice that payloads are different from launches. In 2013, there were 78 rocket launches to orbit. At least three failed — a fourth has not been confirmed.

Rockets typically carry more than one satellite now, as piggyback rides come at lowered costs. Some launches release a lot of mini-satellites, which increases the number of payloads in a year.

Teal reports that more than a third of the spacecraft are commercial, a third are civil and a third are military. More than two-thirds of them are designated for low Earth orbit (up to 1,200 miles above the planet).

Yesterday, I talked about how the success of two U.S. private rocket companies, SpaceX and Orbital Sciences, is no accident. (See here: “One Giant Leap for Space Exploration”)

Here’s what happened…

Seven years ago, NASA came to the conclusion that it could not get enough funding from Congress to accomplish its goals. So it purposely set out to provide funding and milestone payments to private companies in an effort to encourage them to build their own spacecraft to supply the International Space Station, a significant part of NASA’s overall budget.

Both companies deserve extraordinary credit for getting to where they are today, but they are where they are because of Big Government contracts. Neither SpaceX nor Orbital would be delivering cargo to the International Space Station this early without funding from NASA under its Commercial Orbital Transportation Services (COTS).

For example… SpaceX received $396 million from NASA to design and produce its Falcon 9/Dragon system. Orbital received $288 million under the same program to produce Antares/Cygnus.

SpaceX’s contract for deliveries with NASA is for 12 missions at $1.6 billion. Orbital’s contract is for $1.9 billion and eight deliveries.

When NASA proposed the COTS program in 2006, 20 firms submitted proposals. Another seven threw their hat in the ring in 2007. Besides longtime space contractors Boeing and Lockheed Martin, serious competitors included Andrews Space, Spacehab, Rocketplane Kistler, SpaceDev and PlanetSpace. Every serious contender had a partner that had been in the space business a long time, like Arianespace and Lockheed Martin.

Orbital and SpaceX, however, proceeded on their own, and dared to design and build their own rockets. The other serious contenders relied on a proven, tested rocket such as Hercules, Delta IV, Athena III and the mighty Atlas V produced by the United Launch Alliance, a consortium of Lockheed Martin and Boeing.

In 2012, NASA declared its COTS system a success and announced it would no longer purchase resupply missions from the Russian Federal Space Agency, which had provided Soyuz and Progress spacecraft. NASA committed to SpaceX and Orbital exclusively for supply missions to the Space Station, with the exception of a few specific missions awarded to the Japan Aerospace Exploration Agency and the European Space Agency.

The story of these two companies keeps reminding me of Aesop’s fable about the tortoise and the hare. In many ways, SpaceX has out-engineered and outsmarted Orbital in a third of the time. But SpaceX is on a different trajectory from Orbital, and it is vertically focused on larger rockets and human space travel.

Orbital is diversified, scrappy, conservative and smart. It’s not an aggressive growth company, yet Orbital has grown slowly and surely over the years. It has grown from an upstart to an important player in the world of rocketry and satellites. Instead of starting with deep pockets, as SpaceX did with Musk, Orbital started with three students fresh out of a Harvard MBA program who set up shop in a spare bedroom with pooled savings of $500, a few credit cards and a dream that spaceflight could be done better and cheaper by a private company. One of those three people, David W. Thompson, is the CEO of Orbital.

The key thing about the space business is the learning curve. Every year that passes, every launch, every satellite built ads to an almost invaluable knowledge base that can be gained only by experience.

Best regards,

Stephen Petranek
for The Daily Reckoning

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