Global Launch Services Prospects in a Declining Commercial Satellite Market

Abstract

The overly optimistic prospects of increased demand in the commercial launch market, as indicated by 1998 Federal Aviation Administration (FAA) and Commercial Space Transportation Advisory Committee (COMSTAC) forecasts, have been replaced by declining commercial market prospects in the most recent forecasts. The decrease in demand for commercial launch services can be attributed to a trickle-down effect of declining markets throughout the commercial satellite industry value chain. In satellite services, failed low Earth orbit (LEO) constellation business plans and a telecom industry meltdown have led to a lack of demand for new transponder capacity. This lack of new demand, along with advances in transponder efficiency, have resulted in a saturation of in-orbit transponder capacity. Satellite manufacturers experienced a corresponding decline in new commercial satellite orders. Finally, the lack of new satellites translated into a decline in growth for satellite launch services. In addition, past satellite and launch vehicle reliability issues have severely impacted the space insurance industry, driving up rates and lowering the insurance capacity available for space launch and in-orbit coverage. This, in turn, drove up the total cost and risk to satellite end users and satellite operators, further impacting the demand for launch services. The optimistic commercial satellite market environment of the 1990s led to overcapacity in today’s launch services industry. In 1998, the launch industry had experienced nearly 300 percent growth in commercial satellite launches compared to 1993. A similar growth trend in number of launches, as well as growth in payload size, was projected over the next 5 years. The historical and projected future growth convinced many launch service providers to invest in new or upgraded launch vehicles during the 1998 time frame. In recent years, we have seen the introduction of four new or upgraded launch vehicles: the Delta IV, Ariane 5 ECA, Atlas V, and H-IIA. In addition, Japan, China, and India are considering broadening their role in the commercial launch services market. Overcapacity combined with a decline in demand has led to commodity pricing of launch services. Severe price pressure combined with falling launch rates leaves the launch industry (and its shareholders) in a dire position. Similar to other participants in the commercial satellite value chain (satellite manufacturers, operators, and end users), some sort of rationalization should occur to stabilize this industry in the current market environment, especially since recovery of the commercial satellite market is years away. In the launch services industry, however, the needed rationalization is offset by the role of national interests. National pride, national security needs, nonaligned country demand, and government subsidization will influence participation in the global launch industry.