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SES\u2019s plan to launch its SES-8 satellite on a SpaceX vehicle may be the first sign that more competition \u2014 and possibly lower prices \u2014 could be coming to the launch services market.<\/p>\n
The major FSS players have been at the forefront of the push to add more launch vehicle options around the globe, and the development of SpaceX could be the catalyst for the lower prices the satellite operators have been seeking. \u201cThere is no question that launch services have been too expensive. They have been more expensive in the United States than internationally, but nevertheless expensive,\u201d says Gwynne Shotwell, president of SpaceX, which offers launches aboard its Falcon 9 rocket for $50 million to $60 million. \u201cBut we are competing internationally now, and we are winning. I think there is a place for a launch services provider that offers the same quality of service but at lower prices. The market is certainly responding to our being here.\u201d<\/p>\n
Other launch providers do not believe that launch service prices are too expensive. \u201cIn fact, the price of launch services has decreased considerably in recent years. For instance, today, with the 10-ton capacity Ariane 5, the price of a launch is only slightly more than it was 10 or 15 years ago with the Ariane 4, which offered a payload capacity of only 5 tons,\u201d says Jean-Yves Le Gall, CEO, Arianespace. \u201cThis translates into a price per kilogram reduction of one-third over a decade. I can understand that operators are always looking for the lowest price, but when we are talking about launch services, prices have dropped significantly, while at the same time quality has improved.\u201d<\/p>\n
Le Gall says Arianespace and ILS have done a good job in covering market needs. \u201cArianespace can launch 12 to 14 commercial payloads a year and ILS 8 to 10. Market demand is roughly less than 20, so that is largely covered by the current supply situation. There is healthy competition between ILS and us. Each contract is fiercely contested, so I believe that industry gets both fair competition between suppliers and the guarantee of a launcher always being available. From my point of view, this situation is very good for industry.\u201d<\/p>\n
Arianespace and International Launch Services (ILS) have been the dominant forces in the commercial launch services market. Frank McKenna, president of ILS believes that there has been a \u201chealthy level\u201d of competition in the market. \u201cWe don\u2019t believe we are actually in a duopoly. I think there are clear alternatives in the industry. At the SATELLITE 2011 panel, there were executives from China Great Wall, SpaceX, Lockheed Martin, Sea Launch, Arianespace. All of those vehicles play different segments of the market. The Sea Launch, ILS and Arianespace products are for heavy lift. Atlas will occasionally play in that market. The other vehicles are moving up from small to medium systems. That, of course, would be SpaceX and China Great Wall and Soyuz. That is a lot of competition.\u201d<\/p>\n
Marco Caceres, a satellite analyst at the Teal Group, believes the current market situation has been a mixed situation for the satellite sector. \u201cIt is bad for the industry in the sense that it keeps launch service prices relatively high,\u201d he says. \u201cIt is good for the industry in the sense that those two programs are busy. They allow themselves to get into a launch rhythm, which supposedly will keep them sharp, and there should not be too many launch failures. Proton has had a number of launch failures in the past few years. Launching a lot does not guarantee you won\u2019t have launch failures, but it certainly helps. It is better to be busy than launching two to three times a year.\u201d<\/p>\n
McKenna is concerned that a flood of new launch capacity will enter the market when there is not enough business to sustain it. \u201cI do see we are at the peak of the replacement cycle right now. We predicted this three to four years ago. The underlying economics of the business are very clear,\u201d he says. \u201cThe capital plans of large operators cannot be sustained as they have been in the last three years, where there have been 30 satellites per year in terms of order and 25 launches per year. I see that coming down as we come out of this cycle. I think the cycle will start to drop in 2014\u20132015, and if capacity is brought on as the cycle drops, that creates a significant disallocation of resources. What we will see is companies exiting the market again. Without predicting how that will play out, that is a natural result of oversupply.\u201d<\/p>\n
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For SES and Intelsat, the two largest FSS operators, procuring multiple launch services is always a key component of their business plan. Kenneth Lee, senior vice president of Space Systems for Intelsat, says, \u201cA few years ago, there was a huge concern on our part because the launch vehicle prices were skyrocketing. It was so inconsistent with inflation rates or any other metrics. They were looking at market-driven pricing, and we were extremely alarmed. That is still the case today where launch vehicle pricing is still significantly higher than what it should be based on the inflationary rate.\u201d<\/p>\n
Lee believes operators such as Intelsat have been \u201cvulnerable\u201d with so little competition in the market. \u201cThere are two concerns having a duopoly. Firstly, these are the two major suppliers to launch large satellites. And having two means that there is limited competition and the prices are reflective of that type of market. They tend to and can price much higher as a result,\u201d he says. \u201cSo operators are much more vulnerable. The other issue is reliability and assurance of launch when you need it. If you have a launch vehicle anomaly, we don\u2019t launch again until we find out what happened. That downtime could be as short as a month or as long as a year or anything in between. Sometimes you have no recourse but to wait if there is an anomaly. Ariane has limited launch opportunities and so does a Proton and that creates additional risk for us. That is just as concerning as the price point.\u201d<\/p>\n
Michele Franci, senior vice president, planning and procurement, SES Engineering, calls it a seller\u2019s market right now. \u201cThe issue is not so much whether they are too expensive or not expensive. The real issue right now is that the market is very limited. It is a seller\u2019s market, so the prices of launch services move in an erratic way and we don\u2019t really have good control of it. The lack of competition in launch services is obviously a big factor. If you look today at the costs of a satellite program, the launch services part is very important. It can make or break a business opportunity. So, in that sense, they are expensive,\u201d he says.<\/p>\n
The decision to announce a launch with SpaceX has caught many by surprise, given SES\u2019s somewhat cautious reputation. In terms of why they did the deal, \u201cIf you remember we were the first ones to fly on a Proton. So, in that sense, it not like we don\u2019t try things when we think they are correct. In this case, we did pretty extensive due diligence and we believe what they are trying to achieve is sound. They have a very good engineering team in place. The opportunity was right for us. Last but not least, the terms were pretty competitive as we were one of the first,\u201d Franci says. \u201cWe encourage diversity and competition in the launch market. Of all the new players, we thought SpaceX was the most promising. If you can get a third player in the market, which is a bit different from the usual ones, it is going to be good for the industry.\u201d<\/p>\n
Lee says it is unlikely that Intelsat will go with a launch provider outside of Arianespace, ILS or Sea Launch any time soon. He adds, \u201cRealistically, I don\u2019t see us doing anything in the next couple of years for sure. It all depends on things such as U.S. government policy and how well they do with their development. We don\u2019t really have a set time frame per sae. We are continuing to monitor their progress. We are very conservative. We need to make sure our assets are launched successfully without undue risk. We are not going to jump in just because things are a little cheaper \u2014 we need to see reliability demonstrated over time.\u201d<\/p>\n
Kjell Karlsen, general manager of Sea Launch, says margins are already tough for launch service providers. \u201cI understand that the prices of launch services represent a significant element of our customer\u2019s capital expenditure and closing business cases can be tough, however, I don\u2019t believe they are justified to focus on this issue. What you have seen over the last 10 years is that the financial returns for the industry\u2019s main launch service providers have been non-existent. At the same time, operators continue to deliver record financial results,\u201d he says.<\/p>\n
McKenna says current pricing mechanisms are an accurate reflection of the current state of the market. \u201cThe value of launch is being sorted out between the interaction of the operators and the suppliers. There is a clear recognition on the behalf of operators that commercial launch is not a commodity. It is not something that will be delivered by governments and subsidized to a point where it is more like a commodity. It is a highly technical product. There is risk and expense associated with it, and there are relatively long life-cycles with it. It is not like the technology curve can move a significant advantage in the cost structure or capability of these vehicles on a dime. Having said that, the industry does progress and make improvements in their systems, which all the providers have largely done,\u201d he says.<\/p>\n
Le Gall admits that due to financial issues, Arianespace is unlikely to look to drop prices in the near-term. \u201cOur prices are fair and it is well known that Arianespace is not making money, which I regret. In fact, for the past few years we have posted losses because of various problems that impacted our manifest. Our prices clearly reflect the quality we deliver to operators, so we are not considering a drop in our prices,\u201d adds Le Gall.<\/p>\n
Caceres understands why ILS and Arianespace have adopted such pricing policies. \u201cThe fact there is only two launch service providers and that there is such huge demand in the market means that they have succeeded in maintaining launch service prices at a very high rate. I am not sure I would necessarily blame them for that. Certainly prices have been kept high. There is no advantage to lowering prices, as both have more than enough business. Even if they raised their prices, it does not mean they would get less business. There is plenty of business for everybody.\u201d<\/p>\n
St\u00e9phane Gounari, a satellite analyst at NSR adds, \u201cLaunch prices have proved to be remarkably stable over the years, however, the current trend of low-cost launchers operated by private operators is not a novelty into the launcher market and should change the game. Therefore, commercial launch prices will see some pressure, but towards the mid-low end of the spectrum with the top-tier communication and government satellites still paying top dollar for the more reliable or captive systems. In the long run, if new launchers prove their mettle, this will bring down overall launch costs considerably.\u201d<\/p>\n
Karlsen believes that it is important for the industry to have more options other than ILS and Arianespace. \u201cI don\u2019t think it is in the operator\u2019s long-term interest to have a duopoly industry structure. Paraphrasing a former executive vice president of ILS, \u2018A duopoly is the next best thing to a monopoly\u2019. It is the nature of our business that from time to time, every launch vehicle has had issues, and this could limit access to space and be detrimental for the industry,\u201d he says. A vibrant Sea Launch is good for the market, according to Karlsen. \u201cI have met most of the operator CEOs in Washington, D.C. recently, and everyone is consistent in their message. Everyone wants to see Sea Launch back in the market to provide the necessary access to space. We are building our plans on long-term supply contracts managed by our Russian partner, Energia. We are building up our backlog as we speak. We will take it step by step. We will have two launches this year, three next year and then we are back to our full capacity of five by 2013. However, we can maintain a healthy business with less launches than that.\u201d<\/p>\n
Shotwell believes the launch services market is demanding an effective third player that can launch various types of satellites. \u201cLaunch [cost] is by no means the driver in the lower to mid-level mass class, but launch is a huge driver in cost and price for the very heavy satellites, so those over 6.4 tons. We have only one solution there and that is Arianespace. That is terrible and we are going to fix that. \u2026 New players are great for the market. Secondly, the optimum number of players for the market is three,\u201d she says.<\/p>\n
In April, SpaceX unveiled its Falcon Heavy rocket and expects the first demonstration launch to take place as early as 2013, CEO and CTO Elon Musk says. The vehicle is designed to carry more than 58 tons (117,000 pounds) of cargo into low-Earth orbit, and SpaceX estimates that the average cost of a mission would be between $80 million and $125 million, and the vehicle initially would be offered as an alternative to Lockheed Martin\u2019s Atlas 5 and Boeing\u2019s Delta 4 vehicles that conduct launches for the U.S. government under the United Launch Alliance joint venture. \u201cA Falcon heavy launch will cost $1,000 per pound to orbit, which is one-third of the cost of United Launch Alliance\u2019s Delta 4 Heavy and can carry twice as much cargo and provide twice as much lifting, as the Delta 4 is only capable of carrying 25 tons,\u201d Musk says. \u201c\u2026 This provides six times more cost efficiency over the Delta 4 for satellite operators.\u201d<\/p>\n
Outside of the United States, Europe and Russia, FSS operators have expressed interest in China as a launch vehicle supplier, but political issues have so far stopped China from playing more of a role in the commercial launch market. Caceres believes that this could change. \u201cIf China continues to have a robust launch industry, I imagine it will only be a question of time before European satellite companies and even North American satellite companies decide to launch on Long March. I guess the question is, \u2018Will the North American companies be allowed to launch on Long March?\u2019 If you can set aside politics, I don\u2019t see any reason why China cannot be a major, major player. If Long March becomes a competitive program commercially, I imagine the prices for launch services will come down significantly, and very quickly,\u201d he says.<\/p>\n
Franci says SES would like the option to use this vehicle in the future. \u201cChina probably has one of the best vehicles available, and the day the U.S. government lifts the limitations, we and everyone else would rush to use it.\u201d<\/p>\n
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The launch services market could be on the verge of change, but it still looks to be years before any real impact is seen on launch prices. In the next few years, Sea Launch will have to demonstrate that it can engineer a recovery, while SpaceX will have to prove that it can move beyond demonstration launches and perform missions for paying customers. Then it will take Sea Launch and SpaceX many years to develop a track record of reliability that Arianespace and ILS already own. The incumbents will continue to capture the lion\u2019s share of the launches for several years, but the pressure being applied by the potential of new entries will have an impact on launch prices and the market as a whole.<\/p>\n
To comment on this article, visit Mark Holmes\u2019 blogat www.SatelliteToday.com\/blog\/?p=90Mark Holmes is Via Satellite\u2019s Associate Editor.<\/p>\n","protected":false},"excerpt":{"rendered":"
SES\u2019s plan to launch its SES-8 satellite on a SpaceX vehicle may be the first sign that more competition \u2014 and possibly lower prices \u2014 could be coming to the launch services market. The major FSS players have been at the forefront of the push to add more launch vehicle options around the globe, and […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[2],"tags":[],"class_list":["post-84918","post","type-post","status-publish","format-standard","hentry","category-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/84918"}],"collection":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/comments?post=84918"}],"version-history":[{"count":0,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/84918\/revisions"}],"wp:attachment":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/media?parent=84918"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/categories?post=84918"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/tags?post=84918"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}