Is commercial aerospace profitable? Who is making money? Who is losing money? Why do you think the entire industry is losing money? How can we truly “break through the closed business loop” in the future?
Today let’s talk: Are commercial aerospace companies profitable?
01
Panorama of the industrial chain
Before talking about making money, let’s first clarify the overall picture of commercial aerospace. Commercial aerospace is not simply building rockets and satellites, but a complete industrial chain ecosystem covering upstream, midstream, and downstream. The upstream includes raw materials, components and parts; the midstream covers rockets and satellites as a whole, measurement and operation control, ground stations and supporting services; the downstream involves satellite operations and applications, data services, space services and ground terminals. The profitability of different links in the commercial aerospace industry chain varies greatly. Most upstream manufacturers and midstream supporting companies have entered a period of stable profitability; while overall rockets, satellites and some downstream application fields are still in the high-investment, long-term construction stage.
02
Who is making money?
In the commercial aerospace industry chain, those who truly take the lead in achieving stable profitability, or even huge profits, are often the “hidden champions” who are deeply involved in upstream core links and some midstream supporting services. They firmly occupy a position in their respective segments by relying on technical barriers and stable orders. Take satellite power systems as an example, of which Dianke Blue Sky is a representative. Satellite power supply is called the “heart” of the satellite and plays a decisive role in the performance, life and mission success of the satellite. Whether it is navigation satellites or spacecraft, they are inseparable from stable and reliable power supply. The entry barriers to this market are extremely high, the number of suppliers is limited, and customer replacement costs are also high. Therefore, once entering the core supply chain, the company can enjoy stable orders and high gross profit margins for a long time. According to the prospectus of Dianke Lantian, revenue from 2022 to 2024 will be 2.521 billion yuan, 3.524 billion yuan, and 3.127 billion yuan respectively, with net profits of 209 million, 189 million, and 338 million respectively. Even in years when the overall aerospace investment fluctuates, profits can be stabilized. Similar is Sri New Materials, a core supplier of rocket engine thrust chamber materials. Its prospectus shows that its revenue from 2018 to 2020 was 492 million yuan, 566 million yuan, and 680 million yuan respectively; its net profits were 17.22 million yuan, 30.4289 million yuan, and 52.03 million yuan respectively, showing a steady growth trend. The commonalities of these “hidden champions” are obvious: focus on niche areas, high technical barriers, clear downstream customers (mostly rocket and satellite companies or national teams), stable orders and short payment cycles. They do not have to bear high risks such as rocket launch failure and satellite failure in orbit, but they can fully enjoy the market dividends brought by the expansion of the commercial aerospace industry, so it is easier for them to be the first to enter the profit range.
03
Who is losing money?
Compared with those “hidden champions” who are rooted in segmented links, “star companies” in the middle reaches and some downstream parts of the industry chain are burdened with huge profit pressure. Especially rocket companies and satellite companies, which are the core pillars of commercial aerospace, are also the most expensive and the longest payback period. Private rocket companies are basically still in the “burning money” stage of construction. The income brought by launch services is one-time and limited, and the initial investment in R&D, testing and fixed assets often costs hundreds of millions of yuan. Every launch is also accompanied by the risk of failure. Satellite companies are in a similar situation. The manufacturing cost of a single satellite is high, but the commercial realization speed of downstream applications cannot keep up. Another reason why the public feels that “commercial aerospace is not profitable” is that most of the listed commercial aerospace companies’ profitability and stock prices have not performed well, and stock investors have “suffered a lot.” According to the financial reports and announcements of listed companies, Aerospace Hongtu will lose 1.393 billion yuan for the whole year of 2024, and China Satellite is expected to lose 25.3 million yuan to 47.3 million yuan in the first half of 2025. Large investments, low gross profit margins, and high customer concentration make it difficult for these companies to survive in the capital market. The core dilemmas faced by these “star” companies are: high fixed costs, long investment payback period, technology iteration risks, fierce market competition, and immature downstream demand. Before the closed loop of the business model has been completed, they can only bite the bullet and move forward.
04
How to break the situation?
It is these “star companies” that the general public has the most contact with, and this is why they have the stereotype that the entire commercial aerospace industry is losing money. However, it is undeniable that the overall scale of commercial aerospace is not large, especially the downstream satellite application market is small and there are few scenarios. For commercial aerospace to move from “cost-burning expansion” to “sustainable profitability”, the key is to open the closed loop of the business model: 1. Expand the downstream application market. Currently, the downstream application market is in a “half-open” state. High-precision technologies in the upstream and midstream have not yet been fully commercialized. Satellite data prices are high and there are few application scenarios, making it difficult to enter the lives of the public. In order to amplify market demand, we must promote data cost reduction, product adaptation and scenario implementation, so that satellites can be fully integrated into daily scenarios such as transportation, agriculture, emergency management, and meteorological monitoring, and form a user group of sufficient scale. 2. Reduce costs. Whether it is a rocket or a satellite, if the company wants to make a profit, it must reduce launch and manufacturing costs so that the product can be replicated on a large scale. For example, reusable rockets can spread R&D costs over multiple launch missions, and mass satellite manufacturing can reduce the cost of a single satellite, so that healthy gross profit margins can be maintained under limited launch demand. 3. Expand the incremental market Commercial aerospace is not about entertaining oneself behind closed doors. It must rely on stable customer demand to go far. It is necessary to have a two-pronged approach of government orders and commercial orders, with government orders stabilizing the base and ensuring basic income, and commercial orders accelerating and opening up room for growth. At the same time, we need to expand overseas markets, take advantage of the communication and remote sensing needs of countries along the “Belt and Road” and developing countries, and form a diversified customer structure. In the future, whoever can simultaneously make efforts on the three tracks of “product reusability, downstream monetization, and market growth” will become the “king” of the industry. At that time, commercial aerospace will no longer be a “dream of burning money”, but a real future industry.
