By Andrea Shalal-Esa
WASHINGTON Oct 20 The U.S. Air Force has talked
for years about attracting more companies to the military
satellite business to stir competition and cut costs. But
progress has been halting at best.
Now, just as the U.S. military is finally revamping its
approach, cuts in defense spending threaten to undermine even
the modest progress that is being made.
Billions of dollars of new contracts are at stake, both for
legacy satellite and rocket launch providers such as Lockheed
Martin Corp and Boeing Co, and newcomers trying
to break into the market.
The Government Accountability Office, a congressional
research arm, last month estimated that the U.S. military, NASA
and other government agencies would spend $44 billion just to
launch satellites over the next five years.
Billions more would be spent on building the spacecraft.
But military and industry leaders say the efforts to save
money and attract competitors may falter without the seed money
needed to work on prototypes and projects studying whether
smaller, cheaper satellites can provide the missile warning,
weather forecasting and protected communications services now
handled by complex, large satellites that each cost billions of
"Any delay in getting a budget means that I lose the
opportunity to get those activities going or to sustain them,"
Lieutenant General Ellen Pawlikowski, who runs Air Force Space
Command's Space and Missile Systems Center, told Reuters.
"If I don't do those things, then I don't have the answers
to do anything but go build clones" of existing systems, which
would undermine the Air Force's efforts to use new developments
and cheaper alternatives developed in the interim.
Executives at smaller companies such as Exelis Corp
and Harris Corp voice similar concern.
"When budgets get tight everybody hunkers down and doesn't
do anything new and creative," said Adam Harris, vice president
for government sales at privately held Space Exploration
Technologies, or SpaceX, which has invested about $1 billion to
develop new rockets and associated infrastructure to launch
satellites for NASA and the U.S. military.
Harris and others say tighter budgets could worsen problems
already faced by the smaller companies, including rules that
still favor dominant players such as Lockheed, Boeing and
Northrop Grumman Corp.
U.S. officials insist they are committed to creating more
competition and benefiting from innovations in the commercial
market. But they say satellites are so vital to national
security that they must move ahead judiciously.
"We are very serious about this, and I think we do have
evidence to show we are driving this way," Pawlikowski told
Reuters in a recent interview. "But I also can't put at risk the
potential loss of a billion-dollar satellite."
NEW POLICY SLOW TO TAKE EFFECT
The Air Force has in recent years mapped out how new players
can get into the rocket launch business, and plans to award some
smaller contracts for putting government cameras and other
sensors on commercial satellites. But those moves have taken
years longer than many even in government had hoped.
The new approach, called "disaggregation," uses smaller,
less complex satellites for some missions. These can be built
more quickly and launched on less costly rockets.
The change would make the U.S. satellite network more
resilient to enemy attacks by spreading tasks over more
platforms, making it harder for one disruption to take out a
large swath of capability. That's seen as critical, given moves
by China and others to develop ways to disrupt U.S. satellites.
It would also give the Pentagon more budget flexibility,
allowing it to buy needed satellite capacity one piece at a
time, instead of having to fund the mega-satellites it now uses,
said Pawlikowski. She cautioned, however, that the overall cost
of space programs might not fall dramatically.
One key part of the Air Force's new approach is aimed at
reducing the cost of launches provided by the current sole
provider, a Boeing-Lockheed joint venture called United Launch
Alliance (ULA), by bringing in new entrants and buying numbers
of launch services at a time to capture economies of scale.
Boeing and Lockheed used to compete for launch contracts but
won approval for the venture in 2006 after they promised the
move would save money.
Now SpaceX and Orbital Sciences Corp are trying to
break into that business.
SpaceX, which has developed a rocket big enough to launch
even large-scale U.S. government satellites, has been awarded
several Air Force contracts to launch smaller-scale
demonstration satellites, but it still has hurdles to clear
before it can compete for launches of larger satellites.
Orbital builds medium-sized rockets but hopes that moves
into smaller satellites will allow it to get a share of the
lucrative launch market as well.
The current Air Force plan would give the ULA joint venture
36 more launches in coming years, while making 14 launches
potentially available to new entrants starting in 2017.
Harris of SpaceX said ULA also received about $1 billion a
year in "launch capability" funding on top of launch contracts.
"The business impediments are still definitely there,"
Harris said. "It's not a level playing field."
Orbital Sciences, which builds the Antares rocket, said the
government's efforts were well-intended, but it continued to
lock in "block buys" of heavy launches by ULA instead of moving
to less expensive commercial options.
"Total mission costs are not being addressed in an
aggressive and meaningful way when block buys of launchers that
each cost hundreds of millions of dollars are locked in for the
next decade, at a time when new lower-cost, commercially based
alternatives are being successfully introduced," the company
said in a statement provided to Reuters.
Orbital is also hampered by a requirement that government
satellites be prepared for launch while standing up as opposed
to lying on their side, a practice more common in the commercial
Such rules make it difficult for smaller firms to compete,
said Brett Lambert, who retired in August as the Pentagon's
industrial policy chief.
"This department has been ... amazing at making sure that we
open the door to competition, but what we weren't expecting ...
is that there's a screen door - and that screen door is about
process," Lambert told Reuters. "We're working on it, but it
Still, Harris, Exelis and others are keeping close watch on
the reform drive, eager to benefit from more competition.
Lockheed, Boeing and Northrop are also jockeying to maintain
their market position by developing smaller satellites, and
exploring options in the so-called hosted payload market, in
which government sensors can be loaded on commercial satellites.
Lockheed, for instance, is cutting costs throughout its
satellite business while also working to expand options for
hosted payloads, said Mark Valerio, vice president and general
manager for Lockheed's military space line of business.
SATELLITE LITMUS TEST
One litmus test is in how the Air Force proceeds with the
need to develop new weather forecasting capabilities. Eric
Webster, vice president and director of weather systems at
Exelis, said he worried that budget problems could delay the Air
Force's effort to replace aging military weather satellites.
Decisions on that program are due this fall.
A complex $15 billion satellite system that was being
developed by Northrop Grumman for the Pentagon, NASA and the
National Oceanic Atmospheric Administration was broken up by the
White House in 2010, and the military part was later canceled.
Continued budget cuts could reduce the chances of a new
program since weather forecasting needs are generally a lower
priority than missile warning or secure communications.
"The option they keep looking at is, maybe we won't do
anything," Webster told Reuters in an interview, referring to
Air Force and Pentagon officials.
"The weather satellites are a microcosm of the larger issue.
There's interest and maybe a little intent on how to do things
differently, but there certainly hasn't been a full commitment,"
Exelis is working on two contracts to study different
approaches to supplying the needed weather data, instead of
building another large-scale weather satellite.
One proposal calls for the U.S. military to pay for imaging
sensors that would be launched by Canada on telecommunications
satellites flying over the earth's poles.
Webster said the Canadian satellite approach would save a
lot of money, but still required investment from the U.S.
military at a time when even relatively small programs in
hundreds of millions of dollars are under extreme scrutiny.
Douglas Loverro, the Pentagon's point man for space policy,
acknowledged that budget cuts could slow that kind of
innovation. But they could also build momentum for change.
"I don't think it changes the ultimate strategy that we're
pursuing," Loverro told Reuters in a recent interview.
"In some ways, it provides an impetus to go ahead and get
you there faster because you have to save money."