Space and Satellite

Market Overview

The global space and satellite industry generates over $250B/year and its recent growth has outpaced most sectors of the economy. However, fundamental changes are occurring across the industry – creating growth opportunities, but also threatening core positions and revenue streams of many space and satellite companies. The most agile companies, including new entrants, will adapt and thrive with these changes; those unable to adapt will see their market positions erode and revenues and profits decline.

Commercial

Commercial markets are changing dramatically, dominated by the rise of consumer broadband services, video innovation and growth, increased mobility, hosted payloads and other creative partnerships, as well as changing ownership and vertical integration

The commercial satellite industry continues to perform extremely well: overall demand continues to grow, due in large part to the ongoing popularity of satellite TV and the growth in consumer broadband and mobile data services. The largest operators are right-sizing their fleets to improve profitability, even as small and regional players and new entrants fight for their share of the market, betting on innovative business models and technologies (e.g., ancillary terrestrial component and high-power/high-throughput technologies).

Vertical integration is also changing the industry, as firms like ViaSat and Hughes move to own and operate space segment, while continuing their legacy roles as ground equipment designers and buyers of space segment.

Globally, satellite manufacturing has seen a significant rebound. US providers have recently been regaining market share through the introduction of more capable and more affordable satellite buses, and may further benefit from proposed changes int eh US export regulatory regime. Manufacturers worldwide are using flexible financing and implementing or considering hosted payload strategies – once considered the province only of the satellite operator community – to improve their market positions. A wide range of options exists for both operators and manufacturers in terms of technologies, applications, and partnership arrangements.

Military

The greatest space industry changes may be in Defense markets. After many years of multi-billion-dollar investments, the largest single space and satellite buyer, the US Department of Defense, is reassessing satellite procurement plans, is moving to institutionalize the use of commercial satellite capacity and is beginning to follow the example of other governments in expanding creative purchasing and partnership arrangements with the private sector.

Whereas NASA is attempting to charge forward with a new procurement plan, DoD is taking a step back to evaluate its requirements. Decades of cost growth on TSAT and SBIRS, and the high-profile cancellation of the former, have led the Air Force to settle into procurement of COTS-derived buses (the Wideband Global System) and sustain its reliance on commercial providers of satellite bandwidth.

Despite the convenience of these stopgap solutions, the Air Force will ultimately need to draw up new plans for a technological growth path that ensures future space platforms meet next-generation requirements including dynamic bandwidth allocation, in-space routing, resistance to cyber attacks, and protection from on-orbit threats such as missiles and jamming. There is a wide range of options available to meet these challenges, including cubesats, nanosats, capabilities derived from the newly-launched X-37B space plane, and the fractional satellite designs similar to the system currently under evaluation by DARPA. The next decade should see which of these concepts pay dividends, and which are too expensive or complex to fit within the Air Force’s new spending constraints.

Military demand for remote sensing or imagery data also shows no sign of slowing down, with the introduction of service level agreements guaranteeing future purchase volume for U.S. suppliers, and new contracts in place with foreign suppliers of radar data.

Civil

In Civil Space, NASA is undergoing the greatest changes in more than a generation, as it seeks to completely reorient the U.S. human spaceflight architecture: creating at least $39B of new contractor-addressable programs over the next 10 years, but also ending the Shuttle and the core Constellation program and changing contractor relationships

Recent headlines within the space business have been dominated by NASA’s bold, contentious new plan to retool its human spaceflight architecture and shift an increasing amount of responsibility to private, risk-bearing entrepreneurial companies. The broad strokes are clear: reinvigorate the agency technology base by betting on innovative propulsion and robotic concepts, contract LEO launches to private entities, and add alternate destinations before going to Mars.

And yet the most important question of all – how to successfully navigate this new environment – is vexing to even the most experienced space companies. Developing a strategy for success requires much more than a business-as-usual approach. It necessitates creative thinking, new methods for accepting and dealing with risk, and innovative arrangements between contractors, financing entities and the government.

Amidst these changes, earth sciences continue to grow in importance to governments around the world. NASA and NOAA’s science programs are generating new opportunities for industry, both manufacturers and operators. The restructuring of the NPOESS program already is creating large opportunities for new players, as the government looks to satisfy its weather and climate data requirements with a different approach. Many other opportunities will follow.

Avascent’s Space and Satellite Experience

For over 20 years Avascent Space practice has advised clients on strategic growth and value capture in space and satellite markets. Avascent brings deep space industry experience, unique insight and informed advice for companies and investors in all sectors of the market.

• Systems Integrators

• Satellite Operators

• Launch Providers

• Subsystem Providers

• Component Manufacturers