Launch Industry Competitive Market Assessment

Transcription

1 AEROSPACE REPORT NO. ATR-2002(9385)-1 Launch Industry Competitive Market Assessment August 2001 Prepared by F. C. WONG Economic and Market Analysis Center Systems Engineering Division Prepared for VICE PRESIDENT Engineering and Technology Group PUBLIC RELEASE IS AUTHORIZED

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3 AEROSPACE REPORT NO. ATR-2002(9385)-1 LAUNCH INDUSTRY COMPETITIVE MARKET ASSESSMENT Prepared by F. C. WONG Economic and Market Analysis Center Systems Engineering Division August 2001 Engineering and Technology Group THE AEROSPACE CORPORATION El Segundo, CA Prepared for VICE PRESIDENT Engineering and Technology Group PUBLIC RELEASE IS AUTHORIZED

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7 Contents 1. Executive Summary Purpose and Scope Industry Overview Market Demand Market Share Launch Vehicle Classification Launch Industry by Geographical Region China Launch Service Provider: China Great Wall Industry Corporation Management/Partnerships Launch Vehicle Capabilities and Pricing Launch Sites Historical Performance Launch Vehicles Chinese LV Demand Forecast Evaluation of Chinese Space Industry Russia/Ukraine Launch Service Providers Using Russian LVs Management/Partnerships Launch Vehicle Capabilities and Pricing Launch Sites Historical Performance Launch Vehicles Russian LV Demand Forecast Evaluation of Russian Space Industry Europe Launch Service Providers Management/Partnerships Launch Vehicle Capabilities and Pricing Launch Site Historical Performance Launch Vehicles Evaluation of European Space Industry Multinational LSPs Launch Service Providers Management/Partnerships Launch Vehicle Capabilities and Pricing Launch Site Historical Performance Launch Vehicles Sea Launch Forecast Evaluation of Sea Launch United States Launch Service Providers Management/Partnerships v

8 7.5.3 Launch Vehicle Capabilities and Pricing Launch Sites Launch Vehicles U.S. Launches and Revenues U.S. LV Demand Forecast Evaluation of U.S. Launch Vehicles Launch Vehicle Capabilities Price Schedule Capacity Utilization Cycle Times Reliability Customer Preference Correlation Matrices Impact of Satellite Manufacturer Mergers Satellite Service Providers Purchasing Behavior Launch Service Provider Strategic Alliances Cooperation Between Companies Cooperation Between Countries Launch Service Provider Competitive Analysis U.S. Export Policy Launch Fee Comparisons Chinese Launch Fee Estimates Bottom-Up Costing Method Percentage of Revenues Method Russia Launch Fee Estimate Amortizing Lease Method Bottom-Up Costing Method Percentage of Revenues Method Europe Launch Fee Estimate Comparable Fees Method United States Launch Fee Estimates Industry-Provided Method U.S. Launch Fee Scenarios Conclusions Appendix A: Space Insurance and Risk Mitigation A.1 Insurance Claims A.2 Premiums A.3 Government Insurance A.4 Risk Mitigation Appendix B: Satellite Industry Financing vi

9 Appendix C: Fuel Costs Appendix D: Historical Launch Metrics Appendix E: Future Commercial Launch Sites E.1 Alcantara, Brazil E.2 Kourou, French Guiana E.3 Christmas Island, Australia E.4 Hainan, China Appendix F: Future Heavy-Lift LVs F.1 Angara F.2 H-2A F.3 GSLV Appendix G: Foreign TT&C Stations G.1 China TT&C G.2 Russian TT&C G.3 Europe TT&C G.4 Sea Launch Appendix H: Launch Site Locations Acronyms Bibliography Relevant Web Sites vii

10 Figures Figure 3-1. Launch Industry Value Chain... 5 Figure 4-1. Market Share by Launch Vehicle Type ( )...8 Figure 5-1. Market Share (2000)... 9 Figure 5-2. Launch Vehicle Market Share and Growth Matrix...10 Figure 6-1. FAA Launch Vehicle Classification Figure 8-1. Heavy and Intermediate LV LEO Capability Figure 8-2. Heavy and Intermediate LV GTO Capability Figure Medium-Heavy LV Capacity Utilization (2000) Figure Medium-Heavy LV Capacity Utilization (2008) Figure Small-Medium LV Capacity Utilization (2000) Figure Total Estimated Commercial Launch Fees (2000) Figure Range Fee Response Model Figure U.S. Launch Fee Increase Impact Tables Table 3-1. Market Analysis Scope... 6 Table International Launch Statistics...9 Table 7-1. Long March Launches, Launch Capabilities, and Pricing Table 7-2. Chinese Launch Site Capabilities Table 7-3. Chinese Launch Industry Revenues and Launches...17 Table 7-4. Chinese Launch Forecast Table 7-5. Russian/Ukraine Launches, Launch Capabilities, and Pricing...24 Table 7-6. Russian Launch Site Capabilities Table 7-7. Russian/Ukraine Launch Industry Revenues and Launches...28 Table 7-8. Russian Launch Forecast Table 7-9. European Launches, Launch Capabilities, and Pricing...40 Table European Launch Site Capabilities Table Ariane Revenues and Launches Table Ariane Launch Forecast Table Sea Launch Partnerships Table Sea Launch Launches, Launch Capabilities, and Pricing Table Sea Launch Site Capabilities Table Sea Launch Revenues and Launches Table Sea Launch Forecast Table U.S. Launches, Launch Capabilities, and Pricing Table United States Launch Site Capabilities...54 Table U.S. Launch Industry Revenues and Launches Table U.S. Launch Forecast Table Launch Industry SWOT Analysis by Country...63 Table 8-1. Expected Delta IV and Atlas V LEO & GTO Capabilities Table 9-1. Winning Launch Cost/Pound Metric (2000 Data) Table 9-2. Forecasted U.S. Heavy-Lift LV Cost/Pound Metric Table Launch Vehicle Cycle Times (2000) Table Launch Intervals by Launch Site Table Launch Intervals by Launch Complex ( ) viii

11 Table Launch Intervals by LSP...76 Table Launch Vehicle Reliability Table Launch Service Purchasing Criteria Table S/C Customer Country to LV Country Correlation (2000) Table S/C Manufacturer Country to LV Country Correlation (2000) Table S/C Purchaser and LV Country Correlation ( )...86 Table S/C Manufacturer and LV Country Correlation (2000)...86 Table FSS Operators Purchasing Power...88 Table Launch Service Provider SWOT Analysis...94 Table LV Market Competitiveness (2000)...95 Table Market Survivability Criteria...97 Table Xichang Facility Fee Estimate (Depreciation of Launch Site) Table Bottom-Up Fee Estimate (China) Table Percentage of Revenues Fee Estimate (China) Table Amortizing Baikonur Lease Fee Estimate (Russia) Table Bottom-Up Fee Estimate (Russia) Table Percentage of Revenues Fee Estimate (Russia) Table U.S. Launch Fee Scenarios Table Satellite System Cost Comparison Table A-1. Health of the Space Insurance Industry Table A-2. Top Six Underwriters Single Launch Maximum Coverage (1998) Table A-3. Recent Insurance Claim Examples Table A-4. New Launch Vehicle Failure Claims Table A-5. Price Impact of Launch Insurance (2002 Scenario) Table C-1. Estimated Range-Provided Fuel Cost Table D-1. Occurrence of Monthly Launch Rates by Site Table D-2. Occurrence of Monthly Launch Rates by Country Table D Average Monthly Launch Rate by Site Table D Peak Monthly Launch Rate by Site Table D Average Monthly Launch Rate by Country Table D Peak Monthly Launch Rate By Country Table G-1. European Space Agency TT&C Locations Table H-1. Launch Site Locations I ix

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13 1. Executive Summary The launch service industry is becoming increasingly more competitive. Simultaneously, launch service demand has decreased or remained relatively flat due, in part, to the cancellation, delay, or bankruptcy of several high-profile satellite systems. U.S. launch service providers (LSPs), once the dominant players in the space launch field, have seen their commercial market share drop from 54 percent in 1998 to 38 percent in 1999 to 20 percent in Meanwhile, Russia's and Europe's respective market shares have increased. Annual demand is expected to average 41.4 commercial space launches worldwide through As a result, it is possible that some U.S. LSPs and satellite manufacturers will be forced to leave the low-profit-margin Launch Vehicle (LV) industry. By some estimates, current and projected world launch markets can sustain three LSPs and two satellite manufacturers. 3 Given that there are currently seven major commercial LSPs and five major satellite manufacturers as well as a number of smaller LSPs and satellite manufacturers, industry consolidation is inevitable. As the industry continues to evolve and mature, the technology advantage that U.S. LSPs once enjoyed has diminished. The United States may lose even more of its market share since U.S. launch quotas on Russian LVs have been removed. To improve its competitiveness, the U.S. launch industry will need to modify its launch capability, and implement infrastructure and policy changes. Many factors LV performance, price, schedule flexibility, reliability, insurance premiums, customer preferences, strategic partnerships, and launch site and range policies influence customers purchase decisions. To respond to customer demands for cheaper and faster launches, LSPs must fund ongoing LV cost and cycle time reduction initiatives. However, even being the lowest-priced LSP for a given performance range does not necessarily guarantee market share, nor does possession of a sizeable LV inventory guarantee reduced cycle times. In addition, LSPs have no control over some of the factors that influence LV-specific demand. For instance, government export policy can systematically restrict the use of certain LVs. Likewise, a government's willingness to support and maintain launch infrastructure, which is often a national asset, can impact the rate and volume of launches from that country. The availability of insurance also plays a part in this competitive environment. LV failures affect not only the LSP, the LV manufacturer, and the customer involved, but also the industry as a whole, resulting in a gradual industry-wide reduction in insurance Launch Companies Facing Buyer's Market, Ben Iannotta, Space News, February 26, Commercial Space Transportation Forecast, Federal Aviation Administration's Associate Administrator for Commercial Space Transportation (AST) and the Commercial Space Transportation Advisory Committee (COMSTAC), May 2000, p. iii What Industry Needs, Al Smith, Space News, February 19,

14 availability and an increase in insurance premiums. Furthermore, satellite and launch failures make it more expensive and difficult to obtain satellite venture capital for future systems, which in turn reduces LV demand. Whether the U.S. government is adequately funding the modernization of its aging launch infrastructure, keeping it in par with investments and modernization efforts of foreign governments, needs to be investigated in more detail. 4 Although U.S. launch sites are considered to be some of the best, additional research is needed to compare the quality of these facilities with those at foreign sites, and to determine in more detail other governments funding levels. Launch site fees are another important issue. Raising these fees, which are small relative to the full cost of the satellite or the LV, could significantly impact the health of U.S. LSPs. LSPs must already deal with a price-sensitive customer, low market demand, low profit margins, and high investments in research and development. If the U.S. government raises launch fees, it may have to provide improved launch site cycle time, schedule guarantees, improved facilities, or improved customer service to help U.S. LSPs support the higher LV prices necessary to offset fee increases. 4 Air Force Short of Funds for Range Upgrades, SMV, Space News, July 16, 2001, p. 2 2

15 2. Purpose and Scope The purpose of this report is to evaluate launch industry economic and market forces, detailing the competitive environment that U.S. LSPs and LV manufacturers face, and to quantify the impact of U.S. range user fees on this industry. A macro-level launch service buyer and LSP perspective of the industry is taken. All integral parts of the LV industry LV manufacturers, LSPs, launch sites and ranges, satellite manufacturers, satellite operators, and finance and space insurance companies are covered in some detail. Most of these LV industry participants are located in China, Russia, the United States and a consortium of European countries. Some foreign LSPs and LVs that are not currently commercially viable are also included. The report evaluates launch service purchasing criteria in order to explain the impact of raising U.S. launch-site-associated fees. The U.S. launch service industry is benchmarked against those of other countries, providing fee estimates at major launch sites, evaluating key industry competitive factors, and creating metrics for comparing the utilization and competitiveness of different launch systems. The impact of industry mergers and strategic alliances is also addressed. Finally, the report proposes various U.S. launch-site fee structures that might be considered as alternatives to the current U.S. fee structure. Information in this report was obtained informally from numerous industry experts. However, most were willing or able to share only limited information since detailed costing and funding information is company proprietary. As a result, only publicly available information was used in the report's analyses and conclusions. 3

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17 3. Industry Overview The launch industry consists of LV manufacturers, LSPs, launch sites, ranges, satellite manufacturers, and satellite service providers (SSPs). Supporting this industry are finance companies, insurance companies, and governments. Figure 3-1 shows the key entities engaged in the launch services business and their interactions with each other. Customer (End User) Finance Companies Insurance Companies Satellite Service Provider (SSP) Satellite Manufacturing Company LV Manufacturing Companies Launch Service Provider (LSP) Ranges Figure 3-1. Launch Industry Value Chain. LSPs either market their own LVs or provide marketing and customer support for LV manufacturers. Launch sites include launch pads, launch site infrastructure, and processing and storage facilities. Ranges include various instrumentation and other assets used to track the LV and maintain a safe launch environment. SSPs such as DirecTV or PanAmSat order satellites from satellite manufacturers to meet user demand for satellite-based services. These SSPs may negotiate directly with the LSPs, insurance companies, or financial companies. In other cases, satellite manufacturers bundle launch services with satellite contracts, providing SSPs with a complete package, including insurance and financing. In most cases, either the SSP or the satellite manufacturer acts as a prime contractor, negotiating all the contracts necessary for delivering a satellite into orbit. LSPs often establish strategic alliances to increase their competitiveness. For example, they may offer a wide selection of LVs produced by different LV manufacturers in order 5

18 to cover several market segments. However, on occasion LSP partners that manufacture LVs may compete with their partners for commercial business, especially when their country has an interest in developing its own commercial space industry. In the United States, LSPs normally negotiate fees directly with U.S. launch site and range operators. On occasion, the spacecraft manufacturer may choose to submit its requirements directly to the launch site/range operator. Launch site operators may also provide support to nonlaunch programs that contract for their support through base support agreements. These fees, which may change at any time, are included as part of fixed-priced launch service price quotes that are then provided to the LSP customers several months prior to launch. Satellite manufacturers and SSPs often have little visibility into these fees and little appreciation of their variability. In the long run, LSPs are expected to try to pass range fee increases to their customers. However, since the launch service industry is highly price-competitive, U.S. LSPs may be forced to absorb future U.S. range fee increases unless they are able to also simultaneously reduce LV production costs or provide enhanced services. Chapter 6 provides additional information about each of the major launch sites, LSPs, and LVs listed in Table 3-1. This information is separated by geographical regions: China, Russia, Europe, the United States, and the multinational Sea Launch. Future launch sites are covered in Appendix E, while future heavy-lift LVs, such as India's GSLV and Japan's H-2A, are covered in Appendix F. These launch sites and LVs are not currently commercially viable. Table 3-1. Market Analysis Scope Country China Russia Europe Multi-National U.S. Launch Sites Xichang Baikonur Kourou Mobile KSC, CCAFS Taiyuan Plesetsk VAFB Jiuquan Svobodny Kodiak Service CGWIC StarSem Arianespace Sea Launch Orbital Sciences Providers ILS Eurorockot Lockheed Martin StarSem Boeing Launch Long March Proton Ariane 4 Zenit 3SL Pegasus Vehicles Soyuz Ariane 5 Taurus Rockot Vega Minotaur Start Athena Cosmos Cyclone 3 Atlas Delta Shuttle 6

19 4. Market Demand The number of commercially available LVs continues to grow, while the market demand for them remains relatively flat. Market share and profitability will influence which LVs and hence which LSPs will survive. COMSTAC and the Federal Aviation Administration (FAA) forecast that an average of 41.4 commercial space launches worldwide will occur annually through These forecasts assume that on average the following types and number of launches will be conducted each year: 23.5 launches of medium-to-heavy LVs to geosynchronous orbit (GSO) 7.5 launches of medium-to-heavy LVs to LEO, or nongeosynchronous orbit (NGSO) orbits 10.4 launches of small LVs to LEO 5 The FAA's 2000 forecast is roughly one-third lower than its 1999 forecast, which had assumed a large increase in launches in 2002 and This decline was caused by the Iridium LLC and ICO Global Communications bankruptcies and lowered expectations for Globalstar's business plan. Arianespace's launch forecasts are consistent with the FAA's, predicting that Arianespace's addressable market is between satellites in 2001, increasing to satellites by Demand for specific major LVs is covered in Section 6. FAISat is expected to be the next major group of LEO mobile communications satellites to be launched in Iridium replacement satellites and Teledesic spacecraft will probably not be launched in as previously forecasted. ORBCOMM replenishments, which were forecasted in , are also at risk, pending a successful restructuring by Orbital Sciences and ORBCOMM's emergence out of Chapter 11 bankruptcy. 7 Many satellite systems have been cancelled, delayed, or gone bankrupt. More than a dozen Ka-band satellites that were expected to offer high-speed data services have slipped initial service dates to and beyond. Teledesic is now expected to launch in 2004 or 2005, but is dependent on potential New ICO and Ellipso strategic partnering agreements. 8 However, Ellipso recently lost its Federal Communication Commission (FCC) license. New ICO has put its 12-satellite project on hold until it is granted approval to deploy thousands of ground-based signal repeaters around urban areas to extend its coverage beyond core rural and suburban markets. 9 The 40-satellite SkyBridge Commercial Space Transportation Forecast, Federal Aviation Administration's Associate Administrator for Commercial Space Transportation (AST) and the Commercial Space Transportation Advisory Committee (COMSTAC), May 2000, p. iii e.space, Arianespace newsletter, March 2001 Investor Disinterest Stymies Commercial Satellite Industry, Marco Antonio Caceres, Aviation Week and Space Technology, January 15, 2001 Technology, Money Issues Slow Broadband Debut, James M. Gifford, Space News, April 2, 2001 New ICO On Hold Until FCC Grants More Spectrum, Peter B. de Seldo, Space News, April 2,

20 constellation deployment, which would use Delta 3 and Delta 4 LVs, has slipped from 2001 to beyond Satellite weights continue to grow. Figure 4-1 shows that from 1997 to 2000, the heavylift LV market share grew at the expense of small LVs. This trend is expected to continue according to FAA and Arianespace forecasts. Both forecasts predict that a growing percentage of the satellites will require intermediate to heavy LVs. Demand for small to medium LVs that can lift satellites weighing less than 9,000 lb to GSO is expected to decline. 11 Launch Vehicle Market Share 100% 80% 60% 40% 20% Heavy Intermediate Medium Small 0% Figure 4-1. Market Share by Launch Vehicle Type ( ) Financing availability will continue to limit LV demand (this topic is covered in detail in Appendix B). Furthermore, a number of satellite companies will have their Federal Communications Commission (FCC) licenses revoked for not meeting FCC construction and launch milestones. The FCC has already revoked the licenses for NetSat 28, Morning Star, PanAmSat, and Ellipso because of schedule slips. 12 In summary, the overall picture for commercial LSPs is bleak. With flat demand and growing overcapacity, future mergers and buyouts are inevitable. LSPs will face continued pressures to reduce prices and delivery schedules in order to maintain market share, forcing them to seek ways to cut costs and increase customer service SkyBridge Plans Early Broadband Foray, Peter B. de Selding, Space News, March 19, Commercial Space Transportation Forecast, Federal Avaiation Administration's Associate Administrator for Commercial Space Transportation (AST) and the Commercial Space Transportation Advisory Committee (COMSTAC), May 2000, p. 10 Investor Disinterest Stymies Commercial Satellite Industry, Marco Antonio Caceres, Aviation Week and Space Technology, January 15,

21 5. Market Share Table 5-1 shows the number of commercial and noncommercial launches that took place in These numbers were then used to generate the pie charts in Figure 5-1. In this report, launches are defined as either commercial (a launch that is internationally competed or has a primary payload that is commercial in nature) or noncommercial. Table International Launch Statistics 13 Commercial Launches Noncommercial Launches Total Launches United States Russia Europe China Multinational Japan Total Figure 5-1 shows that Europe and Russia dominate the 2000 commercial launch service industry. However, when noncommercial launches are included in the total, the U.S market share remains significant. Commercial Market Share Total Market Share Europe 34% Multinational 9% United States 20% China 6% Japan Multinational 1% 4% Europe 14% United States 33% Russia 37% Russia 42% Figure 5-1. Market Share (2000) Figure 5-2 compares the competitiveness of the major LSP countries from 1998 to 2000 by evaluating their normalized market share and market growth rates. Each colored line represents a country and consists of three data points corresponding to the country's 13 Commercial Space Transportation: 2000 Year in Review, Associate Administrator for Commercial Space Transportation (AST), January

22 Low market share and market growth data for 1998, 1999, and The data point at the tail of each arrow is for 1998, while the data point at the head of the arrow is for Commercial launch data was provided by the FAA. Market share is normalized to the U.S market share, while market growth rates were normalized to China's 1998 growth rate. Trend lines approaching the origin indicate declining market share and growth rates. Trend lines that terminate in the shaded area show deterioration relative to their position in Both China and the United States lost market share and experienced negative growth rates. Europe s and Russia's market share improved, resulting in positive growth rates. The multinational Sea Launch, which only began launching in 1999, has increased its market share. Figure 5-2 emphasizes the need for the United States to improve its competitiveness in order to recapture its LV market share. (M9) (M0) (R9) Commercial Launches (By Country) Normalized ( 98) Market Growth High (C9) (C0) (C8) (R8) Grey area - loss of market share and negative growth compared to 98 baseline (E9) (E8) (U0) (E0) 1998 Baseline (U8) (R0) (U9) Low High Normalized ( 98) Market Share Commercial Launches United States Russia Europe China Multinational Total Commercial United States Russia Europe China Multinational United States Russia Europe China Multinational Normalized ('98) Market Share Normalized ('98) Market Growth N/A N/A 2.38 (U) United States (C) China (R) Russia (M) Multi-National (Sea Launch) (E) Europe (A,N) = (Country,Year) 98, 99, 00 Figure 5-2. Launch Vehicle Market Share and Growth Matrix 10

23 6. Launch Vehicle Classification The FAA divides LVs into weight classes based on their ability to lift Low Earth Orbit (LEO) payloads. Figure 6-1, column one, lists FAA-defined LV weight classes and their corresponding LEO lift capabilities. Column two lists current LVs by weight class, while column three lists future LVs by weight class. Current LVs are being incrementally modified to support heavier satellites as new technology is developed and made commercially available, and as demand grows for heavier lift capability. Similarly, future LVs are being designed to meet expected growth in satellite size, reduced delivery schedules, lower pricing, and increased payload orbit delivery requirements. An LV s capability determines its addressable market segment, and is a major and sometimes determining factor for launch service selection. The United States currently does not have a commercially viable heavy-lift LV, reducing U.S. opportunities for dual satellite and multisatellite launches, which in turn limits its potential market share. Heavy FAA Vehicle Class Launch vehicles classified by mass of payload that can be placed in LEO equatorial orbit Intermediate Medium Small Suborbital 25,000 lbs LEO Mass (11364 kg) < capacity 12,001 lbs LEO Mass 25,000 lbs (5455 kg) < capacity < (11363 kg) 5,001 lbs (2274 kg) < LEO Mass 5,000 lbs capacity < (2273 kg) LEO Mass 12,000 lbs capacity < (5454 kg) Not capable of putting any mass in orbit Current Titan IVB (47,800 lbs) Proton K/Block DM (44,200 lbs) Ariane 5 (39,700 lbs) Zenit 2SL, 3SL (29,750/ 35,000 lbs) Long March 3B (24,700 lbs) Ariane 42 s, 44 s (14,600-22,500 lbs) Long March 2E, 2F (20,950/ 18,480 lbs) Atlas IIA, III, IIIA (16,130-19,050 lbs) Delta III (18,280 lbs) Soyuz U (15,430 lbs) Delta II (11,330 lbs) Ariane 40 (11,000 lbs) Soyuz U/Fregat, Ikar (9,038-15,430 lbs) Dnepr M (9,130 lbs) 01 Long March 2C, 2D, 3 (7,700-10,582 lbs) Athena 2 (8,800 lbs) Dnepr-1(9,920 lbs) Cyclone 4 (8,800 lbs) 01 Cyclone 2, 3 (7,370/ 9,020 lbs) Angara 2 (8,160 lbs) 03 PSLV (8,150 lbs) Titan II (4,200 lbs) Athena 1, 2 (1,805/4,520 lbs) M-5 (4,000 lbs) Rockot (3,970 lbs) Molniya (3,970 lbs) Cosmos (3,100 lbs) Taurus (2,910 lbs) J-1 (1,980 lbs) Start-1 (1,650 lbs) Minotaur (1,470 lbs) Pegasus XL (977 lbs) VLS (840 lbs) Shavit (495 lbs) Figure 6-1. FAA Launch Vehicle Classification 14 Future Angara 5 (54,000 lbs) 03 Delta IV Heavy (50,800 lbs) 03 Proton M (46,300 lbs) 01 Atlas V(27,550-45,238 lbs) 02 H2 (38,100 lbs) 01 Delta IVM (17,500-25,300) 02 Atlas IIIB (23,630 lbs) 02 Soyuz ST (17,200 lbs) 01 Angara 1 (4,400 lbs) 02 Strela (3,750 lbs) 01 Vega (3,300 lbs) 05 LK-1,-2 (1,200-3,420 lbs) Commercial Space Transportation Quarterly Report, First Quarter 2001, U.S. Department of Transportation, FAA;

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25 7. Launch Industry by Geographical Region 7.1 China The Chinese government and state-owned companies continue to support the growth of China's space industry as China strives to develop its own satellite manufacturing, commercial launch, and manned mission capabilities. The Chinese space industry, which employs more than 200,000 people, including more than 50,000 scientists and engineers, had approximately $1.2B in revenues in Launch Service Provider: China Great Wall Industry Corporation The China Great Wall Industry Corporation (CGWIC) was created on October 16, 1980 to develop China's commercial space industry. Its Long March LV was made commercially available in October 1985, launching its first commercial payload in mid Hughes, the first U.S. satellite manufacturer to sign a Long March contract with CGWIC in November 1988, launched the AsiaSat-1 satellite in April Since that time the Long March LV has been launched over 61 times, including 11 launches carrying 22 of Iridium's 66 satellites into LEO orbits. Through December 2000, the company has successfully completed 47 out of 54 launch missions, of which 30 were foreign satellites Management/Partnerships Long March commercial launch services are provided internationally through CGWIC. CGWIC works directly with the customer and coordinates the work performed by the China Academy of Launch Vehicle Technology (CALT), Shanghai Academy of Spaceflight Technology (SAST), and China Satellite Launch and Control General (CLTC). CGWIC has two major shareholders, China Aerospace Science and Technology Corporation and China Aerospace Machinery and Electronics Corporation, each of which owns 50 percent of CGWIC. CGWIC is responsible for marketing launch services, negotiating launch service contracts, and managing the execution and performance of the mission for all commercial missions. CGWIC does not play a significant role in Chinese government missions, nor does it produce or operate the LVs. CLTC is responsible for managing China's three launch sites at Xichang, Taiyuan, and Jiuquan. It provides launch site technical interface coordination; launch site operations and control; telemetry, tracking, and command (TT&C); launch site and launch safety; and launch campaign planning and organization. 15 Chinese Government Backs Commercial Space Push, Wei Long, SpaceDaily, Oct. 13,

26 CALT and SAST are responsible for developing, producing, and testing the LVs. These organizations perform mission analysis, LV technical interface coordination, and flight safety engineering. CALT has 27,000 employees Launch Vehicle Capabilities and Pricing Table 7-1 lists the number of Long March LVs launched, their capabilities, and the prices charged. The Long March is competitively priced. The price of each Long March LV is independent of the weight of the satellite being launched. Table 7-1. Long March Launches, Launch Capabilities, and Pricing 16 Launch Vehicle Flights thru (12/31/00) Launch LEO Site (Lbs) Low High GTO Price Price (Lbs) ($M) ($M) Long March-2A 2 Xichang Long March-2E 7 Xichang 20,950 7,710 $45 $55 Long March Xichang 10,582 3,086 $35 $40 Long March-3A 8 Xichang - 5,952 $45 $55 Long March-3B 5 Xichang 24,700 11,250 $50 $70 Long March-2C 21 Taiyuan, Jiuquan 8,600 2,200 $20 $25 Long March-4A 2 Taiyuan - - $20 $30 Long March-4B 3 Taiyuan - - $25 $35 Long March-1D 1 Jiuquan - - $12 $12 Long March-2D 3 Jiuquan 7,700 - $10 $15 Long March-2F 2 Jiuquan 18, Launch Sites China uses three launch sites for commercial and government launches. The Xichang Satellite Launch Center (XSLC) supports Long March 2C, Long March 3, Long March 3A, Long March 2E, and Long March 3B launches. The Jiuquan Satellite Launch Center (JSLC) currently supports Long March 2C launches and is being expanded to support the Long March 2F launches. The Taiyuan Satellite Launch Center (TSLC) launches Long March 2C, Long March 2C/SD, and the Long March 4 series launches. Additional launch site information is included in Table 7-2. Launch site capacity is the estimated total capacity for the combined LVs launched at that site per year. 16 Commercial Space Transportation: 2000 in Review, Associate Administrator for Commercial Space Transportation (AST); International Reference Guide to Space Launch Systems, Third Edition, Steven J. Isakowitz, AIAA, January 2001; Forecast International, December 1999; Teal Group Corporation, World Space Systems Briefing, September

27 Table 7-2. Chinese Launch Site Capabilities 17 Site Xichang Taiyuan Jiuquan Location N 102 E 37.5 N E 40.6 N 99.9 E Min/Max Inclination Pads Mobile Tower Estimated Capacity (Annual) Launch Vehicles Government / Commercial First Launch 28 / Long March -2C G,C 1990 Long March-2E - - Long March-3 G,C 1984 Long March-3A G,C 1994 Long March-3B G,C / Long March-2C G,C / (shared) Long March-2D G,C 1992 Long March-4A G,C (?) 1988 Long March-4B G,C (?) Long March-1 NA 1970 (discontinued) Long March-2C G,C 1975 Long March-2D G,C 1992 Long March-2F G Xichang Satellite Launch Center XSLC is located in Xichang, Sichuan Province, in southwestern China. It is used to launch commercial and government satellites into low-inclination and geostationary orbits. All GEO commercial satellites launched in China are launched from this site. The Technical Center is equipped for testing and integration of the payload and LV. The Mission Command and Control Center, located 7 km southwest of the launch pad, provides flight and safety control during launch rehearsal and launch. The downrange tracking stations are located in Xichang, in Yibin, in Sichuan Province, and in Guiyang, in Guizhou Province. 18 The climate at XSLC is subtropical, the average temperature is 61 F, and ground wind is generally very mild during all seasons. Xichang, which is subject to periods of intense rain, suffered flooding in the summer of The airport closest to this launch site is capable of supporting Boeing 747, Lockheed C- 130, and AN 124 aircraft. Xichang is also linked to the National Chengdu-Kumming Railway and the Sichuan-Yunnan Highway Min/max inclination from estimated capacity from discussion with CGWIC marketing representative, number of launches from CGWIC website 15

28 Taiyuan Satellite Launch Center (TSLC) TSLC is located northwest of Shanxi Province and is suitable for launching meteorological, earth resource, and scientific satellites, especially for LEO, Sun Synchronous Orbit (SSO) and polar missions. TSLC was used to launch a number of commercial Iridium spacecraft on Long March 2C/SD LVs. TSLC consists of a technical center; a mission command and control center; a telemetry, tracking and communications system; and technical and logistic support systems. TSLC, located in a temperate zone, lies 1,400 1,900 km above sea level. The temperature usually ranges from 39 F to 50 F, rising to 82 F in the summer and dropping to -38 F in the winter. The average humidity is percent and the average annual precipitation is 21.3 inches. 19 Taiyuan Airport is 300 km away, and can support jumbo aircraft. Two feeder railways link to this launch site Jiuquan Satellite Launch Center Built in 1958, JSLC was China's first launch center. JSLC has been mainly used to conduct scientific and recoverable satellite missions with MEO, LEO and highinclination orbits, and has been used to launch pairs of Iridium satellites. A new Long March 2F launch pad and a vertical assembly building for manned flights started operation in This construction allows three or four LVs to be stacked simultaneously, each of which is then transported to the launch pad in an upright position. This system minimizes time spent (less than a week) on the pad prior to the launch. The new complex will also be used for launching the Long March 2E (A), which can place a 14-metric-ton space station module into orbit as part of the manned program. The climate is desert-like. It is dry during all seasons, with little rain and long daylight hours. The average temperature is 47 F. The relative humidity is percent. JSLC includes a technical center, a launch complex, a launch control center, a mission command and control center, propellant fuelling system, tracking systems, communications systems, gas supply systems, weather forecast systems, and logistic support systems. Dingxin Airport, located 75 km away, can accommodate Lockheed C- 130 and Boeing 747 aircraft. A dedicated railway to JSLC also services this launch site Historical Performance Table 7-3 shows estimated Chinese launch industry revenues based on the number of launches/year. Chinese revenues are based on FAA price estimates, which have been applied equally to commercial and government launches

29 Table 7-3. Chinese Launch Industry Revenues and Launches 20 Est. Commercial Revenue ($M) Commercial Launches Est. Noncommercial Revenue ($M) Noncommercial Launches $142 $95 $148 $92 $23 $ $0 $15 $96 $130 $115 $ Launch Vehicles The Long March family consists of approximately 10 active LV types that can be divided into four series: Long March 1, Long March 2, Long March 3, and Long March 4. The Long March 1 is no longer used. The Long March 2 series includes both medium and large LVs for LEO missions. The Long March 3 series uses a cryogenic upper stage for geosynchronous transfer orbit (GTO) missions. The Long March 4 series is used for sunsynchronous orbit (SSO) missions. Not all versions of the Long March are commercially available; some are for military usage only. Commercial marketing currently focuses on the Long March 2C and the Long March 3B. The Long March 2C was used to deploy pairs of Iridium spacecraft and has lifted several large communications spacecraft to GTO. The duration between contract signing to launch is typically months. However, satellites using U.S. components or built by U.S. manufacturers may experience delays since these satellites require U.S. government export licenses. The build time of an LV after contract signing is approximately 16 months Chinese LV Demand Forecast The Chinese government will continue to be the biggest consumer of Chinese LVs, using Long March LVs for China's manned mission program and for 10 new weather satellites over the next decade. The China National Space Administration (CNSA) estimates that the Chinese space industry will launch 30 spacecraft over the next 5 years. 21 Table 7-4 provides an estimate of the number of Chinese LVs to be launched through The Chinese government will determine the actual mix of LVs as satellites and manned missions are scheduled for launch Revenue estimates from: Commercial Space Transportation: 1999 Year in Review, Associate Administrator for Commercial Space Transportation (AST), January 2000 China Space Agency Sees 30 Launches on Horizon, Space News, April 30,

30 China plans to develop a domestic commercial satellite industry, which will increase domestic demand for its LVs. However, China must first overcome significant funding problems and satellite technical issues. One way that China can overcome these problems is by partnering with other countries. For instance, the European Space Agency (ESA) recently signed an agreement with CNSA that would provide CNSA with $6.8M in ESA funding for ESA instruments and data-acquisition services on two of China's Double Star satellites. These satellites will be launched on Long March 2C LVs in December 2002 and March China continues to invest in its launch capability and plans to add strap-on boosters to its Long March 3B. Strap-on boosters will allow the Long March 3B to lift 15,400 lb into GTO. 23 China plans to build a new LV capable of lifting 25 tons to LEO and 14 tons to GTO by Demand for commercial Long March LVs, which has suffered due to poor commercial marketing and China s poor relations with the U.S. government, has recently improved. CGWIC, which did not sign any commercial contracts in 2000, won two commercial launches in The first was to Hong Kong-based APT Satellite Co. Ltd. for a 2003 launch of its Apstar 5. The second contract was for the 2001 launch of Intelsat's APR-3 satellite. A U.S. presidential waiver is required for any satellite that incorporates U.S.- built components before it can be launched on a Long March LV. This has been necessary since 1989, when the U.S. government imposed an embargo following the Chinese government's violent suppression of protesters in Tiananmen Square in Beijing. The APR-3 satellite serves as a good example of China's ability to bundle satellite purchase orders with Long March LVs. Intelsat leased six of APR-3's 30 transponders to China's Sino Satellite Communications Co. (Sinosat) for the life of the spacecraft. In return, Intelsat agreed to launch the satellite on a Long March LV. Table 7-4. Chinese Launch Forecast A 2001E 2002E 2003E 2004E 2005E 2006E 2007E 2008E Long March 3 Long March (other) A = Actual E = Estimate Europe to Aid China In Science Mission, Space News, July 16, 2001, p. 9 Long March Builder Considers Upgrade, Space News, March 26, 2001 Chinese Space News, Feb 22, 2001; World Space Systems Briefing, Teal Group Corporation, September 1999; Space Systems Forecast, Forecast International, December

31 7.1.8 Evaluation of Chinese Space Industry The CGWIC Los Angeles marketing office was unable to provide Chinese launch site fee information. Fees are negotiated between CALT and SAST, two state-owned companies, resulting in a budget-allocation type fee rather than a market-generated price. Launch sites are leased to CGWIC. Great Wall pays a per-launch fee specific to a particular LV rather than an annual fee for launch site usage. U.S. government import/export laws have significantly hurt Chinese commercial launches. These laws were more strictly enforced after the United States accused China of illegal technology transfer during the launch of U.S. commercial spacecraft, which purportedly significantly improved China's launch reliability. U.S. export laws have caused some U.S. satellite manufacturers to lose existing satellite contracts or delay satellite launches indefinitely. The United States has recently started to lift its ban of Chinese launches as an incentive for China to refrain from selling military goods and services to Iraq and Pakistan. Meanwhile, China is well-positioned to be a low-cost provider of LVs. It is able to build LVs cheaply, since its labor costs are about one-tenth of those of manufacturing operations in North America. Favorable tax structures and other incentives also make land in China as much as 100 times cheaper than land in some U.S. locations Russia/Ukraine Russian military and civil funding financed the creation of the Russian launch industry during the 1960s 1980s. When the Soviet Union broke up in the 90s, defense orders decreased significantly, causing a corresponding drastic drop in Russian space industry funding. The breakup also redefined state borders, causing Baikonur, which had been Russia's largest spaceport, to fall within Kazakhstan s borders. Inflationary pressures skewed production and operation costs. From 1990 to 1994 the average cost of space hardware and services increased by a factor of 172, the cost of materials increased by a factor of 384, and the cost of labor increased by a factor of Wages for those working in the space industry, which had been significantly higher than average, dropped below the national average. Loss of prestige, industry chaos, and decreased salaries resulted in the loss of highly qualified personnel. During the total number of people supporting the space complex decreased 35 percent, while the number of engineering specialists decreased 50 percent. In an attempt to reverse these trends, Russia chose to develop a commercial launch service that could be marketed to foreign markets in exchange for hard currency. By implementing this new strategy Russia increased LV production Investors Study the China Conundrum, Stephen Lucey, Redherring Web site, April 11, 2001 FAS Space Policy Project, Economics of Space Activity in Russia, Chapter

32 Russia abandoned costly projects that no longer met new objectives, leveraging existing ground space support infrastructure, and using accumulated reserves (material and parts) and prior investments to produce low-cost but reliable LVs that were cheaper than those produced in the United States. Concerns that the availability of these inexpensive LVs could derail U.S. commercial launch capabilities caused the United States to impose launch quotas on Russia. The commercial launch revenues bolstered Russian civil space activities that previously had been funded through general military outlays. This commercial funding supplemented declining Russian government space budgets hurt by the unstable Russian economy, unstable legal base, accelerating inflation, and spending overruns Launch Service Providers Using Russian LVs There are two LSPs, Starsem and International Launch Services (ILS), that use Russian LVs. ILS is based in the United States; STARSEM is based in Europe Starsem Starsem is a European-Russian company created in 1996 to provide commercial Soyuz launch services. It employs more than 50 people at its Paris headquarters, assuming the role of a prime contractor for its Russian partner's work. It is 50 percent Europeanowned and 50 percent Russian-owned. Starsem's shareholders are European Aeronautic Defense and Space Company (EADS) (35 percent), Arianespace (15 percent), Russian Aviation and Space Agency (25 percent), and the Samara Space Center (25 percent). EADS is the world s third largest aerospace and defense company, created through the merger of France s Aerospatiale Matra, Spain s CASA, and Germany s DASA. EADS is also the main industrial architect and stage integrator of Ariane LVs. Arianespace, created in 1980, has successfully launched more than 200 payloads on 100 LVs. Arianespace, based in Evry, France, has 53 European corporate shareholders. It also oversees the marketing, sales, production, and operation of the Ariane 4 and Ariane 5 LVs. The Russian Aviation and Space Agency (Rosaviacosmos) was created in February 1992 by a Russian presidential decree. This agency defines the Russian Federation's national policy on space research and exploration. The agency also coordinates national scientific and application space programs among Russia's space companies and government organizations. The Samara Space Center "TsSKB Progress" was created by Russian presidential decree in 1996 by combining the TsSKB Central Samara Design Bureau and the Progress production plant. The Samara Space Center manufactures the first three Soyuz stages. 20

33 This venture has been very successful. Since 1999, Starsem has helped launch 22 missions from Baikonur. Of these missions, 10 have been for international commercial satellites, nine for manned missions, and three for domestic Russian missions. Starsem was responsible for launching 24 out of the total 48 Globalstar satellites in 1999, and up to 10 Soyuz flights are scheduled during 2001 from the Baikonur Cosmodrome. 27 In April 2000, Starsem won a contract to launch SkyBridge's 32 broadband multimedia satellites. The first SkyBridge launch has been delayed to Starsem is also negotiating the launch of a number of small 1.5-ton geosynchronous satellites Price. The cost of a launch, depending on satellite and launch specifications, is typically around $30M. Starsem provides a rough price estimate based on customerprovided mission details. The Starsem estimate covers prelaunch and launch support plus any other customer requests. A detailed invoice for launch services is not provided to the customer; instead, the customer is given a single line item-type launch price Schedule. The time between contract signing to launch is typically 18 months, although it can range between months depending on the customer's needs. Events occurring during this period include building the LV, designing and building the satellite dispenser, and integrating and processing the satellite and LV at the launch site. The Soyuz LV, which is built to order for Starsem, normally takes 15 months to build, but the process can be shortened to 12 months. Another schedule driver is the design and manufacture of the spacecraft-lv adapter/dispenser. Dispenser build-time depends on its complexity, the maturity of the dispenser design, and customer schedule requirements. The Globalstar dispenser, which was not needed quickly, took 18 months to design and build. Once the LV and spacecraft is delivered to the launch site, the nominal time to prepare the satellite for launch is about 30 days. The length of this time period is also customer-driven, and depends on the amount of prelaunch satellite preparation that has been accomplished Facilities. The Soyuz rocket manufacturing and processing facilities are well-maintained, since they are used frequently. There are two Soyuz launch pads and two Soyuz assembly facilities at Baikonur. There is plenty of excess launch capacity; Russia has processed as many as Soyuz LVs annually, although its current annual launch rate is between In August 2000, two Soyuz LVs were launched in a 3-day time period, demonstrating the Soyuz short launch cycle time International Launch Services International Lauch Services (ILS) was formed in 1995, and provides international customers with launch services on the U.S. Atlas and the Russian Proton LVs. ILS is a joint venture between Lockheed Martin Space Systems (Denver), Khrunichev State Research and Production Space Center (Moscow), and Rocket Space Corporation 27 Starsem to Launch Metop Meteorological Satellites for the European Eumetsat Organization, Company Announcement, December 18, 2000; 21