Sunday, May 31, 2015

Mother’s Milk is Drying Up for Space Companies

          By Glen Strom

Government contracts have been mother’s milk for space companies, but the milk has run low and those companies are crying from hunger.

COM DEV International (COM DEV) CEO Mike Pley at COM DEV HQ in Waterloo on May 29th. As outlined in the May 29th, 2015 The Record article, "Com Dev gets funding for space junk tracking project," Pley was on hand for the Federal government announcement that his firm had just received $3.2Mln CDN from the Canadian Space Agency's (CSA) Space Technology Development Program (STDP). Of course, the 1,200 employees worldwide who work for the company don't depend on government contracts to make ends meet. As outlined in the April 16th, 2012 post, "ComDev Learns from its History," the company made a strategic decision in 2010 to move away from its reliance on government contracts after then COM DEV CEO John Keating was fired for suggesting publicly that COM DEV revenue shortfalls were caused by delays in government funding of the RADARSAT Constellation program. Photo c/o Peter Lee/ Record staff

United Launch Alliance (ULA) of Bethesda, MD is feeling the hunger pangs. So is MacDonald, Dettwiler (MDA) of Richmond, BC. And it’s even worse for the little comrades in Russia.

In a May 22, 2015 article at Via Satellite “ULA Eager to Tap Commercial Market with Vulcan Rocket,” ULA president Salvatore “Tory” Bruno said his company must find more commercial customers to survive.

Tory Bruno looking grim. Photo c/o Space News/Tom Kimmell.
Not just to do OK—to survive.

ULA used to get 10 to 12 US government contracts a year, but that number is dropping as the government cuts back on national security launches. To make matters worse for ULA, their main rival, SpaceX of Hawthorne, CA, has just been certified by the United States Air Force for national security launches. Going forward,

Bruno thinks ULA might only get two or three government launches a year. For all its worth, at least according to the May 30th, 2015 LA Times article, "Elon Musk's growing empire is fueled by $4.9 billion in government subsidies," even SpaceX is the supposed beneficiary of at least some government largess.

In Canada, MDA has repeatedly said they have to find customers outside of Canada because Canadian government business is drying up, a situation most recently covered in the May 12th, 2015 post, "MacDonald Dettwiler, Sherlock Holmes and Why "Daddy" Might not Love Either."

The irony is MDA bought an American company, Space Systems Loral (SSL), in 2012 to offset this problem. The US government’s recent cutbacks on space contracts have left MDA, just like ULA, scrambling for more commercial business.

Colicky MDA CEO Dan Friedmann. Photo c/o MDA.
Government contracts haven’t dried up completely. MDA continues to receive maintenance contracts for the Mobile Servicing System on the International Space Station (ISS).

And, as outlined in the May 29th, 2015 Federal government press release, "Supporting Canadian Research and Innovation in Space Technology," MDA was also listed among the 21 high-tech companies which received research and development (R&D) funding via the Canadian Space Agency (CSA) Space Technology Development Program (STDP), last Friday.

According to the press release, MDA will receive five awards of $200,000 - $500,000 CDN for a variety of projects.

But maintenance contracts and small research awards won't keep a hungry, $2Bln CDN space company satisfied for long. They need new projects. The only new Canadian government project on the horizon is the Polar Communication and Weather (PCW) mission.

As outlined in the February 24th, 2014 post on a “Team Canada Solution for PCW Mission Competing Against US Bid,” PCW consists of two communications satellites that will monitor the high Canadian Arctic. A consortium of three Canadian companies—Telesat, COM DEV, and MDA—is bidding on it. They’re facing stiff competition from American companies like Lockheed Martin of Bethesda, MD.

How critical is it for the consortium to get this contract? This is the only big Canadian government space project in the works right now. Nothing else is planned for the next few years.

According to Tatyana Golikova, the head of Russia's Audit Chamber, Russian auditors have uncovered 92Bln rubles ($2.9Bln CDN or 1.8Bln Euros) in financial violations committed by federal space agency Roscosmos last year. Photo c/o Maxim Stulov / Vedomosti.

So how do the Russians fit into the scenario? On the surface they don’t because the Russian government has been pumping money into their space industry for a few years now. Or so it seemed.

The May 24, 2015 Moscow Times article, “Audit Reveals $1.8 Billion Financial Violations at Russia's Space Agency,” outlines corruption in Roscosmos, the Russian space agency. Other officials, including the prime contractor for Russia’s new spaceport at Vostochny, have also been caught dipping their beaks in the milk.

The unfinished Vostochny Cosmodrome. As outlined in the April 14th, 2015 Global Construction Review article, "Russian spaceport workers go on hunger strike over unpaid wages," the cosmodrome construction has been hit by delays and arrests over embezzlement, just weeks after deputy prime minister Dimitry Rogozin approved an extra 32Bln rubles ($720Mln CDN) to speed up construction.

According to the article, Russian president Vladimir Putin is pouring more money into Vostochny in an attempt to keep the work on schedule. Yes, the money is flowing like salts through a goose, but you know what comes out of the goose.

Russian president Putin pointing fingers. Photo c/o Wikipedia.
The Russian space industry isn’t getting the money and they’re in the same boat as their North American cousins. Unlike their cousins, though, the Russians are likely going to lose commercial market share because their rockets have been blowing up a lot lately.

The good news is that government spending is expected to grow. “Euroconsult—Moderate Growth Projected For Government Space Programs (Analysis | Report)” a July 10, 2014 article at Satnews, references a report released in July 2014 by Euroconsult, a global consulting firm.

According to Euroconsult, the recent dip in government spending will recover as we enter a new growth cycle.

However, even with more money available, there’s no guarantee that governments will fund new space projects. And with a federal election coming this fall in Canada, who knows what will happen to funding here.

Glen Strom
The day when a space company’s business plan could be built on a steady stream of government work alone is gone. You’d better be diversified if you want to be in the game for the long haul.

It’s enough to make a space company president spit up.

Glen Strom is a freelance writer and editor with a background in business and technical writing. He's also the editor of The Gazette Weekly, the newsletter of the Canadian Space Society.

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