New Realities Force Boeing to Revamp its Satellite Business

By Stew Magnuson
Commercial satellite manufacturing amounted to about 7 percent of Boeing’s space and intelligence business in 2007. It has grown to 32 percent now, a senior company executive said June 13.
The cancellation of the Transformational-Satellite (T-Sat) program in 2009 was a factor that forced Boeing to seek business in the commercial sector, said James S. Simpson, vice president of business development at Boeing Space and Intelligence Systems.
That was the seeming end of large, overly complex, multi-billion dollar military and spy satellite programs, he said. It wasn’t obvious at the time, but it was the beginning of the U.S military’s “disaggregated space” movement, which would call for the capabilities that megalithic spacecraft provided to be spread out among smaller spacecraft, commercial satellites and payloads that could piggyback on other satellites, he said.
“At the time, we were devastated,” Simpson said of the T-Sat cancellation. Then Undersecretary of Defense for Acquisition, Technology and Logistics Ash Carter said that the program’s technologies would be spread out among other spacecraft. That was the first sign that a new day was dawning, and that it wouldn’t include large, complex satellites, Simpson said before members of the Washington Space Business Roundtable.
The problem was that this was mostly what Boeing did. “It was a hit on the head. This was the way things were going to have to happen. You were going to have disaggregated space,” Simpson said.
“The bottom line was, we were no long competitive in the commercial side of the business,” he said. Meanwhile, the company wasn’t winning government contracts, even for satellites where it was the incumbent manufacturer.
Then came an era of budget cuts, and now sequestration. The Air Force put forth the disaggregation movement where satellites capabilities would be spread out. Boeing knew it would have to be involved in this new space architecture, Simpson said.
Boeing had a sophisticated satellite, the 702HP, for government and military customers to integrate their payloads onto, but it was too expensive for commercial satellite customers. The 702MP was the company’s answer for something that could accommodate customers in the burgeoning comsat market. Soon, its non-military business began to pick up.
Simpson said customers have pointed out that the company’s satellites are still not cost competitive. “That is something we still continue to work on,” he said.
Meanwhile, Boeing has driven some of the costs out of government satellites by leveraging what it learned building the commercial satellites.
Air Force Space and Missile Command once had about 75 personnel in the El Segundo, Calif., factory for the Wideband Global Satcom program. “You can imagine how much work 75 people can put into a factory just by asking questions,” Simpson said. That number is now down to five.
Boeing was also doing significantly more tests on the government satellites than the commercial ones because of the belief that they had to be more reliable. For example, a government satellite required 70 days in its thermal vacuum chamber that simulated the harshness of space. A commercial satellite only needed 30 days.
Boeing said there was little difference between the availability of a military satellite at 95.1 percent and a commercial one at 94.7 percent. That was statistically irrelevant, the government customers agreed, and extensive tests were curtailed, Simpson said.
“The bottom line was, why were we doing all this additional testing when it was not providing any additional value?” he asked. The changes took $80 million in costs out of the program, he added.
Today, Boeing has about an $8 billion backlog in orders, 2 percent annual growth in its space and intelligence division, with about three in every 10 spacecraft it builds intended for the commercial market, Simpson said. The division is shooting for at least 40 percent of its business from the non-government market, he said.
As for sequestration and budget cuts, they really haven’t hit home in the space industry, he said.
“I think we are probably at least a year or so downstream before they really start to fully implement [sequestration] and realize that we have a real issue,” Simpson said. “The real issue is that we have programs of record now, and studies, and that is about it.”
There are no new military communication satellites in the pipeline. Yet, the demand for them continues to grow.
There is little of the disaggregation of space systems that Carter talked about so far, he said. “We are not seeing the effects of how we do this in a logical manner going forward.”

Topics: Space

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