Rocket Wars : New Era for Launch Vehicle Marketplace Lifting Off With McDonnell Douglas’ Delta

If all goes as planned, a Delta rocket will blast off from Cape Canaveral in Florida this spring, sending into space the first payload of the nation’s fledgling commercial satellite-launching industry.

McDonnell Douglas, manufacturer of the Delta, plans to mark the May 31 launch with a public relations bash aimed at wooing customers and winning political support for the U.S. industry. The aerospace giant plans to bring in members of Congress and customers from around the world to witness the launch, and company executives are counting on the reliable Delta to perform according to script.

“There’s a lot of attention on this launch,� said Louis Raburn, general manager of McDonnell Douglas’ Delta program in Huntington Beach. “It’s a revival of the launch vehicle marketplace. And it’s also the first step toward the commercialization of space.�

The commercial launch market is an outgrowth of the 1986 Challenger space shuttle disaster that led President Reagan to retire the shuttle from commercial-launching duties--which mostly involve putting communications satellites in orbit--and to encourage development of a private space industry using unmanned, expendable rockets.

The United States was caught without a ready supply of alternative launchers because rocket makers had shut down their production lines years earlier when the government designated the shuttle, operated by the National Aeronautics and Space Administration, as the nation’s only launcher for both commercial and military satellites. It has taken the U.S. manufacturers--McDonnell Douglas, General Dynamics and Martin Marietta--about 3 years to modify their existing rockets for the commercial market and to get their production lines rolling again.

The launch is an important milestone for the Orange County operations of McDonnell Douglas, which has several hundred people working on the Delta program. Each commercial launch contract is worth about $50 million to the company.

However, even as McDonnell Douglas prepares for its inaugural commercial launch, the American rocket industry is facing serious problems because of increasing foreign competition and a market that is sputtering before takeoff.

“There are too many rockets and not enough satellites,� said John E. Pike, a space policy analyst for the Federation of American Scientists in Washington. “The optimistic vision that people had of the commercial rocket business a couple of years ago isn’t going to happen.�

About 20 satellites a year, on average, will be launched through the early 1990s, according to various industry forecasts. With each launch contract worth between $40 million and $60 million, the annual worldwide market is valued at roughly $1 billion annually.

Although a $1-billion business is significant, industry executives are less encouraged by forecasts of little or no growth in the market through the 1990s. With more competitors joining the field, there will be less business to go around.

One reason for the soft market is that satellite customers, such as telephone companies, are booking fewer launches. Much of the telecommunications traffic that used to travel by satellite links now is being carried by ground-based fiber-optic networks. And new satellite uses that might give a boost to the market--for example, direct broadcast of television programs to homes with satellite dishes--have not caught on in the United States.

Moreover, the new generation of satellites is expected to remain in operation longer, perhaps 10 years or more, meaning fewer launches to send up replacement hardware.

Another threat to the U.S. rocket industry, company executives say, comes from foreign competitors whose launch programs are subsidized by governments. These subsidies enable foreign rivals to market their services below cost, the Americans say, making it difficult for the American manufacturers to compete.

Arianespace, the chief foreign competitor, receives its funds for product research and development from the European Space Agency, while American companies must fund those costs on their own, said Dennis R. Dunbar, managing director of General Dynamics Commercial Launch Services in San Diego. “We’re carrying a $5-million to $10-million-per-unit price disadvantage because we need to recover that investment,� Dunbar said.

Arianespace is a 13-member, French-based consortium set up by the European Space Agency in 1980 to market launches to satellite customers. The consortium has launched 29 commercial satellites and claims more than half the world market for launches.

Subsidy Issue

Arianespace officials say American complaints about unfair subsidies are unfounded.

“The subsidy claim is a red herring and always will be,� said Doug A. Heydon, president of Arianespace’s U.S. marketing subsidiary. “Since our company was formed 9 years ago, we have been totally responsible for all our operating costs.�

Arianespace began its business in 1980 by competing with the U.S. space shuttle and had the market virtually to itself after the Challenger accident grounded the American-satellite launching business.

Despite its current leadership position, Arianespace has the most to lose of any of the rocket makers from increasing competition in the market. Unlike its American competitors, which have large military launch contracts, Arianespace is totally dependent on commercial business. The French-based company produces rockets that compete with all three U.S. producers.

“We’ve lost business to all three of the U.S. companies,� Heydon said. “We’ve also lost to (China). But that’s part of the game.�

Upset Over China

Arianespace’s biggest problem, Heydon said, is the weakened condition of the U.S. dollar. He said the cost of the Ariane to U.S. customers has risen 70% in 4 years.

But both European and American rocket makers share a bad case of pre-launch jitters about the potential competition from China and the Soviet Union. Analysts say the Chinese and Soviets are likely to heavily subsidize their launch businesses to gain international prestige and foreign currency.

“The introduction of the Chinese Long March (rocket) and, ultimately, the Soviet Proton will serve to make the market more unpleasant,� Heydon said. “I don’t think there is adequate business to support all these people in the commercial business.�

Industry executives were upset with the Reagan Administration’s decision last fall to relax export restrictions and allow China to launch three Hughes Aircraft satellites aboard the Long March. In January, China signed its first commercial contract to launch a Western-built satellite--a $30-million deal for a 1990 launch of the telecommunications satellite Asiasat 1.

“We were very disappointed in the Administration’s decision to allow the Chinese to enter the market,� said General Dynamics’ Dunbar. “It contradicts the government’s objective of having a strong domestic rocket industry.�

Under the U.S.-China trade agreement signed in January, the Chinese are limited to nine launches during the next 6 years and are supposed to offer their services for prices comparable to Western companies.

Soviet Effort Stymied

But Western executives complain that the Chinese are already violating the trade accord. One industry executive said they recently won a launch contract with Aussat, the Australian satellite authority, by bidding less than one-third the price of its Western rivals.

John M. Logsdon, director of George Washington University’s Space Policy Institute, believes that the Chinese will play a role in the commercial market. “But the notion that they’ll take a significant market share from the United States and Europe is not very plausible� because of restrictions limiting the number of Chinese launches.

Although the Soviets have been actively marketing their Proton rocket for about 2 years, they have been stymied by a U.S. law that prohibits Soviet launches of satellites with American technology. Virtually all satellites launched outside the Soviet Bloc incorporate American technology.

“If there are no constraints placed on the Chinese or Soviets, we won’t be in the commercial launch business,� said Roger Chamberlin, vice president in charge of Martin Marietta’s commercial Titan program. “We have no desire to sell vehicles at a loss.�

But industry observers say other nations eventually will be able to develop satellites without the benefit of American technology. In order to break into the commercial market, the Soviets may provide technical assistance to nations that want to develop a satellite business, said William B. Wirin, vice president of Space Commerce, a 2-year-old Houston company formed as a joint venture with the Soviets to market the Proton.

“We will go to countries that want to develop satellites and help them do so,� said Wirin, a former chief attorney for the U.S. Air Force Space Command. “We will look to the Third World countries and try to help them lower their cost of launches. If you bring down the cost of communications, you will create a requirement for many more launches.�

The Soviets believe that they can market the Proton to developing nations at half the world market price, Wirin said, “and still make a handsome profit.�

Many Modifications

Still another potential competitor, Japan, is expected to make its move into the commercial business in the early 1990s. Under a license agreement with the U.S. government, the Japanese acquired technology used in McDonnell Douglas’ Delta rocket and have been developing a launch system called the H-2.

“The Japanese are not saying much publicly, but it is obviously their intent to be a major player in the space transport game,� said an official with the Office of Space Commerce, a Commerce Department agency. Industry observers say the Japanese have improved upon the Delta’s second-stage engine--the mid-stage engine that puts the satellite into an elliptical orbit. McDonnell Douglas is now mulling the possibility of obtaining the enhanced booster technology under license from Japan.

All three U.S. rockets, the McDonnell Douglas Delta, General Dynamics Atlas and Martin Marietta Titan, are descendants of ballistic missiles developed in the 1950s and 1960s. They have been modified various times throughout the years for different missions.

After a 2 1/2-year shutdown, McDonnell Douglas Space Systems of Huntington Beach reopened its Delta production line in January, 1987. The contract that put the Delta back in business was a military rather than commercial order. The company received an Air Force order valued at nearly $1 billion to build 20 Deltas for launching military satellites that would have gone up on the space shuttle had it not been for the Challenger accident.

On the commercial side, McDonnell Douglas has nine orders for its Delta rockets valued at $500 million. The company’s first launch in May will carry a communications satellite for the government of India.

General Dynamics Space Systems in San Diego, manufacturer of the Atlas launch vehicle, has four firm commercial orders. The first launch will be early next year.

Martin Marietta Commercial Titan Systems in Denver has five contracts for launches of its Titan rocket, with a value of $500 million. Its first launch is scheduled for the third quarter of 1989.

The three rocket makers generally compete for different pieces of the market because their launchers vary in the size of payloads they can carry into space. The Titan rocket, the largest of the three launchers, is capable of lifting more than 11,000 pounds into geosynchronous transfer orbit--which is where most communications satellites are placed. General Dynamics’ Atlas, with a lift capability of 6,000 pounds, is next in size, and the Delta is the smallest with a maximum payload of 4,000 pounds.

Some doubt that the commercial market can support three U.S. rocket makers.

None of the three would be seriously hurt if it was squeezed out of the commercial market. McDonnell Douglas, General Dynamics and Martin Marietta are all major aerospace and defense contractors with substantial resources. Moreover, the American companies have large government contracts to launch satellites for the military and other federal agencies.

The Defense Department has on order 37 Titan, 20 Delta and 11 Atlas rockets. Those contracts have a total value of about $6.3 billion.

Nevertheless, the American rocket makers say they would like to recoup their investments in the commercial market, which totals about $500 million among the three companies.

Pike, the Federation of American Scientists analyst, said increasing competition in the market may make it difficult for the U.S. firms to earn a profit. He argues that there is insufficient business to support three U.S. rocket makers and that without military contracts one or more of the firms would probably be out of the business.

U.S. General Dynamics, for example, probably could not compete in the commercial business had it not won the Air Force business, he said. Last year, the company won Air Force contracts valued at $171 million for three Atlas rockets, with options for eight additional rockets.

“I think that decision was taken simply for keeping General Dynamics in the rocket business,� Pike said. “The rational decision would have been to keep the Delta and Titan and tell the Atlas to go to the Smithsonian.�