GRAHAM WARWICK / WASHINGTON DC
Manufacturing overcapacity and depressed demand could lead Lockheed Martin and Loral Space & Communications to combine their commercial satellite operations. While the two companies decline to comment on a Wall Street Journal report that they are discussing a joint venture, the move would address concerns about profitability in their satellite manufacturing businesses. Lockheed Martin already holds a 13% stake in Loral.
Consolidation among the five major European and US communication satellite manufacturers seems increasingly likely, with sales of large geostationary orbit (GEO) commercial communications satellites expected to fall below 20 this year, from a recent average of 30 a year. Operators have delayed capital investments because of the uncertain economy and the slow development of the broadband data market.
A joint venture between Lockheed Martin and Loral would create a stronger second player behind GEO market leader Boeing. Space Systems/Loral (SS/L) is already the second largest manufacturer, with 20-25% of the market and 19 satellites on backlog, while Lockheed Martin Missiles & Space has just seven commercial satellites in its backlog. Boeing Satellite Systems says two-thirds of the 36 satellites it has in backlog are for commercial customers. Orders have been scarce this year, but are expected to pick up as the economy recovers.
All three US manufacturers have restructured to reduce costs. SS/L cut its workforce 11% by the end of last year and Lockheed Martin will have shrunk its satellite manufacturing workforce 6% by the end of this year. In February, Boeing's satellite unit announced plans to cut 1,150 jobs, 11% of its workforce, but this rose to 2,000 in April and could total 2,500 by year-end.
Loral says SS/L's factory is full, with 20 satellites under construction, but Lockheed Martin has struggled with overcapacity since gearing to build large numbers of low Earth orbit satellites, a market which collapsed with the failure of Iridium. While GEO operators remain healthy, they are not placing orders.
Loral says the 260 commercial geosynchronous satellites in orbit should generate a market for around 20 replacements a year, and expects more orders by 2003.
Source: Flight International
