Global Industry

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Global Industry

From the earliest forays into commercial space, competition has been fierce. The United States has an established lead in the design, construction, and marketing of satellites. At the end of the twentieth century, U.S. satellites were being launched routinely for a significant number of nations by launch vehicles provided by eight different nations from launch sites all around the world. The transfer of export license processing from the U.S. Department of Commerce to the U.S. Department of State in 1999 resulted in a conspicuous slowdown in satellite exports, but even this impediment did not compromise U.S. leadership in this world market. The decision to change licensing authority arrangements in the United States was a response to instances of transfer of technological information to China by U.S. companies that the American government deemed inappropriate. This article will explain how space business enterprises had become internationally interwoven to a deep degree by the opening of the twenty-first century.

Changes Following the Challenger Disaster

Space business underwent some major changes between the mid-1980s and the end of the twentieth century. Following the explosion of the space shuttle Challenger because of a technical malfunction in 1986, the United States decided to no longer use the space shuttle to carry commercial payloads into orbit. It quickly became clear that the United States had put too much reliance on one launch vehicle, the shuttle. Lack of a good alternative launch system sent aerospace companies scurrying to develop suitable rockets to fill the gap. More importantly, it meant that the United States had lost its dominant position in the launch business to the growing competition from other nations.

Initially the main competition came from the European Ariane launchers. Over time, more and more nations became involved in the commercial launch business, most notably Russia (after the end of the Cold War), Japan, and China. By 2000, eight nations boasted satellite-launching capabilities and several multinational commercial launch services had been established.

Much of the expertise in rocketry developed in the period between World War II (1939-1945) and the glory days of the Saturn V rocket and the Apollo missions to the Moon was lost in subsequent years as the United States limited its civilian space activities to low Earth orbit (LEO). The development of new launch vehicles was marred by expensive failures, raising questions about U.S. reliability in the launch business and forcing insurance rates higher. Loss of domination of the world space launch business coupled with a cutback in U.S. government space contracts resulted in a slew of mergers and acquisitions as aerospace companies streamlined to remain competitive.

Mergers and Acquisitions

In the largest American mergers of the 1990s, Lockheed Corporation merged with Martin Marietta Corporation to become Lockheed Martin Corporation, and the Boeing Company absorbed McDonnell Douglas Corporation as well as elements of Rockwell International Corporation (the corporation that had built the space shuttles) and Hughes Electronics Corporation. This climate of mergers and acquisitions started in response to events in the United States but continues as the industry reacts to events worldwide that impact this global market. For example, two significant companies merged in 2000 when Honeywell Inc. acquired AlliedSignal Inc. in an all-stock deal valued at $14 billion.

The focus on LEO communications networks and on the design of launch vehicles limited in capability to delivery to near-Earth space was another shaping factor in the development of the global industry. Companies such as the unsuccessful Iridium planned to provide worldwide communications capability primarily for an international business clientele. This market initiative stalled because of a combination of technological developments in fiber-optic networks (greatly undercutting the cost of space-based communication systems), and a poor assessment of the market niche. The push toward LEO networks, however, increased emphasis on the global marketplace.

Globalization—the worldwide expansion of corporate business activity—also became a factor in the space industry towards the turn of the century. The creation of companies such as International Launch Services, which combined American business savvy with access to customers and merchandizing from Lockheed Martin and with the technical reliability of Russian rocketry, was typical of the trend towards international leveraging of assets for market success. Another company, Sea Launch, brought even more partners together, teaming another Russian rocket, U.S. corporate business leadership, operations and management from Boeing, a Norwegian-built oceangoing launch platform, and initially, a Cayman Islands registry. The trend of mergers and acquisitions was not confined to the United States. In 1999 Aérospatiale Matra, Daimler Chrysler AG, and Construcciones Aeronauticas S.A. merged their space capabilities to create the transnational firm EADS, the European Aeronautic Defence and Space Company. In 2000, Matra, BAE Systems, and DaimlerChrysler formed Astrium, covering the whole spectrum of space business. Further refinements of European consolidations have responded to changing trends in the aerospace industry related to economic slowdowns in both Japan and the United States, and the terrorist attacks of September 11, 2001.

The Global Nature of the Commercial Space Business

Even before the trend for mergers and acquisitions and the development of corporations geared to worldwide operation in a global market, the commercial aerospace industry was intensely internationally interconnected. For example, while a launch vehicle might be built in the United States or Japan, some component parts would come from elsewhere and payloads—the satellites that were lofted into space by the launch vehicles—frequently brought together instruments and components from several additional nations. Furthermore, each launch and its payload has to be insured against catastrophic failure of the launch vehicle, failure of the launch vehicle to place the satellite in the correct orbit, and malfunction of the satellite itself. Whereas the United States develops the majority of the world's satellites and has regained a significant share of the launch market, the majority of launch insurance comes from Europe. Australian-based insurance companies have also been a significant provider of insurance and reinsurance for the space business. Insurers require detailed knowledge of the vehicle and payload to be insured, resulting in the necessary transfer of detailed information about a planned launch to individuals outside the originating nation. The insurance element provides one more illustration of the global nature of the space industry with its many component parts.

Growth Trends in the Global Space Industry

The first year in which commercial space revenues exceeded revenues from government space contracts was 1998. In subsequent years, the growth of commercial space business has widened the gap between commercial revenues and government revenues from space commerce. A total of 128 spacecraft were launched in 1999. Seventy-six of those launches were for commercial customers and fifty-two were government missions, highlighting that the industry driver has changed from the government sector to the commercial sector. Eight countries were responsible for the 128 launches, which had a success rate of 89.7 percent.

In 1999 direct broadcast satellite television was the fastest-growing consumer electronics product in history, and more then 35 million people worldwide received their TV via satellite. Digital audio radio was predicted to be the hot electronics product for the first decade of the twenty-first century, with an audience of more than 49 million subscribers expected by 2009. Worldwide, the space industry employed nearly 1.1 million people in 1999 and posted revenues of $87 billion. Worldwide space revenues for the years 2000 to 2005 were projected to total $619.4 billion.

see also Aerospace Corporations (volume 1); Business Failures (volume 1); Insurance (volume 1).

Pat Daschx