Blast-Off For Profits

By Janice Castro

As it thundered into space last week, the tall, slender rocket looked like hundreds of satellite boosters launched by the National Aeronautics and Space Administration. Despite a drizzling rain, the blast-off put a marine observation satellite into orbit without a hitch. The launch pad, though, was not in California or Florida. It was on Tanegashima Island, and the rocket bore on its side, in prominent black letters, a single word: NIPPON.

Japan has joined a host of other nations that are striving to enter a fiercely competitive new space race. After the U.S. shuttle program was grounded last year by the Challenger tragedy, NASA ceased to be the world's principal carrier of commercial space cargo. Following President Reagan's announcement in August that future U.S. shuttle flights would carry few commercial payloads, space agencies from Peking to Paris have been hustling for their share of a world satellite-launching business that could be worth $2 billion to $5 billion annually.

Dozens of NASA clients have been forced to shop around for other launchers. Among the more than 150 scheduled payloads left grounded by the U.S. space agency were satellites owned by GTE-Spacenet, RCA and Western Union, and by communications services in Canada, Britain and Indonesia. Many companies turned to Arianespace, the French-led European space consortium, which quickly booked all its flights through 1989. But the European concern could not take on all of NASA's customers, partly because it can handle only about ten lift- offs a year at its launch pads in the jungles of French Guiana.

The rush then began among fledgling launchers to help clear the world cargo backlog and carve out a piece of future business. In the U.S., aerospace giants Martin Marietta, McDonnell Douglas and General Dynamics, all longtime manufacturers of the rockets used by NASA and the U.S. Air Force, are determined to capture a share of the new market. Space agencies in the Soviet Union and China as well as Japan are also gearing up to provide launching services.

Martin Marietta, which produces Titan-class rockets for the Air Force, was the first U.S. firm to sign up a client. It plans to launch an ExpressStar communications satellite for Federal Express in 1989. Says Richard Brackeen, a vice president in charge of launch systems for Martin Marietta Aerospace: "The private launching business could be the next widebody jet business." +

In January, McDonnell Douglas hitched a ride into the space race when the Air Force awarded it a $734 million contract. The firm will build a fleet of up to 20 unmanned rockets by 1991 to launch military satellites. While that work is under way, it will be relatively cheap for McDonnell Douglas to build additional rockets to haul commercial payloads.

Much smaller U.S. operators are also reaching for the skies. Robert Truax, a former Navy engineer, built a rocket in his Saratoga, Calif., backyard four years ago, and hopes to be the first private businessman to launch commercial cargo into space, possibly from Cape Canaveral. Entrepreneur George Koopman's Menlo Park, Calif., firm, American Rocket, is conducting flight tests at Edwards Air Force Base in Southern California. Like Truax, Koopman says the hardest part about starting a space-transport firm is raising enough money. Says he: "I'm still out there beating the bushes for funds."

Big or small, however, the American companies will have to scramble if the U.S. is to regain the lead in the business that it pioneered. Europe's Arianespace is moving swiftly out in front. Suddenly transformed into a monopoly by the Challenger disaster, the company hiked its prices from about $30 million to $50 million. Arianespace signed 18 new contracts in 1986, up from eleven in 1985.

The European launcher's fastest-growing competitor is the China Great Wall Industry Corp. The People's Republic has aggressively marketed its Long March- 3 booster service, offering discount prices and giving tours of its space facilities for potential Western clients. Says Sun Jiadong, the Chinese Astronautics Vice Minister: "We are willing to offer our Long March system with the most meticulous service."

Next year Great Wall plans to launch its first commercial payload, a Westar 6-S communications satellite for New York-based Terasat. It will transmit television programming and business data for Western Union and other users. The Chinese have also signed an agreement to launch a Swedish satellite, and are holding talks with 17 other nations. For customers who are concerned that China may copy the technology in satellites, Great Wall suggests that they package the payload in a sealed container and send along representatives to escort the cargo to the launch site.

Whether or not such precautions truly guarantee security, that proposition has been matched by the Soviet Union, which has shouldered its way into the business with newfound Madison Avenue-style pizazz. Armed with glossy brochures that picture mighty Proton rockets blasting off, the Soviets are heavily promoting their new commercial space service. Despite its vast experience in space, however, the Soviet Union stands little chance of capturing much of the satellite market in the near future. U.S. Government rules bar any satellites that contain U.S. technology from being shipped to the Soviets. Since most satellites made in the non-Communist world contain American parts, Moscow may have to persuade Washington to ease its restrictions if the Soviets are to be leading satellite launchers.

Japan is off to a slow start as a result of the American ingredients in its rockets. Licensing agreements allow the Japanese to launch their own satellites, but not to go into the business of launching payloads for other countries. That situation will soon change. Japan hopes to replace all American-made parts in its rockets with homemade hardware by 1992, clearing the way for its entry into the commercial launch business.

By that time the field could be overcrowded. Although the number of Western commercial satellite launches -- about 25 a year before the shuttle accident -- is expected to return to that level by 1992, the number of competitors who are eager to launch them is growing rapidly. Observes Morton Langer, who follows aerospace companies for the investment firm Bear, Sterns: "The fundamental question facing the commercial launchers is whether there will be enough satellite launches to support all the companies that have entered the business. Right now there is more romance than answers."

Some Wall Street aerospace experts doubt that the satellite-launching business will live up to expectations. One reason: demand may be depressed somewhat by the new fiber-optic cable networks now under construction across the Atlantic and Pacific oceans, which can handle many transmission needs as well as satellites do. Demand for launches might be reduced further by a new satellite-placement technique introduced last year. A slight change in the way satellites are positioned with respect to the earth is expected to reduce substantially the fuel needed to keep them in the correct orbital slot. If so, new satellites may last considerably longer than current models, and replacements will not have to be sent up as often.

The new launching competitors, however, will not be totally dependent on the satellite market. NASA has proposed a space station, for example, that Boeing, Martin Marietta and McDonnell Douglas are bidding to build in the early 1990s. Once operational, the station will need to be supplied by as many as 16 cargo launches a year, and private firms may get some of that business. Commercial carriers could also win Defense Department contracts to carry hardware into space as testing of Strategic Defense Initiative technology picks up.

Whatever the size of the business, American space companies may need some kind of federal assistance to stay in the race. Space programs are matters of national prestige, and all foreign space operators enjoy generous government subsidies. Help from Washington might take the form of giving American firms preference on Government launch business and space-support services.

If American companies can build upon NASA's experience, they are likely to have an edge in the launch market. Despite the shuttle accident, the U.S. has the best reliability record for space shots. Moreover, American firms may benefit because the U.S. makes nearly 70% of the world's satellites. Most customers prefer to send up their satellites from the country of manufacture, because of lower costs and greater technological compatibility with the launching service. Says Andrea Caruso, director general of the European Telecommunications Satellite Organization: "Most Europeans would still prefer to launch with the U.S., but the U.S. is going to have to move quickly to demonstrate that it has a usable launcher and that it is competitive with its pricing." In other words, U.S. space companies will face the same competitive pressures from abroad that have bedeviled American manufacturers of clothes, cars and television sets.

With reporting by Jerry Hannifin/Washington and Thomas McCarroll/New York, with other bureaus