[Via Satellite 07-15-2015] Lockheed Martin Space Systems is looking to make more of an impact in the commercial satellite sector. While the company has had numerous successes in the U.S government arena in recent years, it needs to make more of an impact in the commercial satellite sector. A recent two-satellite deal with Arabsat and Saudi Arabia’s King Abdulaziz City for Science and Technology (KACST) was much needed and could be a signal of better things to come. In an exclusive interview with Via Satellite, Rick Ambrose, executive vice president of Lockheed Martin’s Space Systems Company, talks about the challenges for the company as it looks to become more of a force again on the commercial satellite landscape.
VIA SATELLITE: Where are the growth opportunities for Lockheed Martin in the space arena right now?
Ambrose: Our focus has been on the next space age, which is happening now. You see the excitement of the Internet companies coming online, government wanting to do more commercial. You see commercial companies wanting to reach the un-connected. So, it is hard to differentiate between government and commercial systems. There is a lot of convergence. I see an increased appetite for connectivity. There is an interest in social media information systems. Clearly, remote sensing is big. You have climate change. It is really an exciting time for space as we drive forward with that.
VIA SATELLITE: From the outside, it feels like the company has underperformed on the commercial satellite side in recent times. What are your views on this?
Ambrose: I would say the company has performed quite well, delivering double-digit returns to shareholders. You can argue that there has been a little bit of a down market. What I would tell you is that we have been transforming the business so we can both continue to execute and deliver for our government customers as well for our commercial customers, and win additional commercial awards. For example, we have recently won a contract from Arabsat. We continue to deliver on our programs for the U.S. government, and recently we agreed with the U.S. Air Force to bring our new, modernized A2100 into the Space-Based Infrared System (SBIRS) satellite 5/6 Program. You saw the success of Orion last year on our civil side. We had success with the Mars Atmosphere and Volatile Evolution (MAVEN), and we have another mission to Mars called InSight. While there is not huge growth, we believe we are delivering on our commitments and performing quite well.
VIA SATELLITE: When we interviewed Lockheed Martin two years ago, they were very bullish about making a big splash again in the commercial market. However, the levels of dealmaking didn’t seem to be as much as was forecast.
Ambrose: We would never go away from our government customers as they are too important for us. But, two years ago, while we were moving to expand the commercial satellite sales revenue, we were still investing in transforming the business. It was a four-year commitment to modernize our A2100 bus, which we are pretty much finishing up. This is why we could close the sale to Arabsat. It is why we are able to put this bus on government programs. We do have other bids out also. As you all know, the interesting part of this business is that everyone wants innovation and new techniques but no one wants to be the first.
I would give a lot of compliments to Arabsat, because we have three major new components going in there. They had a vision and a strategy, and they challenged the industry in terms of innovation, but are willing to accept being a first-time user. So, I’m talking about things like flex panels, processing, and some of the electrical propulsion. It is a long-cycle business. It is not like an Apple release where you will get a million sales overnight. It takes three to four years to develop the product and then go forward.
VIA SATELLITE: What are you bringing to the table to persuade operators to go with Lockheed Martin rather than others?
Ambrose: While we are proud of our heritage, our customers are going to measure us in terms of our ability to do things today, and what we can provide for them to enable their business model. We are focused on practical innovation. The investment we made on A2100 was not made on just some new techniques. We wanted to reduce the costs by 35 percent of our offering and the cycle time by 25 percent. We removed parts counts, shrunk that down, and created hybrid propulsion systems so users have choice with that. We have to solve our customers’ business needs to enable them to close their business case for their clients so they can sell into their marketplace.
VIA SATELLITE: Is the pace of change happening quickly enough in the satellite manufacturing space?
Ambrose: You always have to have a balance. You want to change fast but this is a very unforgiving business. While you want to drive that change, you need to be disciplined and thoughtful. For instance, there are a couple of areas we have been focused on. Firstly, we have been doing some modernization technology insertion on our A2100 satellite bus, which we are quite comfortable with. Secondly, we want to transform the infrastructure. We have taken 2 million square feet out of the operations. We have reduced a ton of overhead costs. We are very lean and concentrated on performance. We have doubled our Research and Development (R&D) investment as a percentage of revenue. We are shifting our focus on finding new innovative methods in payloads.
VIA SATELLITE: How difficult is it for Lockheed Martin to re-establish its business here?
Ambrose: Because of our program portfolio, I don’t think it is difficult at all. We are willing to bring in those capabilities to drive our costs down. For instance, you take a couple of government programs like the U.S. Air Force Advanced Extremely High Frequency satellites (AEHF) and SBIRS, we have driven 40 percent cost take-out in those programs on a recurring basis. By inserting our modernized A2100 into SBIRS, we will get another 25 to 30 percent if they order another one. That is adding value for our customers, especially in these very austere times. It is the same on the commercial side. We have to drive costs down but, more importantly, we have to put value in. We have to help operators in reducing the dollars per bit that they can deliver to customers. We have to get more capacity and throughput into those satellites and payloads.
We are not going to build a thousand satellites. If you build eight big satellites, that is a big run for a company like ours. We have to have very unique systems and processes to be very efficient.
VIA SATELLITE: You have signed Arabsat. How many commercial orders do you hope to sign by this time next year?
Ambrose: You know the data here. You have 18 to 20 new satellites a year. You probably lose a third to half of those to national interests. If you close two to three contracts a year, you would be doing well. Some might be a single satellite, some might be a multiple satellite order. If it was just one a year, that would not be a good success rate. I think two to three is rational when you look at the numbers. Because we are using the same systems and tools we are using for government customers, we can be profitable at those numbers.
VIA SATELLITE: What is the number one challenge to grow this business right now?
Ambrose: Our revenue growth has been flat. Our growth will come from delivering value to the operators that are under pressure today. So, getting in more advanced technologies, and more flexible payloads to our customers, this will be key. We want to help customers solve challenges that they have been struggling with for years.
VIA SATELLITE: The LEO satellite revolution has started up again this year. What is your take on this and how this impact the satellite market generally? Is history repeating itself?
Ambrose: It is hard to say. History could be repeating itself. I have seen a lot of articles that say “we tried this in the 1990s, we shouldn’t be doing this again,” but I don’t think you should disrupt an innovation cycle. Technology has changed; an idea that was bad 10 years ago may not be bad now. However, you have to be realistic; we can throw a lot of satellites up, but the real cost is a combination of launch, your ground network, and then the satellites. If you look at a system cost over 20 years, the ground infrastructure and launch dwarf the costs of the satellite.
I think there will be a battle for the two concepts. You will have high-quantity LEO satellites, which in theory could reach areas where connectivity is not satisfied today, and High-Throughput Satellites (HTS). If I had to predict, particularly with new technology developments, the odds would seem to favour HTS, which can dynamically adjust power and bandwidth to where it is needed. If you put a whole system up, do you want to be spreading a lot of bandwidth over water? Now, for that to work, there has to be some technology developments, where you can dynamically assign bandwidth power at the right place at the right time from your payload, and we are not quite there yet.
VIA SATELLITE: We haven’t really discussed the government business all that much. With a U.S. presidential election coming up next year, could this have a significant impact on your business post-2016?
Ambrose: Space has become so critical not only to civilian life, but also to government use, I don’t see a fundamental change — no matter what administration is in place — with respect to the importance of space. You can sometimes see a shift in terms of the focus on which program and what types of systems. We are all dependent on the Internet, weather, GPS, social media — all that comes from space. Now, does someone push environmental science over communications a little more? They might. But, in general, the vectors will stay very close to where they are now.
VIA SATELLITE: What are your ambitions in the space business over the next 12 months?
Ambrose: We want to drive down our cycle times and our cost structure. We are heavily invested in our digital tapestry, model-based engineering, and additive manufacturing. I have challenged our team to be the first to print a satellite. It won’t be every piece part of the satellite, but we are already printing sub-structures like tanks, wave guides, and feed arrays.
In terms of cycle times, the best example I can give you is propellant tanks. If you machine a tank, you have a minimum of 21 months to get that tank. By printing, we can reduce that to as little as six weeks. The ultimate goal is to reduce overall cycle times by 40 to 50 percent. We want to focus on the long-lead items like propellant tanks.
VIA SATELLITE: What is the shortest time you could build a satellite?
Ambrose: It depends on the type of satellite, but I would say in the 18 to 24 month range. For a remote sensing satellite, it would likely be longer. For a normal communications satellite, I think you could get it down to 18 months. Right now, we run from 24 to 30 months for satellites. The reality is we are looking to take half a year off of the cycle times.
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