Access to supplies becoming more critical as “space is increasingly a strategic asset”
WASHINGTON — The U.S. military traditionally relies on a core group of defense contractors to ensure it has access to critical supplies and equipment at all times. But as space becomes increasingly important to military operations, DoD should address supply risks in the space sector given the volatility of the market, experts said March 21 at the Satellite 2022 conference.
In aerospace and defense, the government takes a long view on what capabilities it needs and where they will come from, said J. Armand Musey, president and founder of Summit Ridge Group, an investment banker and advisory firm.
“They know what Lockheed is doing or what Boeing is doing and so forth,” Musey said. When it comes to space, “now you have a lot of entrepreneurs really mixing up the market. And the government really doesn’t have a good idea of what’s going to be competitive in five years.”
“The market is changing so rapidly,” Musey said. Companies, especially lower tier suppliers, also are going bankrupt at a rapid rate, he added. “So it’s hard to predict what capacity will be available where and so the government has to take a more active role if it wants to assure that it has the capacity it needs in certain areas, at certain times.”
This is not a trivial matter considering that “space is increasingly a strategic asset,” said Musey.
This will be a challenge for the newly created U.S. Space Force, he said. It will need to make sure it has key capabilities within U.S. borders, or at least among allies. “And you can see that happening in Europe right now where they’re putting an enormous amount of money into new launch technologies to try to catch up with SpaceX, for example.”
Reversal of globalization
What is happening now is almost a reversal of the globalization tide seen over the last 20 to 30 years in the post Cold War era of everything moving towards a globally interdependent supply chain,.
A global pandemic combined with growing nationalism has driven many countries, including U.S. allies, to create public-private partnerships to bolster their domestic industrial base, Musey noted.
It’s a risk for the U.S. military to be dependent on foreign suppliers that could turn in a different direction politically or just be cut off because of a global pandemic or other kinds of events. The government, for that reason, should rethink its business model in order to protect sources of supply, he said. Public private partnerships are one approach.
The United Kingdom’s Skynet satellite fleet is a case in point. When the U.K. funded the development of the military’s Skynet broadband satellites, he said, “it was a true public private partnership.”
Paradigm Secure Communications, which is now part of Airbus, built and operates the satellites. The U.K. government is guaranteed a certain amount of capacity but Airbus can sell the excess capacity commercially “and get the kinds of returns that they expect as a corporation,” Musey said. “I think finding ways to incorporate that approach more into the procurement model for government will help strengthen the government’s options in terms of technology as well as help secure the national defense so it’s less dependent on outside supply chains.”
In the current environment, he said, “the government has to be much more aggressive at understanding what’s happening and understanding where it needs to invest .”
Which suppliers will survive?
David Myers, CEO of satellite communications services provider Ultisat, said customers want services from cutting-edge commercial low Earth orbit satellites, Myers said. But one of the challenges is they don’t know “which ones are real or viable, and which ones are going to stand the test of time.”
Conceivably some of them will launch quickly, “but they’ll fizzle out because they’ll run out of funding and they won’t get enough market share,” Myers said.
“There is a desire and a willingness to leverage commercial and industrial space technology development. There’s an interest to use more commercial wherever the government can,” he said. “But I think the contract mechanisms, the vehicles that the government uses to buy products and services haven’t caught up yet.”
The Space Force, for instance, has said it no longer wants to buy monolithic satellite infrastructure and wants to move to commercial satcom services. “And if it works great, and if it doesn’t, the government hasn’t taken the risk, the commercial industry has taken it.”
That approach disincentives private investment in capabilities for the government, said Myers. “The contract mechanisms aren’t set up to allow commercial organizations to recoup their costs and to lease equipment over time, when contracts tend to be one base year plus multiple option years.”
When it comes to working with the private sector, “the government is evolving in bursts,” Myers said.
“There is interest and willingness to buy more commercial, to buy managed services versus buying fixed asset type infrastructure but I think there’s a lot of work to do to evolve to the point that they can really harness and leverage the capabilities of industry. “