The End of the Beginning of the End (of Expensive Satellites)

The Toe in the Door

A little over two years ago, the U.S. Space Development Agency (SDA) announced it awarded contracts to L3Harris and SpaceX to build eight missile tracking and detection satellites (four each). The satellites would have wide field of view (WFOV) infrared sensors and optical communication relay crosslinks. The initial announcement included the beginning satellite launch deadline–September 2022–and the deadline for all satellites to be deployed by March 31, 2023.

At the time, I noted the following:

“...SpaceX’s entry into the military satellite realm should make other defense satellite manufacturers take notice. Consider who did not receive a contract for building a satellite with an infrared payload: Lockheed Martin (who manufactures and operates the Space Force’s Space Based Infrared System), and Northrop Grumman (manufacturer and operator of the Missile Defense Agency’s Space Tracking and Surveillance System). I am not privy to whether either company put their hat in the Tracking Layer contracts ring.”

The following reasons supported that observation:

• SpaceX manufactures satellites quickly–~120/month
• SpaceX manufactures satellites inexpensively–Starlink v1 estimated ~$300,000 each
• SpaceX’s experience of operating multiple satellites in orbit unsurpassed

I ended that analysis by describing how SpaceX’s first foray into Department of Defense satellite manufacturing isn’t great news for legacy military space contractors:

“…SpaceX gets a toe in the door of satellite defense contracting, beyond which is a room filled with companies who bill high, aren’t competitive, don’t like change, and move very slowly. They’ve seen SpaceX’s impact on launch companies that exhibited the same traits: expensive, non-competitive, and slow. Legacy defense satellite manufacturers should be concerned.”

The September deadline has passed with no satellites launched for SDA. The agency noted two reasons for exceeding the deadline: supply chain challenges and fighting off bid protests. So instead, the first Tranche 0 SDA satellite launches should be happening sometime this month (December 2022).

Introducing, Starshield

Perhaps not entirely coincidentally, SpaceX announced Starshield this month, a SpaceX branch that provides U.S. military-focused products and services. Starshield’s website describes (if you want to call it that) Starshield so:

Starshield leverages SpaceX's Starlink technology and launch capability to support national security efforts. While Starlink is designed for consumer and commercial use, Starshield is designed for government use, with an initial focus on three areas:

• Earth Observation: Starshield launches satellites with sensing payloads and delivers processed data directly to the user.
• Communications: Starshield provides assured global communications to government users with Starshield user equipment.
• Hosted Payloads: Starshield builds satellite buses to support the most demanding customer payload missions.

Yes, it is all very vague, but it has some tantalizing hints, too (by design). It’s intended to get people guessing, possibly misdirecting competitors and analysts, while also getting the space nerderati to comment about it (including yours truly).

The first bullet’s wording indicates SpaceX will be getting into the Earth observation business. However, the bullet could also mean that SpaceX will continue doing what it’s been doing–launching customer satellites with sensing payloads. After all, that is what the bullet says: launching sensing satellites, not building them. What obscures it all is the “delivers processed data directly to the user” bit, which references Starlink-associated capabilities. SpaceX is either marketing something it already does (launch) or is ready to offer something new (RS satellites with data relays).

The second bullet is no surprise–SpaceX is getting into providing communications services and products to use those services to the government. Starshield seems to be the formal front for SpaceX to deal with the government, which is probably a good thing. What it isn’t, however, is a new capability.

Another One Rides the Bus

The third bullet, however…that’s a new(-ish) offering. At a guess, it may be the most important. It’s the one bullet legacy satellite manufacturers (and even new ones, such as York Space) should have anticipated and been ready for: SpaceX is getting into building satellite buses for government payloads. The company got its toe in the door with the SDA contract. Apparently, things have gone well enough there (despite schedule delays) that SpaceX feels confident to offer satellite manufacturing for others. It’s unclear whether the satellite buses will be based on Starlink v1 or v2. There are good arguments for offering either.

SpaceX’s satellite bus manufacturing announcement also aligns with one trend. Companies such as Rocket Lab have recently seen significantly more revenue from their satellite manufacturing operations when compared to their launch revenue. It would make sense for SpaceX to take advantage of similar opportunities, with higher-paying government customers. SpaceX’s announcement differs from those others, in that SpaceX isn’t even bothering to court commercial businesses for its satellite buses. It is going directly to where it believes the money is: the U.S. government. It may be that once Starshield gets traction in that segment (what some people point to as subsidization), it will then begin offering its buses to commercial markets, possibly for a lower price than what the governments will have paid for them. SpaceX already does this with its rockets.

Also, hosted payloads on Starlink buses don’t contradict the first bullet. SpaceX/Starshield-provided buses could still host sensing payloads and then be launched on a Falcon 9. It also means that SpaceX doesn’t have to necessarily get into the nitty-gritty of obtaining personnel and facilities to build whatever is required to manufacture satellite sensors. Instead, as with the SDA contract, another company or organization will provide the sensor payload.

SpaceX is moving into that government-dedicated market filled with “expensive, non-competitive, and slow” satellite manufacturers. It’s bringing its fast-paced satellite manufacturing capability and ability to iterate quickly. There may be some government customers out there willing to work with that. It may also be that Starshield’s satellite buses will still be less expensive than any legacy competitor’s offering. While that may not be the most critical government requirement, it may still tantalize a few with less flexible budgets. The major limitation for government customers may be the speed with which they can produce a sensor to be integrated into a Starlink bus.

As concerning to legacy satellite manufacturers may be the fact that SpaceX is standing up Starshield. It, frankly, is using language on its site that any company courting government business uses: security and partnerships. The only missing government-attracting words are the “minority woman-owned veteran small business,” which can’t describe Elon Musk and his ilk.

Starshield may mean that SpaceX is not only announcing its intent to manufacture satellite buses for other government customers but also providing dedicated points of contact. like the legacy companies. Those POCs are used to working with government counterparts and understand their requirements. Such contacts would help encourage prospective government customers to work with Starshield and determine whether its offerings are a good fit.

What we may see in the U.S. satellite manufacturing sector may be similar to what we saw when SpaceX first entered the rocket launch business. However, it could happen more quickly if SpaceX learned lessons from its forays into the launch business. The fact that Starshield is open for business may indicate SpaceX has learned some lessons for getting government contracts. Potential customers are also more aware of SpaceX now because of the company’s success in the launch business.

Based on SpaceX’s launch industry history, even accelerated, Starshield will not become immediately inundated with government contracts to build satellite buses. Instead, the company will get the dribs and drabs while government customers continue working with legacy manufacturers. But those dribs and drabs will be accomplished on time and with so little drama (no IG reports, no GAO reports) that Starshield will get more contracts. Eventually, government agencies will realize they can buy more satellite buses without significantly increasing the schedule or worrying about Starshield blowing the budget.

All the conjecture above may mean that the U.S. satellite manufacturing industry is approaching the end of the beginning of the end of expensive satellites. What SpaceX has announced isn’t a new business model. Instead, it’s chasing the government business money fountain that legacy satellite manufacturers have regularly and heartily slurped from for decades. If Starshield helps it initially gain a sipping space at the fountain, then we should expect to see the U.S. satellite manufacturing segment change as SpaceX replaces them.

Welcome to new space…it looks very much like old space.