US government urged to address supply risks in space sector

Access to supplies becomes more critical as “space is increasingly a strategic asset”

WASHINGTON — The U.S. military has traditionally relied 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, the DoD is expected to face procurement risks in the space sector given market volatility, experts said March 21 at the conference. Satellite 2022.

In aerospace and defense, the government has a long-term view of the capabilities it needs and where they will come from, said J. Armand Musey, chairman and founder of Summit Ridge Group, an investment banker and corporation. of advice.

“They know what Lockheed is doing or what Boeing is doing, etc.,” Musey said. As for the space, “now you have a lot of entrepreneurs who are really mixing up the market. And the government really doesn’t have a good idea of ​​what will be competitive five years from now.

“The market is moving so quickly,” Musey said. Businesses, especially lower-tier suppliers, are also going bankrupt at a rapid rate, he added. “It is therefore difficult to predict what capacity will be available where and therefore the government needs to take a more active role if it wants to ensure that it has the capacity it needs in certain areas, at certain times.”

That’s no small feat given that “space is increasingly a strategic asset,” Musey said.

It will be a challenge for America’s new space force, he said. It will have to ensure that it has key capabilities within US borders, or at least between allies. “And you can see that happening in Europe right now where they’re investing a lot of money in new launch technology to try to catch up with SpaceX, for example.”

Reversal of globalization

What is happening now is almost a reversal of the globalization trend seen over the last 20-30 years in the post-Cold War era of everything moving towards a globally interdependent supply chain.

A global pandemic combined with growing nationalism has prompted 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 who might veer politically in another direction or simply be cut off due to a global pandemic or other type of event. the the government, for this reason, should rethink its business model to protect sources of supply, he said. Public-private partnerships are one approach.

The UK’s Skynet satellite fleet is a good example. When the UK funded the development of the army’s Skynet broadband satellites, he said, “it was a real public-private partnership”.

Paradigm Secure Communications, now part of Airbus, built and operates the satellites. The UK government is guaranteed some capacity, but Airbus can commercially sell the excess capacity “and get the kinds of returns they expect as a business”, Musey said. “I think finding ways to embed this approach more into the government procurement model will help strengthen government options in terms of technology and secure national defense so that it is less reliant on supply chains. outside.”

In the current environment, he said, “the government needs to be much more aggressive in understanding what’s going on and understanding where it needs to invest.”

Which vendors will survive?

David Myers, CEO of satellite communications service provider Ultisat, said customers want cutting-edge commercial satellite services in low Earth orbit, Myers said. But one of the challenges is that they don’t know “which ones are real or viable, and which ones will stand the test of time.”

It’s conceivable that some of them will launch quickly, “but they’ll burn out because they’ll run out of funding and they won’t get enough market share,” Myers said.

“There is a desire and a will to take advantage of the development of commercial and industrial space technologies. There is an interest in using more commercial wherever the government can,” he said. “But I think the contracting mechanisms, the vehicles that the government uses to buy goods and services, haven’t caught up yet.”

The Space Force, for example, said it no longer wanted to buy monolithic satellite infrastructure and wanted to transition to commercial satellite communications services. “And if it works well, and if it doesn’t, the government didn’t take the risk, the commercial industry took it.

This approach discourages private investment in government capacity, Myers said. “Contractual mechanisms are not in place to allow commercial organizations to recover costs and lease equipment over time, whereas contracts tend to be for one base year plus several option years. “

When it comes to working with the private sector, “government moves in fits and starts,” Myers said.

“There is an interest and a desire to buy more commercial services, to buy managed services rather than buying capital type infrastructure, but I think there is a lot of work to be done to evolve at the point of being able to really tap into and leverage the capabilities of the industry.”

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