A recent SpaceNews report on the “growing pains” of the smallsat industry was a wakeup call to some, due to the critical importance of a healthy, vibrant space industrial base. A resilient foundation will enable our national strategy against well-funded and rapidly advancing threats. But rather than comparing the government-directed and inadequate business practices of the past, an analysis of the companies themselves is warranted, as I wrote in Forbes last year. Whatever is making these commercial companies tick, our government would be wise to peek behind the curtain at their financial health and carefully planned supply chains, to unleash the extraordinary leverage that commercial off-the-shelf systems and components offer.
Our government’s national security needs have changed quickly. Long gone are the days of a benign domain uncontested by an adversary. Combatant commanders need capability on orbit tomorrow — and lucky for them (and the taxpayer), the robust commercial industry is uniquely suited to address these needs. Born about a decade ago by venture investments, this rapidly growing industrial base and the agencies like SDA who leverage it, have been sprinting ever since to keep up with demand.
This month, the United States Chamber of Commerce hosted its Aerospace Summit, which shared many of the lessons learned from the first few years of this explosive growth within the industry. It has become public that some of the key suppliers were not nearly as ready to scale up as they had signaled to both the government and their prime contractor customers, leading to growing pains. This has become apparent across the various sub industries from spacecraft propulsion to key encryption hardware and laser communication terminals.
Ironically, the new commercial prime contractors are not facing the biggest headaches; it is the traditional defense primes with decades of experience in cost estimation, project management, and systems integration. Most of them grew into adulthood in the first Space Race, where everything was done on a cost reimbursement basis and cost and schedule delays actually boosted a company’s bottom line. Institutional inertia has been a hard thing to overcome, and some are just having a tough time rising to the challenge of real budget limitations. For commercial companies who live by fixed price contracts and only receive payment on delivery, it’s just another day in the office.
As part of a comprehensive risk management plan to deliver on time and at competitive pricing, these commercial companies are well versed in carrying competitive, multiple suppliers. And rather than whining or wishing for the good ol’ days, they are thrilled to finally be allowed to contribute to our national defense and are poised to scale their contributions.
When you take a second look at these next-generation space companies, they are not buckling under aggressive timelines because they already internalized that the pivot to proliferated LEO constellations is as existential for the survival of a country as it is for their business. They know that a healthy, competitive commercial space marketplace is necessary for our Space Force and the space economy to thrive in the 21st century. And most in the business know that an acquisition delay of a few months on a not-yet-attempted two year schedule (at no additional cost to the government) pales in comparison to the 10 year schedule delays and multi-billion dollar cost overruns of the last 30 years.
Moreover, these programs were what produced the infamous “fat juicy targets,” and those satellites continue to be operationally vulnerable as extremely large, practically immovable geostationary objects — against which China makes aggressive moves every day. Additionally, the massive cost overruns to complete them encroached on modernization efforts in all other mission areas. We see the remnants of this today, as the Space Force is left with horrifically inadequate legacy offensive and defensive counterspace capabilities.
In times like this, when minor growing pains arise when one spacecraft propulsion company teeters on the verge of bankruptcy, incompetent bureaucrats recoil and look for the easy button instead of seeing situations as opportunities to learn to improve resiliency. The truth is that companies going into bankruptcy make for good clickbait, but most startups in the space business go on to varying degrees of success with some form of investor liquidity event, typically a merger or acquisition.
For those that turn to bankruptcy as their best option, the precipitating factors are often management incompetence and some combination of poor financial, technical or strategic planning. But the responsibility for managing these suppliers rests with the prime contractor, not the government. If a prime contractor cannot manage themselves or their chosen suppliers well enough, the government ought not select them until they are ready to and, in the meantime, select the ones who can.
We cannot go back to the old way of doing business. It wasted time and money — two things we are almost out of. There is a new way of doing business, buying what is available and developing only what we must with continuous and honest demand signals the whole way through. And the benefits of these sweeping changes are already being realized with unprecedented cost savings and a path to enduring resiliency in this new age of a contested space domain.
Charles “Chuck” Beames is the chairman of several leading space companies and an active investor in the space sector. He currently serves as Executive Chairman of York Space Systems, SpiderOak and TrustPoint, and as Chairman of the SmallSat Alliance, which he co-founded.
