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Defense budget cuts loom large over satellite industry

Mar. 14, 2014

The drawdown in Afghanistan means roughly a 31 percent post-war decline in defense spending, and those figures threaten the status quo of a satellite industry built on large-scale systems, programs of record and an established way of doing business.

Beyond the drawdown’s inevitable spending cuts, sequestration also has chilled spending on the satellite systems on which military and civilian communications rely – forcing companies and the government to navigate a new way forward.

“Initially [research and development] gets cut, personnel gets cut, and it also changes buying behaviors,” said Josh Hartman, CEO of Horizon Strategies Group. “We’re going to see DOD and the intelligence community buy things very differently, leveraging [indefinite delivery/indefinite quantity contracts and] looking to structure tasks and purchases around bite-size chunks of budget that they can begin to push out. No one wants to overcommit themselves.”

Hartman spoke March 11 as part of a panel at the Satellite 2014 conference in Washington.

In a new-look era of defense spending, new winners also surface. Intelligence, surveillance and reconnaissance, as well as communications, cyber and emerging technologies like robotics and biometrics are areas of priority in the fiscal 2015 budget.

In the space world, the greatest impact is on disaggregation, resiliency, commercial integration, new business models and new market players that all spread spending across smaller programs, more dispersed areas of investment and different industry partnerships. Instead of procuring major satellite systems, defense officials are looking at ways to buy portions of the satellites – on-orbit transponders, for example, in the case of DOD’s pathfinder efforts, panel members pointed out.

That’s not to say budget cuts spell an immediate end to the traditional large-scale satellites that currently comprise defense space programs, however.

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“We really need to capitalize on our last 15 years of advancements,” said Tom Sheridan, vice president of national security space at the SI Organization. “I’m not saying stay with big systems forever, [but] we’ve invested a lot. The [developmental test and evaluation] investments we made in the 1990s and early 2000s, they’ve come to fruition.”

But changes to how the Pentagon, and other non-defense agencies for that matter, handle space procurement have been on the way for a long time. A 2003 Government Accountability Office report outlined the need for new satellite procurement practices amid the growing reliance on satellite communications. According to Tip Osterthaler, president and CEO at SES Government Solutions, too much remains the same as more than a decade ago.

“We’re talking about these things today; we’ve kind of gotten back to where we were 10 years ago, when this study was rolled out. I’m not sure that it’s going to take to put us over the finish line,” Osterthaler said. “Both the government and industry understand that the old ways of doing business probably are not going to continue. We can’t afford to not do this; we can’t afford to have this conversation in 2023. … It’s not that we don’t know what to do; we knew what we needed to do 10 years ago. We just haven’t done it.”


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