From: Wales.Larrison@ofa123.fidonet.org
Newsgroups: sci.space
Subject: Re: ELV profits (was Shuttle Replacement)
X-Sender: newtout 0.02 Nov 17 1992
Date: 20 Nov 92  22:16:46

Allen W. Sherzer write:
  
>Atlas and Delta are providing profits for the companies which build
>them. That means they offer a return on investment.
  
   Unfortunately, the profits expected for Atlas and Delta have been
pretty sparse.
   For example, General Dynamics reported in their third quarter
annual report (released about 15 October) that their Space Launch
Systems "core business area" lost $ 11 M on sales of $163 M (which
is greatly improved compared to last year where they lost $23 M on
sales of only $80 M or so in the third quarter).  If you look at the
year to date figures, they also show a net loss for space launch
vehicles.
   Recent Atlas launch failures really haven't had an impact on this
quarterly profit/loss line, since GD is guaranteed payment for the
launch either from the satellite firm or from the insurance company
if it fails.  Failures do affect the business base however, as
launch options are not exercised and companies decline to buy their
services.
   However, overall for the Atlas program, I can't consider that it
is providing profits.
   Hopefully in a year or two, with increasing sales and successful
launches GD can pull this division into the black.  It is the only
money-losing "core business" left in General Dynamics' reduced
corporate structure, and already rumors are floating that the Space
Launch Systems business area is up for sale.
  
   At McDonnell Douglas' Space Systems Company, the results are more
ambiguous, since the Launch Vehicle Business Area is lumped in with
several other, larger, programs such as MDSSC's space station
program.  However, from what I have been able to find out, they are
only now starting to make money on the Delta program.  Up to now,
the program has operated at a loss, but they are now starting to
break even on on the program.
   Part of this is due to the core of their launch business, the
USAF MLV-1 contract to launch the GPS satellites.  Under the terms
of that incentivized contract, MDSSC had to successfully launch a
specific number of satellites before they could book profits. And if
they have more than one failure in the program, they would lose all
profits on the program and some of their cost -- ie, lose money).
Now they are starting to show some launches slightly into the black
-- but from my conversations with folks at MDSSC, the Delta program
is not expected to make significant profits.  (Note: MDSSC did the
prudent thing and hedged their bets by buying some insurance
themselves on the program to reduce their potential losses from GPS
launch failures, but the cost of that insurance has also reduced
their return.)
    Commercial delta sales have also been disappointing -- to get
the sales, they have priced at VERY low profit margins, including
some that have turned out to be money-losers.  Fortunately, they
have been able in most cases to convince customers to buy added
launch services from McDonnell Douglas Space Services which have
boosted profits to the break-even point.
    So, I guess you can say MDSSC is making profits on the Delta,
defining profits as revenues greater than cost.  Their returns on
their investment have not been good.  Moreover, one failed launch
will probably wipe out the profits on the program, turning that ROI
negative.  And if they lose the MLV-3 contract follow-on to the MLV-
1 contract, they will lose the core of their launch business, which
would greatly increase the fixed cost base to be absorbed, which
will probably drive them from the market.  IF they win the MLV-3
contract, and IF the costs of modifying the Delta II to meet the new
MLV-3 requirements are not too great, then they might make some real
profits over the next several years.  But it should also be pointed
out making those mods for the MLV-3 program could put the Delta
program into the red for some years to come, if the mods turn out to
be fairly extensive.
   However, I can't consider Delta a really successful business
right now.  I'd say the jury is still out on if it will turn out to
"profitable" -- primarily driven by the MLV-3 contract. And its
return on investment has been pretty weak.
 ------------------------------------------------------------------
 Wales Larrison                         Space Technology Investor

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