Murky future for Sea Launch

The fate of the Sea Launch LCC international consortium, once a world-leading commercial space launch provider, remains unclear. The company filed for bankruptcy protection a year ago, followed by reorganization and a change of hands. To add to the uncertainty, Sea Launch faces the task of returning to profitability through cost-cutting measures and an increase in the annual launch capacity.
Sea Launch LLC was set up in 1995 as part of an international commercial project to create and operate a floating launch platform for Zenit-3SL rockets. Its founders were Boeing, Russia’s Energia Rocket and Space Corporation, Ukraine’s Yuzhnoye design office and Yuzhmash factory, as well as the Norwegian shipbuilder Kvaerner (now known as Aker Solutions). Three-stage Zenit-3SL launch vehicles would lift off from a self-propelled platform near Christmas Island in the equatorial Pacific. The first such launch, carrying the DemoSat spacecraft, took place in March 1999. The latest one to date orbited the Sicral 1B satellite in April 2009. A total of 30 launches have been performed by Sea Launch. Of these, one was a partial success and two failed.
In June 2009, Sea Launch LLC suddenly filed for bankruptcy under Chapter 11 of the US Bankruptcy Code. It turned out that the impressive launch statistics had been masking serious financial problems. By 2009 the company debt had reached, by different estimates, $1 billion to $1.4 billion, which considerably exceeded the value of its assets ($100-500 million). There were several reasons for that. To begin with, the infrastructure required sizeable investments: after each launch the two Sea Launch vessels had to return to home port to take a new rocket on board. As a result, Sea Launch could not perform more than five launches a year. The operational costs were growing, and the launch plans proved overoptimistic about actual market demand. The situation worsened after the 31 January 2007 disaster, when a Zenit-3SL’s first-stage engine failed, causing the launch vehicle to crash back down onto the platform and explode. Repairs to the launch platform took months. This downtime moved some customers to walk out in search of alternative launch providers. Consequently, Sea Launch performed just one launch in 2009, against five the year before.
The Sea Launch clientele of satellite operators was shaken by its withdrawal form the market. On the other hand, almost all the clients were convinced that Sea Launch would soon be back. The company had opted for a relatively painless bankruptcy procedure, one that did not call for liquidation of assets but demanded a clear reorganization plan. Under Chapter 11, the debtor is temporarily discharged from its debts. Creditor’s claims from customers amounted to slightly over $250 million.
In an attempt to rescue at least part of its assets, Boeing in July 2009 settled with the Sea Launch creditors for the amount of $448 million, and began seeking compensations from the Russian and Ukrainian partners. In a separate development, an obscure business named Space Launch Services (SLS) extended a $25 million reorganization loan to Sea Launch in December 2009 – March 2010.
However, by early summer 2010 the situation radically changed. Under a restructuring plan submitted to the Delaware court which oversees the Sea Launch bankruptcy case, on 12 May, 85% of the reorganized Sea Launch is to go to Energia’s subsidiary Energia Overseas Limited (EOL), in exchange for a $140 million investment in the consortium’s registered stock. The remaining 15% of the Sea Launch shares is to be distributed among outstanding creditors.
In early May 2010, on an understanding with Sea Launch, EOL talked SLS into selling its right to finance the consortium’s restructuring effort. The move will cost EOL $30 million. Of this sum, $19 million will be spent on repaying the loan to SLS. The transaction was tentatively approved by the Delaware court. The agreement between Sea Launch and EOL will make it possible for Sea Launch to seek loans worth $200 million – the sum it needs to emerge from its debt. Some experts believe that the whole deal was financed by Russian state-controlled banks. As for the change of Sea Launch ownership, observers suggest it became possible after Boeing and Aker lost interest in the concern. Some experts offer the explanation that the entire bankruptcy procedure was orchestrated by Boeing, which used it as a pretext to get rid of an unprofitable business.
Sea Launch president and general manager Kjell Karlsen says that the approval of the restructuring plan will enable his company to emerge from Chapter 11 by September. Sea Launch plans to resume operations in 2011, performing up to five commercial launches a year. Energia president Vitaly Lopota says this is the minimum necessary figure for loss-free operations. In fact, such an annual launch rate does not look impressive compared with the leading international space launch providers – Arianespace with the Ariane-5 and International Launch Services (ILS), which operates Russian Proton launch vehicles. At present they each have a backlog of about 20 firm orders, against Sea Launch’s three, which include two SES Astra satellites and one INTELSAT spacecraft.
In order to provide a competitive advantage, Sea Launch will probably have to cut prices. To do so it will have to reduce the cost of the single most expensive component of the Zenit booster – the RD-171M engine, developed and produced by Energomash. This, however, will be hard to do. According to Energomash sources, the engine’s factory price is about $13.5 million apiece, and even that is not profitable enough.
Plans were recently made public for the creation of a Russian Space and Rocket Corporation. It is supposed to be built around Energia as the lead manufacturer, and will include the Samara-based TsSKB-Progress and Energomash. The Energomash management suspects that the main goal of the reform is to cut the price of the RD-171M, even to the detriment of the company’s other projects. Whether or not Energia will manage to cut a deal with Energomash is a big question. Until it is answered, the future of Sea Launch will remain murky.

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