Space businesses look to global demand and government need for growth

Increased global demand and opportunities to serve the federal government continue to support space companies. To maintain momentum, they are focusing on their competitive advantages, either through pricing strategies or differentiating through innovation. Meanwhile, supply chain challenges remain a concern for some executives. Executives shared their perspectives recently in earnings calls that covered their companies’ fourth-quarter calendar year results. Four themes emerged from the calls, transcripts of which were provided by Bloomberg.

Global applications drive global demand

Space-based intelligence is a key component of global security. It supports fact-based government decisions to combat many threats, including climate change and piracy. The space industry is looking for ways to expand the terrestrial footprint, according to executives who highlighted international deals and expanded on the drivers of projected demand. Jay Monroe, chief executive of Globalstar, Inc., said the company had successfully completed its first European terrestrial authority for Band 53 in Spain, adding that Globalstar expects many more licenses in the future. Monroe said Spain is a European leader in advancing the merger of satellite and mobile terrestrial services. The nation is the 11th country (and the first in Europe) to authorize this innovative approach to greater connectivity. Peter Cannito, CEO of Redwire Corporation, spoke of the “multi-decade new global space race” for “space agencies in the U.S., Europe and around the world, increasingly focusing on space as a competitive domain.” Commercial markets are driving the demand for space, he said, but governments are making long-term investments, mitigating risks associated with geopolitical tensions and furthering access to data. Peter Beck, chief executive of Rocket Lab USA, Inc., said Australia’s government has made an ongoing investment to triple the Australian space market, which will total $8 billion by 2030. Australia had previously committed $1.3 billion for civil space sectors. BlackSky Technology, Inc. CEO Brian O’Toole highlighted the expanding addressable global space market. O’Toole said governments around the world are looking for “real-time intelligence solutions” to make more informed mission-critical decisions.

Hedging risk with government contracts

While commercial markets reel from recent macroeconomic events and market volatility, portfolios of government contracts have demonstrated resiliency. The federal government’s space budget, for example, increased by 35% in the 2023 fiscal year ended Sept. 30, compared to a year earlier. Opportunities to develop new solutions continue, such as de-orbiting services related to a new Federal Communications Commission rule. Under that new rule, satellites in low-earth orbit must de-orbit or be placed in graveyard orbit within 25 years after their mission’s completion. Many executives recognized the importance of government contracts not only to maintain stability and operations but to help spark growth and innovation. Adam Spice, chief financial officer of Rocket Lab USA, said some companies face challenges financing their businesses through the capital markets. But he said Rocket Lab didn’t share the same struggles due to the nature of its government-contract cash flows. Momentus, Inc. CEO John Rood said government opportunities are the company’s top priority. Momentus is focusing on government contracts with the Department of Defense and the National Aeronautics and Space Administration. Federal government investment can be a respite for businesses in storms of market uncertainty and volatility. Space companies are leaning on the government as a steadfast and resilient customer as they develop and commercialize the dual-use technologies and solutions of the future.

Contrasting realities on competitive advantage

Competitive advantage is achieved by pricing strategies or market differentiation. Both were discussed during fourth-quarter earnings calls. Chris Kemp, chief executive of Astra Space, Inc., spoke about pricing pressure and the need to drive down the price per launch. The company’s strategy for lowering costs is focused on the general and administrative expense pool, lowering spending on consultants, IT systems and other administrative costs. Others have chosen differentiation through innovation. Redwire CEO Cannito said the company has achieved pricing power with technology such as its Roll Out Solar Array solution. Executives are focused on pricing strategies heading into the new year. For established products or services, companies are emphasizing competitive pricing, and mitigating margin erosion through cost cutting. Companies are also capitalizing on innovation by utilizing value-added pricing strategies, exploiting their pricing power to increase revenue.

Supply chain challenges

Some executives addressed challenges with supply chains and the resulting impact on efficiency and profit margins. Dave Burney, chief financial officer of Astronics Corporation, highlighted the importance of supply chain predictability on shop-floor efficiency and input costs. He said premiums paid on spot purchases for hard-to-find parts, for example, deteriorate margins. BlackSky Technology CEO O’Toole said the high barrier of entry for new suppliers is an industry challenge, noting it takes years to prove both performance and scalability and just as long to obtain contracts with the government and large commercial customers. This high barrier to entry makes it difficult to diversify a supplier base. Supply chain headwinds will gradually be mitigated through new contract negotiations. But until then, companies are looking for efficiencies to offset single sourcing, inflationary pressures, and inopportune spot purchases.

The takeaway

Executive optimism holds strong due to the increase in the U.S. space budget and global demand for services dependent on data obtained in space. Government contracts are providing a safe environment for space companies to continue their development and investments amid challenging and uncertain macroeconomic conditions in commercial markets. We expect next quarter’s earnings calls to include discussions on how space companies are embedding artificial intelligence into their businesses and solutions.