Hughes Puts Florida Plant on Hold : Faced With Glut of Communications Satellites on Market
Amid what industry analysts term a glut of communications satellites on the world market, Hughes Aircraft Co. has put off plans to build a $160-million satellite facility in Florida.
Ever since Hughes pioneered communications satellites in 1963, its control of the burgeoning market has been a major part of the firm’s overall growth. But last year, Hughes collided head on with a sharp decline in new orders for commercial satellites.
“It is true that the slowdown in the rate of growth has given us a pause to rethink our plans,” Albert Wheelon, president of Hughes’ space and communications group, said in a recent interview.
El Segundo-based Hughes does not disclose the operating performance of its groups, but information available in the firm’s recently issued annual “review” suggests that 1984 was a difficult year for its commercial satellite business.
In addition to the drop in orders, the group increased development spending for commercial satellites, one of three factors that curtailed corporate operating income, according to a report by Hughes Chairman Allen E. Puckett.
Last year, Hughes posted sales of $4.9 billion, virtually unchanged from 1983. That sharp reversal of past growth resulted largely from quality-control problems at Hughes’ missile factory in Tucson. The military refused to accept missiles and stopped most progress payments during the last half of 1984.
Such quality problems have not affected Hughes’ space and communication group, but the commercial satellite business has been highly cyclical and the group is suffering one of its down cycles, Wheelon said.
The Hughes group also builds highly classified intelligence satellites for the Air Force, historically representing about half of its workload. Those programs are growing, Wheelon said, and this year military programs will overtake commercial work.
The group’s sales last year did show an improvement over its sales in 1983, and the projection for this year is for at least a 15% increase over 1984, Wheelon said.
Hughes still intends to build the Florida facility on a 340-acre plot adjacent to the Kennedy Space Center, but the commitment has been put off by at least one year, Wheelon said.
The plant will require one year to design and as much as three years to build, he added, meaning that it may not be operating until 1990.
Hughes announced plans to build the plant in 1981, saying that it could be operational by early 1984 and would employ as many as 200 workers. By 1983, Hughes substantially increased the projected employment to 700 and said construction would begin this year.
Since then, Hughes has indicated to Florida officials that its plans had doubled again to a projected work force of 1,500.
Wheelon declined to say whether the reevaluation of plans for the plant would affect its size. “We were not entirely satisfied with the logic of that plan,” he said.
No Reductions in El Segundo
Wheelon said Hughes has no room for expansion in its existing facilities in El Segundo, which employ almost all of the group’s 9,400 workers--up 1,000 workers in the last 12 months. Hughes expects to add another 600 workers by the end of this year, Wheelon said.
The Florida plant, which would assemble and prepare satellites for launching near the complex from which they are carried into space, would siphon off future growth in El Segundo but not cause any reduction of local operations, Wheelon said.
“We will be building satellites in perpetuity here,” he said.
The decline in orders for communications satellites now confronting Hughes is being felt in one degree or another throughout the small industry.
Roughly one-half of all the transponders--receiving and transmitting units--on domestic commercial satellites are idle, according to Federal Communications Commission officials who survey transponder usage monthly. Each satellite typically carries two dozen transponders.
Only two new orders for communications satellites were placed worldwide in 1984; one went to Hughes and the other to Ford Aerospace & Communications Corp. in Palo Alto. In 1983, 15 satellites were ordered.
Moreover, as many as half a dozen commercial satellites on the ground and in orbit are for sale, according to Polly Rash, vice president at Services by Satellite, a Washington-based transponder leasing firm. That includes the two satellites dramatically recovered from incorrect orbits by space shuttle astronauts last November.
“There is overcapacity right now, but how long there will continue to be a glut is being debated in the industry,” Rash said. “There are projections that, by the year 2000, there will be a ninefold increase in transponder requirements.”
The current decline in satellite orders and the large number of unused transponders paints a picture of a sharper decline than has actually occurred, several industry officials said in interviews.
“The business isn’t going to hell. It is really ready to take off again,” Wheelon said.
The slack pace of new orders in the past year is a result of several unusual circumstances, including plans by the National Aeronautics and Space Administration to double the price for launching satellites by this fall. That has led many satellite users to pull satellites out of storage and launch them as quickly as possible, thereby boosting capacity over what is needed now.
Also, the current generation of satellites, which are more complex and more expensive than older satellites, require more work, which offsets the effect that the decline in orders has on employment.
For example, the Intelsat VI that Hughes is now building, which weighs about two tons and will stand four stories tall when deployed in orbit, costs three times as much as a typical Hughes HS 376 satellite and requires three times as much work. The HS 376, which has been Hughes’ most widely sold satellite, costs about $40 million.
5 Weather Satellites
Hughes projects that eight communication satellites will be ordered in 1985 and as many as 24 in 1986, depending on applications for orbital slots now pending at the FCC. In addition, orders for five weather satellites are expected in the period.
Robert Berry, director of Ford Aerospace’s space systems operation in Palo Alto, agrees that the decline in orders is being blown out of proportion by some analysts.
“Saying there is a glut of transponders is too general a statement to make,” Berry says. “Transponders have different characteristics.”
A great deal of the idle capacity in transponders is in those dedicated to video transmissions, partly because business teleconferencing has not grown as quickly as expected.
The problem also has been exacerbated by speculators who lease transponders and then attempt to remarket the capacity at a profit, Berry said.
HUGHES AIRCRAFT CO. AT A GLANCE
1984 1983 1982 1981 1980 Employment 73,816 68,579 64,320 59,017 55,956 In millions Sales $4,900.0 $4,900.0 $4,400.0 $3,300.0 $2,600.0 Capital expenditure $435.0 $329.1 $335.5 $302.9 $208.5 Order backlog $11,900.0 $10,900.0 $11,200.0 $7,700.0 $6,000.0
Worldwide Commercial Communications Satellite Orders
1986 26 1985 8 1984 2 1983 15 1982 14 1981 20 1980 18
Hughes Aircraft Co. Projections.
