Satellites Provide Hughes a Wider Orbit of Business : Space Jobs Fuel Firm’s Move Away From Reliance on Military
Every time the cash register rings at a WalMart, a burst of data goes from the sales counter to a Hughes Aircraft satellite 22,300 miles overhead and then back down to WalMart headquarters in Bentonville, Ark.
The WalMart communications system, which links 1,550 stores, represents one of Hughes’ most significant new areas of growth. Similar systems are operating at Chevron, Target, Holiday Inn, Chrysler and General Motors.
Only a few years ago, the commercial satellite business looked moribund, the victim of competing technologies and space disasters. But new markets and powerful new spacecraft developed by Hughes have turned around the outlook and have fueled a burst of growth.
Hughes Space and Communications Group, based in El Segundo, has doubled in size in the last five years and will surpass revenue of $2 billion this year. The company has captured 70% of new satellite orders worldwide, reasserting its dominance over rivals General Electric, Loral and several struggling European firms.
Today, the firm has orders for a record 30 satellites--mainly commercial communications, weather and scientific spacecraft, along with a smaller number of military satellites. The current orders alone should keep the firm’s production facility operating for three years, and executives expect the backlog to “increase dramatically” by the end of summer.
“We look forward to some steady growth,” said Anthony J. Iorillo, the Hughes executive who has presided over the group since 1986. Iorillo was promoted to senior vice president Monday.
The growth in Hughes’ commercial space business has provided the backbone for the aerospace firm’s effort to reduce military work to just 50% of its overall business during the 1990s. Five years ago, defense work constituted 80% of the firm’s business.
Hughes announced a corporate reorganization Monday to accommodate the new commercial emphasis.
It was Hughes that pioneered communications satellites in the early 1960s, and the company has never lost control of the marketplace.
But by the mid-1980s, competitors had eroded some of its market share. The overall industry outlook was clouded by new technologies, such as optical fiber systems for telephone traffic. And the Challenger space shuttle disaster dealt everyone associated with U.S. space flight another major blow.
New launch systems and the development of several key markets have rejuvenated the entire industry, however, and orders are up not only at Hughes but also at GE and Loral.
“People’s projections of the demise of the satellite market were premature,” said Scott Pace, deputy director of the Office of Space Commerce, a Commerce Department agency.
U.S. commercial space revenues, which take in both spacecraft and launch systems, leaped 26% in 1990 from a year earlier, according to the Commerce Department. Growth is expected to slow this year, but the U.S. grip on the worldwide commercial satellite industry remains tight.
Europe, Israel, India and Japan have attempted to penetrate the market, but each has won few orders outside its own government market, according to a Commerce Department report. In large measure, those nations’ failures reflect Hughes’ success: It has controlled about 70% of the international market.
“Hughes dominates the industry, the same way that IBM and Boeing dominate their industries,” said John Pike, director of space policy at the Federation of American Scientists. “Everybody else here and overseas is an also-ran.”
Hughes has invested $60 million in new facilities in El Segundo, where 8,500 of the group’s 12,000 employees work. Productivity has improved significantly as well, meaning that more satellites are being produced with fewer employees and equipment.
Hughes is also shifting some of its facilities from military work to commercial work. By next year, sales of commercial satellites will outpace military sales. Only five years ago, 75% of its satellite sales were defense-oriented, Iorillo said.
Other than the communications satellites it builds for the Navy, Hughes says little about its military business. Pike said he believes that Hughes supplies the spacecraft “bus” that Lockheed and TRW use for their spy satellites--in other words, the framework, power system and propulsion for those spacecraft.
The most significant growth at Hughes has come in sales of communications systems for businesses--such as WalMart--that want to move large volumes of data between remote locations. Hughes has captured 80% of that market. Such communications services account for $400 million in sales. Another $1.4 billion in sales derives from satellite manufacturing.
The big selling point of Hughes’ satellites is quality, Iorillo said. Hughes has lost 8.5% of its spacecraft in orbital and launch failures since 1980. GE, by comparison, has lost 26%, and Loral has lost 30%, he said.
Since the dawn of the commercial satellite industry in 1963, only one Hughes satellite has failed in orbit--a record the company attributes to the technical skills of its employees and continuity in management.
The bragging rights seem to be making a difference in the market. High-capacity communications satellites, such as Hughes’ new HS 601 series, can cost up to $200 million to insure and place in orbit. A mishap can wipe out that investment in an instant.
Robert Berry, president of Space Systems/Loral, disputed Hughes contention that it builds superior satellites.
“They have been going all around the world saying GE and Loral are no good,” Barry said. “Everybody has their problems. With Hughes, they had Palapa, Westar and Leasat”--a reference to Hughes’ failed satellites.
Loral has contracts to build 22 satellites and recently completed $100 million in facility improvements at its Palo Alto plant. It employs 2,500.
General Electric officials declined to be interviewed.
