Published on April 6th, 2020 📆 | 3712 Views ⚑0
What OneWeb’s failure tells us about space resiliency in the age of COVID-19
Last week, one of the leading companies attempting to build a satellite mega-constellation, OneWeb, filed for bankruptcy and laid off all of its employees. This was the largest failure in the aerospace industry of late, but it’s hardly the only one as other prominent companies such LeoSat and Bigelow Aerospace lay off staff and potentially shutter operations.
The COVID-19 pandemic has exacerbated financial pressures on the space industry, where many small and medium-sized businesses already live on the edge, needing regular infusions of private capital or government contracts to remain afloat. To get a sense of what OneWeb’s failure means for this industry, Ars spoke with Chuck Beames, executive chairman of York Space Systems and chairman of the SmallSat Alliance (of which OneWeb was a member).
Beames also previously managed more than $1 billion in assets during his time at Vulcan Aerospace, Microsoft co-founder Paul Allen’s fund to support space ventures. This interview has been lightly edited for clarity.
Ars: Did OneWeb’s bankruptcy surprise you?
Beames: I was never very optimistic about OneWeb because my estimate was that it was going to cost between $10 to $12 billion to get to a constellation going. In the beginning, they were saying it was about half that. But I’ve been in the business a long time, so I have a pretty good sense of things. Anyway, to raise that much money in equity and debt, I just didn’t see it happening. I didn’t see anyone having any appetite for that.
Ars: They ended up raising about $3 billion.
Beames: I can tell you the $3 billion raised was nowhere close to—not even close to the halfway mark to—completing that kind of a thing. That’s a lot of capital to raise. And it wasn’t just the satellites. The whole ground component thing was something that still really wasn’t even addressed. Maybe that was part of the decision, that they still had a long way to go in terms of funding.
Ars: Do you think COVID-19 played a significant role?
Beames: The coronavirus may have been the final straw. Companies that require a huge capital expenditure in order to get to a real revenue-generating model, they’re more likely to get caught up in this. In space today we see this with launch companies and mega-constellations. I think what we’re finding is that the venture capital method, it works for some things, but it’s not very well-suited for a lot of the space business. Especially the large capital expenditure kind of things, when you have to do a series A, B, and C raise before you really are generating revenue.
Ars: Will OneWeb’s bankruptcy have a chilling effect?
Beames: Bankruptcies really cut on the workers. I know a lot of the folks at OneWeb. Great people. Every one of them I know is a really solid engineer, high integrity, all that kind of stuff. But bankruptcy itself, in the abstract, is not necessarily a bad thing. If you believe in capitalism, which I do, bankruptcy is a logical… there’s a reason why we have bankruptcy laws, because it allows somebody who’s bold and ambitious to get out from under something that turns out to just not work, and they can still move to create and share something new again.
Ars: What happens next?
Beames: The assets will be bought by different companies. I know there are a lot of companies that are talking to me about what I think might be useful, what could be bought, including leases on a lot of the equipment. The workers will get picked up elsewhere.
Ars: How do you think the space industry will weather this?
Beames: You know, I don’t think it’s all doom and gloom. There’s been a renaissance of technology kind of going on. There’s a big supplier network of low-cost spacecraft, low-cost ground systems, data analytics, and these are capabilities that actually exist today. There are businesses being built from those, and what I’m seeing is the next generation of constellations won’t have to build their own satellites. You could be off and running and get yourself to a profitable business. That wasn’t possible before. You can get a capability on orbit and collect data for way less than $10 million.
Ars: Do you take any lessons from this?
Beames: One of the lessons of the coronavirus, for us in the space community, is that this should be a huge wake-up call that we need to have US companies that still know how to make things. Not just the N-95 masks and ventilators either. We have come to believe, conventionally, that if we can outsource it and reduce the cost to manufacture, then that’s a good thing. And while I am certainly a capitalist, there are things that we need to think about. It’s embarrassing that we have to fly N-95 masks in from China in order for our own medical workers to take care of our own people. Now imagine a world where we don’t even have a space capability because it’s been outsourced.
Ars: Is this happening in space?
Beames: The same thing that happened to the drone industry could easily happen to the small satellite industry. When I say “small satellite,” I mean the whole ecosystem. The next-generation launch vehicles, the data analytics, all that kind of stuff. It’s not only plausible, but I think it’s likely if the US government doesn’t shift and really focus on this.
We will always need the Lockheed Martins and the Boeings and the Northrup Grummans, the big companies, to do the large-scale integration and stuff like that. But we could slowly slide into an abyss where we will have virtually no space industry if there isn’t a concerted effort by the government on the next-generation stuff. China has like 92 or 93 percent of the whole drone industry, and they’re selling them around the world and they’re weaponizing them, and there’s nothing we can do about it. Other countries in the world don’t have the export control laws like we do with China, so they’re arming the world with these drones. The same thing could happen if we don’t own the small sat business. That’s a big worry of mine.
Ars: What should we be doing?
Beames: I think the smartest thing for the government to do to help the industry is to let contracts. Most of the companies now are far enough along that the government can buy real goods and services from this industry that are perfectly usable and useful. If the government did that, that will restore confidence from the venture capitalists. As you know, I managed Paul Allen’s investment fund. It was about $1.2 billion, and there’s nothing that gives you greater confidence, as an investor, than customers actually buying the product that the people are developing.
Ars: Give me an example.
Beames: Right now, remote sensing is a huge. It’s mostly done by the National Reconnaissance Office, but they are the first to recognize that they need some resiliency in their architecture. What they could do, or what the Air Force or Army could do, is put out a bid, or maybe a challenge. Say we want to award contracts to put four or ten remote sensing satellites into these orbits, by these dates, with this kind of resolution. And what they do is they ask for a resolution that they know is readily commercially available, not something that is going to take five years to develop.
It could be imagery, it could be panchromatic, it could be spectral, it could be radar, all that stuff could be useful in surveying the South China Sea. Pick anywhere in the world. The nice thing about that is that would charge the entire supply chain, not just be something where we’re going to hand out some checks to some startup guys. The government would get real hardware, and it would send a clear signal to investors.
Ars: Finally, you used to be involved in Stratolaunch. What do you think about their pivot to hypersonics?
Beames: I’m glad that some investors picked it up and are going to make some good use out of it. Obviously, Paul (Allen) passing away was a huge loss for all of us, especially friends of his like me that knew him and really liked him. Building that aircraft was sort of a feat unto itself, and I applaud the team down there in Mojave (California) for doing that. It seems like they’re going into hypersonics at a time when, frankly, it appears that it’s very needed.
I know Mike Griffin (Under Secretary of Defense for Research and Engineering) is exquisitely focused on hypersonics, both countering the enemy’s hypersonics and our own capabilities in that way. I hope that Stratolaunch gets to contribute to that mission. Usually investor groups, what they do in my experience, they buy something like this, they’ll rework the company, rework the mission, line up some business for it, and then maybe sell it to another company. I don’t know. I have no idea what their plans are, but it makes me very happy that they’re committed to making that large aircraft useful because it’s a heck of a capability.