With the global financial markets extending their record-level volatility and generally downward spirals, at least one industry is making a case for space exploration investing.
With the global financial markets extending their record-level volatility and generally downward spirals, at least one industry is making a case for space exploration investing.
Despite the passing of 39 years since the United States first landed on the moon, a new international space race has emerged. What's more, there is indication that the Barack Obama administration will commit additional funds to the sector.
For financial advisers, the key is to recognize that 71% of the $251 billion "space economy" is spent on commercial applications such as satellite broadcasting and global positioning systems, and not traditional Department of Defense and NASA spending.
As the space industry's evolution has transitioned over the past decade to include a greater emphasis on the commercial markets and less on government budgets, many of the defense contractor stalwarts have maintained their market dominance.
Redondo Beach, Calif.-based Northrop Grumman Corp. and Bethesda, Md.-based Lockheed Martin Corp. are examples of companies likely to top any list of space industry companies.
But the industry, which some say offers entrepreneurial opportunities on a par with the biotechnology industry, also is becoming flush with lesser-known public companies and even upstarts that are still flying below the radar screens of all but the most sophisticated private-equity and venture capital investors.
Among those that are already publicly traded is Dulles, Va.-based Orbital Sciences Corp.
The company, which has a total market capitalization of just $1 billion, develops small rockets and space systems for commercial, military and civilian government customers.
Another $1 billion public company is Melville, N.Y.-based Com-tech Telecommunications Corp., a company that specializes in advanced communications systems.
Then there is Integral Systems Inc., a $327 million Lanham, Md.-based company that builds satellite ground systems for commercial and government use.
Several technologies that Americans rely on, such as ATM transactions, make use of satellite technology.
"An awful lot of what works on the surface of the earth is because of what's going on in space," said Elliot Pulham, president and chief executive of the Space Foundation, a Colorado Springs, Colo.-based trade association.
"The space industry has evolved over the past 10 years or so from one that was driven by government to one that is now driven by the commercial sector," he added.
That point will be emphasized in New York in June when the 25-year-old association will host its second annual Space Business Forum, which is designed to bring together industry representatives and Wall Street investment professionals.
"We're sort of in the middle of a second space race right now, and I don't think most Americans even realize it," said Hoyt Davidson, managing partner of Near Earth LLC, a New York-based boutique investment-banking firm that specializes in the satellite industry.
"Now that both China and India have orbited the moon, they've started plans to eventually put people there," he added.
But unlike the space race of the 1960s, which involved primarily the United States and the Soviet Union, Mr. Davidson said, the current space race is likely to include some level of cooperation — along the lines of the International Space Station — in an effort to help defray the costs.
While government spending on the space industry has remained virtually flat for several years, Mr. Pulham feels optimistic that Mr. Obama will come through with some of his campaign promises in this area.
"The space policy that Obama ran on was the deepest and most comprehensive we've seen since Lyndon Johnson," Mr. Pulham said.
Mr. Obama's 26-page space policy report, which was promoted heavily during the presidential campaign in space industry states such as Florida and Texas, proposes an increased focus on exploration as a catalyst for education.
Based on what the president-elect promised, Mr. Pulham expects that the National Aeronautics and Space Administration's $18.5 billion annual budget will be increased 24% to around $23 billion.
"This is probably a good time for investments in advanced research and technology, as opposed to tanks and other big, dumb systems," he said.
Ever since 1996, when commercial spending on the space industry started to outstrip that of governments, the space industry has been expanding in all manner of commercial and consumer applications.
"In the near term, it's not likely that new military programs will be funded, but you still have to consider all the other uses for satellites," said Peggy Slye, division director at Futron Corp., a Bethesda-based aerospace and telecommunications consulting firm.
Beyond current commercial uses for everything from ATM transactions to crop management and the study of weather patterns, Ms. Slye pointed out that new technology and innovations are already pushing beyond such areas as cellular phone technology toward a system that would link consumers directly via satellite.
"Right now, the Department of Defense relies on commercial satellites for 80% of its capacity, and any kind of troop drawdowns would have to be replaced by more unmanned aerial vehicles and that would drive an increase in satellite requirements," she said.
The future, Ms. Slye explained, could include space as part of the global infrastructure. "Right now, we're talking about space the way people use it today," she said. "But we need to think beyond that toward the possibilities in scientific and exploration work to areas such as asteroid mining, commercial communities, space tourism and medical research."
E-mail Jeff Benjamin at jbenjamin@investmentnews.com.
