The great space race continues. High-profile companies like SpaceX and Virgin Galactic are vying to profit from it.
But largely forgotten has been European satellite launch business Arianespace, a subsidiary of ArianeGroup controlled by a partnership between French defense company Safran and aerospace giant Airbus (OTC: EADSY). Arianespace has big plans of its own, and ambitious launch schedules will pit the most important companies in the space race against each other head-to-head.
A big year for Ariane...and a bigger year for SpaceX
2020 is shaping up to be a big year for Ariane. As SpaceNews.com reports, Ariane plans to launch rockets into orbit 22 times this year. That's not quite as many as the 36 launches SpaceX has on tap, but it's nearly twice Ariane's previous record (12 launches in 2015).
If all this was a simple question of "who launches most," the answer would be easy: Barring a disaster that interrupts the launch pattern sometime midyear, SpaceX will almost certainly launch more rockets than Ariane in 2020. However, there's more to this story.
What's driving space launch in 2020
You see, it's not just Ariane setting new records this year. 2020 should also see SpaceX double its previous launch record (18 launches in 2017). And the reason both these companies are launching so many more rockets this year than in years past boils down to just three words: broadband satellite internet.
SpaceX, Elon Musk's space company, plans to launch approximately two dozen "Starlink" missions this year; SpaceX is racing to get enough broadband internet satellites into orbit to enable at least "moderate" functionality, and begin collecting revenue from providing satellite internet service to customers on Earth. Ultimately, SpaceX believes that Starlink will be the key that makes the company consistently profitable. Internal company documents show that SpaceX is hoping to generate operating profit margins of 40% from providing internet service in 2021, 50% in 2022, and then 60% in 2025.
(And to put those numbers in context, data from S&P Global Market Intelligence confirms that Comcast is already pulling down better than 40% operating margins from its cable internet business. While SpaceX's goals may be optimistic, they aren't unrealistic.)
For its part, Ariane doesn't have a plan to offer its own satellite internet service (that we know of). But it does plan to offer satellite launches for customer OneWeb, which is developing a satellite internet constellation to rival SpaceX's. In 2020 alone, OneWeb is expected to launch 11 times with Ariane -- 10 times aboard Soyuz rockets purchased from Russia, and once on Arianespace's brand new Ariane 62 heavy lift rocket, which will make its debut this year.
Of the 22 launches Ariane conducts this year, half will be for OneWeb -- and broadband satellite internet.
What it means for investors
Now, why is all of this important for investors to know? After all, SpaceX isn't a publicly traded company (although there is one way to invest in it). Neither is OneWeb (although you can invest in that one indirectly as well -- by buying shares of its financial backer Softbank (OTC:SFTB.Y)).
But Ariane -- OneWeb's launcher -- is public. And the rapid ramp-up in launches does have implications for investors in Ariane's parent Airbus.
As ArianeGroup CEO Alain Charmeau has pointed out, Arianespace's business model of launching expendable rockets (then building new ones) has so far prevented Ariane from competing effectively with SpaceX's reusable rockets on price. Just to stay in business and generate enough cash flow to keep the doors open and the lights on, Ariane has to launch roughly seven times a year. Otherwise, it becomes difficult to spread out the company's fixed costs among a limited number of launches so as to keep each launch's cost even remotely competitive.
Now, however, thanks to OneWeb's patronage, Ariane will finally have a chance to hit a launch pace that could make its launches more affordable and attractive to customers). And this is happening the same year Ariane introduces a new rocket -- the Ariane 62 -- that's itself supposed to be cheaper to build and launch. So this should be a good year for Ariane, and for the space profits of parent company Airbus.
So this year holds promise both for Ariane and for SpaceX -- which will launch even more frequently, amortize its fixed costs among even more launches, and thus be able to price its launches for other customers even more cheaply. However, by the same token, it promises to be a bad year for United Launch Alliance: that is, Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT). ULA must now compete with both these companies -- and has no marquee customer launching swarms of internet satellites into orbit, to help provide economies of scale to its business.
Thus, the real question investors should be asking isn't really "Who will launch the most this year?" but "Who will launch the least?" -- and how bad will that be for Boeing and Lockheed?