Rocket Lab keeps tabs on 117 rivals, but that's not what's keeping it busy

Friday, 7 June 2019

Rocket Lab says rivals could come to NZ but it has nabbed the best launch site.

It's lonely out in space, but it may not stay that way for a long, long time.

Kiwi-founded Rocket Lab has cemented its place as the first privately owned company dedicated to cheaply putting small satellites into space, with five successful orbital missions of its carbon fibre and 3-D printed rockets now under its belt.

But Rocket Lab founder Peter Beck says it is tracking 117 companies that are trying to plot a course to its market.

The plethora of entrepreneurs trying to get into the space-launch industry has become the subject of growing angst in the analyst community.

* Government venture capital fund turned down early offer to invest in Rocket Lab

* Rocket Lab called a 'space unicorn' after first successful commercial launch

* Rocket Lab to launch satellite-destruct system**

Rocket Lab founder Peter Beck says no launch company has a '100 per cent' track record and Rocket Lab will have a 'bad day', but that would not threaten the business.

SpaceNews questioned last month whether the industry could be facing an 'embarrassment of rockets'.

It quoted industry luminary Jeff Greason describing the level of start-up activity as 'insane', and a sign of the 'immaturity' of the industry.

Contenders include Texan firm Firefly Aerospace which is targeting a launch by December, and Blue Origin which was founded in 2000 by Amazon boss Jeff Bezos.

Blue Origin's initial focus was sub-orbital space tourism, but it has since expanded its ambitions with a contract to launch telecommunications satellites for Canadian firm Telesat in 2021.

Beck expects about 3000 small satellites will require a ride into space over the next few years.

That is not counting SpaceX's plan for a mega constellation of 12,000 'Starlink' satellites to provide internet connectivity from space that has astronomers fretting, and other similar schemes from Amazon and OneWeb.

But even so, Beck expects there is only room for two or three other new-generation launch companies 'to make it through the gauntlet' and get into space, and other analysts appear to agree.

'The longer it takes them to get a test flight under their belt, the less the likelihood they will survive [after that],' Beck says.

Satellites frequently have 'dual' military and civilian use and Rocket Labs links to US military suppliers have been the source of controversy, even though all satellites launched from NZ need ministerial sign-off.

In the meantime Rocket Lab aims to build on its advantage, for example in the accuracy of its satellite deployments.

Next year, Rocket Lab plans a commercial test of its 'off the shelf' Photon craft that will allow companies that want to put equipment into space to avoid the 'massive' barrier of having to build their own actual satellite.

Photon is in effect the shell of a satellite, with the propulsion system needed to position the spacecraft in space and the equipment to manage communications.

Customers can then put their own electronics inside that shell or, if they need more space, attach their payload to it.

Every component on Rocket Lab's Electron rockets, down to each nut, bolt and washer, is treated as a 'critical component' that could cause a mission to fail.

Rocket Lab is also the only new-generation launch company that has developed a way to 'de-orbit' all of its rocket stages, Beck says.

'By mass, 70 per cent of all the junk in orbit is dead rockets and if you take those 117 start-ups not one of them has a solution for that.

'We built that in from day one because we thought that was part of being a responsible space citizen.

'It is not good enough just to put a payload into orbit. In order to compete with us, you have to put it exactly where it's wanted and leave no mess behind.'

Rocket Lab aims to prove it can launch a rocket a week, by next year.

Beck says Rocket Lab has a couple of other research projects in the pipeline that could put it further ahead.

Indeed, Beck says the company is now in a position where even a launch failure would not be a disaster for the business – though he stresses it is a scenario it is doing its utmost to avoid.

'One will fail. There is no launch vehicle in history that hasn't failed and although we do absolutely everything we can and our track record speaks for itself, there will be a time when we don't have a great day.

'We work hard to make that doesn't happen but that is reality unfortunately.'

But he says Rocket Lab is now is in a situation where a launch failure would not be a concern for the company from 'a business standpoint'.

The launch site in New Zealand is also a big part of Rocket Lab's competitive advantage, given the sheer lack of capacity of launch ranges elsewhere, Beck says.

Rocket Lab has been building a second launch complex in Virginia in the US, which it aims to begin using later this year.

'There is a ranging debate in America right now between airlines and the space industry because there is a massive problem there.'

Beck says it is even feasible that some other launch companies could elect to come to New Zealand.

That would be to take advantage of its sparsely populated east coast.

The location allows Rocket Lab to utilise the Earth's spin to send rockets into space over the Pacific with minimal disruption to air traffic and shipping lanes.

But coming to New Zealand would have its own challenges given building a launch pad was not just about 'pouring concrete', Beck says.

'It takes a lot of technology agreements with the United States, and any launch company coming to New Zealand will have to comply with its robust regulatory framework.'

In addition to that, Rocket Lab had already nabbed the best site in the country, on the Māhia Peninsular, he says.

Scaling-up its production and launch programme is the biggest challenge ahead of Rocket Lab, Peter Beck says.

'Any other site is sub-optimal.'

Often, a lot wannabe start-ups might trash a market, whether they were set to be commercial successes or not.

So does Beck have any concerns?

'Yes and no,' he says. 'Yes, in the fact that I think a lot of investors are going to lose a lot of money and that is never a great thing for an emerging space market.

'No, in the fact that we learnt it took the same amount of capital to go from 'zero' to first flight as it did to go from first flight to where we are now. The barriers to entry in this market are just extreme.'

Beck's contention that proving you can get into space is not everything appears to be backed by Rocket Lab's own fund-raising history.

Rocket Lab announced it had raised US$140 million (NZ$215m) from investors in November at a valuation for the business of 'more than' NZ$2b. That was at a time when it already had an orbital mission under its belt.

The valuation represents a big step up, but arguably not a 'giant leap', on the US$1 billion-plus valuation the business achieved in 2017 before it had lift-off.

As to start-ups bringing down prices, Beck says he has so far seen the opposite.

'We have seen customers who have been sold a dream on a launch vehicle that has never been completed, or not met its milestones, come and manifest and fly on us – some of them after a panic.

'Now and for the foreseeable future they really only have one option to get their payload into orbit in a dedicated way and that is on us. Even the nearest competitors continue to miss their milestones quite significantly.'

When Rocket Lab was getting off the ground, it had an offer price of US$4.9 million for an Electron launch.

Beck says its charge is now 'considerably higher than that' but it depends on the mission.

'We have customers coming to us with their hair on fire that need to get rockets launched in a certain timeframe. Some of those are very short and obviously that commands a premium.'

Rather than look over its shoulder at the potential competition, the big challenge ahead of Rocket Lab appears to be growing the business to meet demand.

The company is 'cash-flow positive' from an operational perspective, thanks to its ability to book milestone payments from customers for future launches.

Beck says it is totally booked for 2019 with 'not a spare spot' and now has a very full manifest already for the first half of 2020, which suggests growth will be important to keep the revenue building.

'We have built four acres of new factories and we employ more than 500 people.'

Most of those staff are in New Zealand even though the company is now headquartered in the US.

'We have scaled faster than any space company in history. By the end of this year we aim to demonstrate one launch every two weeks and then moving into 2020 we will try and demonstrate one a week.

'But it is hard to describe the magnitude of the scale-up to do that,' Beck says, sounding for a moment as though he may be genuinely daunted.

One of the challenges is finding the five to 10 new recruits Rocket Lab needs each week.

'Talent everywhere in the world in the space industry is a challenge.

'We build everything from scratch, which has only been done one other time by Elon Musk and SpaceX, so there are not a whole lot of references to go by.'

Rocket Lab has something like 1000 suppliers in New Zealand alone and Beck estimates it consumes about third of the machine shop capacity in the country and a third of all the composites industry.

'Every nut and bolt and even a washer we need traceability of, pretty much from the dirt out of the ground that was mined to be able to make that washer.

'You see a washer and I see a ringbinder full of paperwork. If someone substitutes the material in that washer and it no longer has the same level of friction or performs differently or corrodes you have the potential for a lost launch vehicle.'

But perhaps the most convincing reason Beck gives for suggesting Rocket Lab's lead will be hard to close is that it never had a 'head start', as such, over all those 117 rivals to begin with.

'Why did Rocket Lab poke its head above everyone else? Certainly we weren't the most well funded. There are other examples there that have been funded for longer to higher levels and have still failed to make their first flight,' he says.

'The 'New Zealand' aspect here cannot be underestimated. I can put my hand on my heart and say New Zealand has really smart people.

'When it came to solving really hard problems we started from a blank sheet of paper, we didn't start from a massive US industrial base, and that has been a huge contributor to our success.'

Kiwi entrepreneurs perhaps have a lesser reputation for fully capitalising financially on the abilities of the country's plucky engineers.

That may be the next frontier.