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Aerospace: Investments Moving Forward on the Final Frontier

Space exploration has long been on the horizon of aerospace development. Accelerating investment and regulatory reforms are drawing the boundless possibilities of commercialized outer space closer. In the first quarter of 2018 alone, there were 20 deals worth nearly $1 billion in the space industry, following a record 2017 which saw investment of $3.9 billion.

In February, MRP highlighted the efforts of the space industry, renewed by legislative reform clearing the way for private satellites. Conditions should continue to improve for private space projects as a new policy, said to be on President Trump’s desk for final approval, would designate the Department of Commerce as the public face of space traffic management. Until now, the Department of Defense was fully responsible for space traffic. Vice President Pence said of the bill last month that Commerce will be instructed to “provide a basic level of space situational awareness for public and private use”.

In addition, a reauthorization bill for the Federal Aviation Administration (FAA) passed by the House on April 27 includes several provisions intended to support commercial spaceflight activities, including a major increase in authorized spending levels. The bill raises the FAA’s Office of Commercial Space Transportation authorized budget from its 2018 level of just under $22.6 million to more than $33 million in 2019, with further increases to nearly $76 million by 2023.

Perhaps the most significant public policy shift, however, is The Space Commerce Free Enterprise Bill, which also passed the House of Representatives. The bill seeks to remove the US’s commitment to certain parts of the Outer Space Treaty, which the United States and dozens of other countries signed in 1967. The international treaty declares countries liable for any private activity from a space company operating within their borders. The U.S.’s new bill, wants to remove that liability. The bill would also bundle almost all space mission approvals under one roof, the Office of Space Commerce, to try and encourage as many companies as possible to launch objects into space. The Office of Space commerce would also be granted an increase in funding of $2 million to $5 million annually to handle a new influx of applications.

Easing government responsibilities for companies like SpaceX and Blue Origin should lend a huge boost to the creativity and volume of private space projects. However, even before these bills are enacted in the US, aerospace investment is already expanding internationally.

Chinese space company OneSpace Technology Co. revealed on Tuesday that it would attempt the first launch of its solid-fuelled OS-X suborbital rocket on May 17, 2018. The rocket startup received support from the State Administration for Science, Technology and Industry for National Defence (SASTIND), providing crucial access to technology, and has raised 500 million yuan (US$77.6m) through finance rounds since its establishment in summer 2015.

Japan’s Sony is also set to make a foray into the industry, launching a business that will draw on its domestic appliance technology to mass produce optical communications devices for small satellites. Sony Computer Science Laboratories intends to begin testing the gadgets during the current business year in partnership with the Japan Aerospace Exploration Agency. The experiment will involve attempting to communicate with Kibo, Japan’s experiment module on the International Space Station, becoming the world’s first company to mass produce such a system.

New projects continue to go above and beyond just rockets and satellites, however.

Luxembourg, historically a big player in the satellite communications industry, is becoming a big-time investor in private asteroid/interplanetary mining operations. As far back as 2016, the country was allocating more than $220 million of its national space budget to provide early-stage funding and grants to companies working toward space mining. The country owns a $28 million stake in American space miner Planetary Resources, which predicts that as early as the mid-2020s, it will be possible to extract and process water, hydrogen, oxygen, and precious metals from outer space to be utilized, either as fuel for deep-space missions to Mars and beyond, or as commodities on Earth. Luxembourg is so confident that the country is prepared to reimburse space mining companies up to 45% of their R&D costs.

In April, plans for Orion Span’s futuristic Aurora Station space hotel, were announced in a bid to capitalize on space tourism, a market expected to reach $1 billion over the next several years. The startup says Aurora Station will accommodate six people—including two crew members—at a time. A 12-day stay on the station is currently priced at $9.5 million. The exclusive hotel is slated to launch in late 2021 and plans to host its first guests in 2022. Orion Span, which charges an $80,000 security deposit for reservations, says that they have booked 4 months’ worth of capacity.

Although a lot of activity in space business is still private equity or in the startup stage, lowered barriers to entry and improved technology should increase the value of the sector and push a lot of companies to go public sooner rather than later. In the intermediate, established aerospace and defense companies like Boeing and Lockheed-Martin will play huge roles in supplying components to other companies and launching their own projects focused on military equipment and satellites.

Investors can gain exposure to aerospace projects via the Aerospace and Defense ETFs (ITA or XAR) and the Industrial Innovation ETF (ARKQ).

 

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