Satellite orders tumble earthward at Boeing's division in El Segundo. (Up Front).

Boeing Co. responded to booming satellite demand by purchasing the El Segundo-based satellite division of Hughes Electronics Corp. in the fall of 1999 for $3.8 billion.

At the time, Boeing officials predicted a 10 percent to 15 percent growth rate over the next three years, citing demand from home applications, broadband and Internet access.

"We are seeing a resurgence in the market compared to last year;' Tig Krekel, then-president of Boeing Satellite Systems and a former Hughes executive, told the Times of India. He left in 2001.

Instead, the opposite has happened.

The commercial satellite industry has been hit by everything from the economic slowdown to a string of high-profile launch failures that eroded customers' confidence and literally burned up millions of dollars.

Last year, Boeing Satellite Systems delivered only five satellites, down from 11 in 2000.

"There has been this rolling domino effect with the dot-com meltdown, then the telecom meltdown and then the stock market and overall economic meltdown," said John Pike, director of GlobalSecurity.org, an Alexandria, Va.-based defense and space policy group. "Each of those has diminished the demand for commercial space launch."

Orders postponed

Today, Boeing Satellite Systems has a backlog of 30 commercial and military satellites worth $3.5 billion. But most of the commercial orders came during the heady days of the mid- to late-1990s by companies that have since instructed Boeing to postpone manufacturing. All told, as few as 10 commercial space vehicles could be built this year, down from 25 annually in the late 1990s.

Like other satellite companies, Boeing has been hit with quality control pmblems. Flaws in the design of the solar panels that generate power for six commercial satellites launched between December 1999 and March 2001 were only discovered after they were in orbit. The result is that none of the satellites will come close to surviving its planned 15-year life span.

"For our commercial market, it's the worst we've seen in 20 years," said Charles Toups, vice president of programs for Boeing Satellite Systems. "But we were fortunate in that we have significant government programs."

Failures are pricey in an industry where commercial satellites cost $100 million to $200 million (plus an additional 15 to 20 percent to insure them).

Government satellites range from S50 million for a large order of weather satellites to $500 million for a high-end surveillance spy satellite.

Boeing is not the only satellite maker that has been plagued with production problems. The world's other major satellite builders -- Lockheed Martin Space Systems, Loral Space and Communications, Alcatel Space, EADS Astrium Ltd. -- have also suffered.

The industry's problems were highlighted in a June 2 report released by the General Accounting Office.

The federal agency blamed satellite makers for insufficiently defined requirements, immature technology, out-of-control costs, software problems in on-board computers, scheduling delays and program instability.

"All of the satellite programs have been having trouble," said Philip Coyle, senior advisor for the Center for Defense Information, a research and planning organization. 'The effect is that they get into trouble with Congress and that can lead to greater oversight, budget cuts and that just compounds their difficulties."

Side effects 

Boeing's satellite manufacturing problems have spilled over to its nautical launch division, Sea Launch, which was formed in 1995.

While the Long Beach-based unit has built a sound track record with eight of nine launches a success, its biggest challenge hasn't been blasting satellites into orbit, it's been getting them delivered.

Boeing Satellite Systems failed to make target delivery dates on three space vehicles it was supposed to deliver last year - two were delayed due to technical difficulties while one order was cancelled by the customer.

So Sea Launch has struck out on its own. This summer, Sea Launch is expected to enter into a landmark agreement with two competing commercial satellite launch companies, calling for each to provide backup services when a planned liftoff fails.

The joint agreement with Mitsubishi Heavy Industries Ltd. and Arianespace is geared at boosting confidence among satellite buyers following at least three launch failures last year that destroyed multi-million rocket launches and the even more expensive satellite payloads they carried.

At Boeing's El Segundo facility, employment has dropped to between 5,700 and 6,000 people from 9,000 when Hughes was purchased.

The cutbacks can further decrease efficiency, Pike said, because experienced personnel who retire are replaced by less expensive junior personnel, if they are replaced at all.

"At least some of those production problems reflect these other business problems," said Pike. "The result being that it's more likely that a program is going to get into trouble and it will be more difficult to get it out of trouble."

So far this year, Boeing Satellite Systems has procured a sales agreement for only one commercial satellite after signing contracts for one commercial and three military satellites last year. (The Air Force awarded Boeing $690 million for three Wideband Gapfiller communications satellites and related services.)

That's a far cry from the seven commercial satellite sales the company made for an undisclosed sum in 2000.

Nevertheless, Boeing officials claim their military business will remain strong with the prospect of landing several multi-billion contracts in the near future.

The unit's commercial market will take a turn for the better within a couple of years, said company officials, who believe industry wide procurements will increase to 15 to 20 space vehicles per year, company officials said.

"Fundamentally, satellite communications still is a very good way to distribute information and communicate to broad regions of the world," said Toups. 'That demand will start to grow."