A cloud-cast on doing business in space

AS each year passes, a little more reality descends on the commercial space industry. There's still more than a hint of romance, but the swashbuckling Luke Skywalker days may be over. Lost satellites, the failure of some prominent commercial space companies, and NASA budget cuts have taken some of the hype out of this risky industry.

Analysts still insist that long-term prospects for space revenues are bright. Investment by large aerospace companies with ties to the National Aeronautics and Space Administration is expected to increase as Strategic Defense Initiative and space-station projects develop.

But for companies trying to get a start, the trickle of spacebound investment dollars from banks and venture capitalists, which became a small stream ($175 million) in 1983, dropped in 1984 and is likely to have been even lower (about $55 million) in 1985, writes Donald Fink, editor of Commercial Space magazine.

Only three or four of every 200 fledgling companies seeking funding for commercial space activities actually receive it.

A powerful factor in opening up commercial space development would be an operable space station to provide a place for scientists to work out the bugs in manufacturing operations and gather much-needed data. Yet, budget cuts threaten to push completion back from the mid-1990s to the year 2000 or later.

Last week Sen. Jake Garn (R) of Utah could be heard telling a gathering of space entrepreneurs in Washington that proposed cuts in NASA funding will stifle commercial growth. The Office of Management and Budget has asked for cuts that would reportedly trim the 1987 NASA space-station budget from $580 million to $100 million.

How would that affect the race for space gold and America's European space-station partners?

``One year [the 1986 budget cut] probably is not going to alter the situation drastically,'' says Robert D. Kugel, an aerospace analyst with Morgan Stanley & Co. ``But if the US program persists in leaving a vacuum, then Europe or Japan may want to fill it.''

Despite such uncertainties, a few small companies are managing to make it in the space business.

Wendel R. Wendel, president of Star Net Structures, is a self-styled space cowboy who wears Western boots, a broad-brimmed hat, and wants to build the first ``Lunar Hilton.'' But for now, Mr. Wendel is happy his company is subcontractor for several larger companies with NASA contracts to help build the space station.

``My phone's been ringing off the hook. We've been making money since Day 1,'' Wendel says. ``Our approach is that what they [NASA] really need is a new set of Tinkertoys out there.''

Star Net's unique, patented round metal hub and struts can be interconnected to form a space-station framework to which living and working quarters could be attached. The patent has given the company an edge and brought it jobs from large aerospace companies working on the space station for NASA.

As of December, six-month-old Star Net (a division of Wendel's terrestrial structures company, Space Industries Inc.), had landed five contracts worth about $1 million. The company is angling for up to $5 million in contracts this year.

Although subcontractors, niche companies, and communications satellite companies (which have had their own problems with mechanical failures and insurance rates) are expected to continue doing well, projected revenues that include space-based manufacturing, support services, and satellites have had to be lowered.

As recently as 1984, the Center for Space Policy, a Cambridge, Mass., consulting firm, had predicted space revenues of around $65 billion by the year 2000. But that was adjusted to a $16.8 billion low estimate and $51.3 billion for the high side.

``There was too much froth and hype involved initially,'' says Chris Roberts, director of venture financing at CSP. ``You heard otherwise-rational people talking about building space cities in the next 10 years.

``A lot of the Madison Avenue types are gone now and have been replaced by serious engineers and investors looking for really quality investment opportunities,'' Mr. Roberts says. ``It's a pendulum swinging back. . . . What we need is patience, professional engineering, and time. It takes seven to 10 years for a project to go from the lab to the market.''

Though the pool of venture capital has grown enormously in the last 10 years, it is not an ideal means of financing, several analysts say. That's because venture capitalists want at most a three- to five-year wait before seeing a hefty return on investment. That doesn't jibe with space product development that can take a decade from idea to salable product. Space investment is also high risk and often compares poorly with solid investment opportunities on Earth.

The only space products sold so far are tiny but nearly perfect latex spheres used to calibrate instruments. McDonnell Douglas has tested some drug production equipment. But earthbound processes may do the same thing more cheaply.

``The first time one of these [larger] companies finds the pot of gold, then you're going to see a gold rush,'' says Gary J. Miglicco, in charge of space commercial industries at Peat, Marwick, Mitchell & Co. in Houston. ``Right now there's very little an investor can invest in -- the industry's too young just yet.''

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