DEDUCED RECKONING: Space business is hard, risky, and unprofitable – Sarasota Herald-Tribune

Joan Lappin| Sarasota Herald-Tribune

Im old enough to have cut my space travel teeth in the 1940s with "Captain Video and His Video Rangers." Through the decades there have been "Star Wars," "Star Trek" and Spock, R2D2 and C3PO pervading our culture. All that changed from science fiction to reality when Soviet cosmonaut Yuri Gagarin successfully orbited earth on April 12, 1961.Communications systems were primitive to say the least.

Alan B. Shepard flew his Mercury capsule Freedom 7 on a suborbital flight threeweeks later but America was embarrassed that the Soviets had beaten us to space. John F. Kennedy immediately seta mission to put a man on the moon, Not because it is easy but because it is hard. Seven years later, Apollo 8 circled the moon on Christmas Eve 1968 with Frank Borman, Jim Lovell, and William Anders on board. Neil Armstrong and Buzz Aldrin landed the Lunar Module Eagle on the moon on July 20, 1969, fulfilling Kennedys challenge.

Fast forward to 1990 when Gramercy Capital invested in a space pioneer called Orbital Sciences. Orbital had designed a small rocket to place communications satellites into low earth orbit. To test the concept, NASA carried the Pegasus rocket off the ground attached under the wing of a modified B52 bomber. It worked so Orbital bought its own Lockheed L1011 and modified it for future launches. The approach, which Richard Bransons Virgin Galactic has mimicked, is to carry the rocket and its payload up to 45,000 feet and release it when it is already traveling at 500 mph. The smaller rocket is much cheaper but it is not sufficient to blast a payload to the moon or Mars.

Orbitals goal was to offer vehicle tracking to trucking, maritime and persons from a constellation of 98-poundsatellites placed in low earth orbit. Qualcomm and Loral started a similar activity called Globalstar in 1991, also aimed at voice and tracking services. It spent $4.3 billion over a decade before it went bankrupt in February2002. Motorola embarked on a global voice system in 1987 called Iridium with a more daunting concept to switch phone calls in the sky between 66 satellites without using any ground stations. Then and now, the Pentagon is Iridiums principal customer for secure global communications. Iridium was and remains a technological marvel but it was obsolete by the time it was deployed as cellphones had become ubiquitous. After spending $5 billion on six groups of eleven 1412-poundsatellites, Iridium filed for bankruptcy in August 1999. Orbcomm Global filed for bankruptcy in 2000 although Orbital Sciences continues in the rocket business as part of Orbital ATK.

In this week of great excitement about space travel (if you can afford a ticket for $250,000 for a short ride like Yuri Gagarins), it is important to realize that JFK had it right: Space is hard. It is also expensive, fraught with scientific challenges and risk of loss of life in environments not suited for humans. Thirty years ago, three companies with smart managers embarked on a simpler task of just communications from low earth orbit. All three went bust.

Keep that in mind as you race to speculate in the latest iteration of space exploration. It is truly exciting for mankind but, if the past is prologue, it is not likely to be rewarding for your portfolio over time.

Joan Lappin CFA has been called an investment guru by Business Week and a top manager by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email her atJLappincfa@gmail.com. Follow her on twitter: @joanlappin. Her past columns appear atheraldtribune.com/business/columns.

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DEDUCED RECKONING: Space business is hard, risky, and unprofitable - Sarasota Herald-Tribune