The Explosion That Blew the Israeli Satellite Industry to Smithereens

The government wants its communications satellites made in Israel - but making that happen is a long, expensive battle

The Amos 6 satellite, January 13, 2016.
IAI

September 3, 2016 was supposed to have been a festive day for the Israeli space industry, with the launch of the $200 million advanced Amos 6 communications satellite. It was the pride and joy of Israel Aerospace Industries, which was set to replace the aging Amos 2 satellite. 

Except that two days earlier, as it sat on a SpaceX Falcon 9 launcher at Cape Canaveral, Florida, the satellite was completely destroyed in an explosion that occurred during a test ignition of the launch rocket’s engines. 

>> Read more: How Israel Aerospace went from sky high to free fall

Three months later, a commission established in the wake of the explosion found that the communications satellite industry in Israel was facing a serious crisis, and advised that the government take measures to maintain the country’s standing as a technology and space power, and to become one the few countries capable of launching communications satellites. 

The commission did not specify whether Israel had to build the satellites itself or just launch them. The difference is highly significant, as it touches on the question of whether the satellite will be built by IAI – a government company with a politically powerful union – or by a foreign company. 

After the findings were publicized, Science, Technology and Space Minister Ofir Akunis announced his commitment to building another communications satellite. “There is the concern that Israel won’t be able to meet its communications needs in an emergency, and we will face a loss of the knowledge that has accumulated over the years,” Akunis said.

Despite recognizing the importance of the issue, Israel is still struggling to put the pieces back together. The cabinet decided six months ago to fund the construction of the Amos 8 by IAI, but the work has yet to begin. Spacecom, a company that operates communications satellites, has not put in the order for it. Their manufacturing specifications are incomplete and the money promised by the government has not yet been released in full. 

No one can say with any certainty when construction of the satellite will begin, let alone be completed, and when it would be launched. 
Communications satellites made in Israel are an important component of the national space program. They ensure the country’s communications independence. They also have important military applications, and although officials decline to elaborate on them, they apparently include observation, spying and monitoring beyond the country’s borders. 

Three main players

Three main players are supposed to take part in the project of launching Israel’s next communications satellite, the Amos 8: Spacecom, the Israeli government and IAI. Spacecom is the company that orders, launches and operates the satellite in orbit. The government is the main client for the satellite. IAI, which was selected to do the job, is the only company in Israel capable of building satellites.

IAI has a built-in disadvantage compared to foreign companies that regularly build communications satellites and as a government company is plagued by inefficiency. However, it is important that it be the one to manufacture the satellite, as doing so will enable Israel to maintain its capabilities in this field. 

“Today there is no country in the world that doesn’t use satellite communications,” says Tal Inbar, an international aerospace expert. 
“Some countries purchase communications services from other countries, and some do their own satellite operations, whether it’s with satellites purchased from others or ones they built themselves. There’s no need to explain how vital this communication resource is to every country. A portion of civilian communications in Israel depends on undersea fiber communications systems, and that can be vulnerable to natural disaster, sabotage or foreign suppliers deciding to cut us off under certain political conditions. Satellite communication is much more convenient and immune from disruptions,” says Inbar. 

“Since building a communications satellite costs a lot of money, it has been rare for many years to see communications satellites that are 100% military. The current model is to build a dual satellite – that can handle civilian or commercial needs alongside security needs. There is no technical problem in separating the different uses.” 

Politicians were the ones who called communications satellites a key strategic need that impacts Israel’s national security as well as its industry, economy, technology and international standing. 

Video of Israel's first Satellite launch on September 19, 1988.Ministry of Defense

“Israel’s importance as a technological and space power isn’t just a matter of gratification or technological superiority,” Akunis said in late 2016. “It is a vital need to ensure Israel’s survival by being able to control its own future and not having to rely on the kindness of other countries.” 

But the state comptroller report last October found that the government’s handling of the matter sorely lacking, endangering Israel’s capabilities and the technological and human infrastructure that was built over decades. 

While professionals in the field say that a new satellite must be ordered every three to four years in conjunction with a requisite budget in order to sustain the communications satellite industry in Israel, this goal seems to be overly ambitious, given the clumsy way that relevant officials, especially policy makers, have handled the issue.

Inbar, former head of the Space Research Center at the Fisher Institute for Air and Space Strategic Studies and a founder of the Israel Space Agency, says that only a small number of countries are capable of building communications satellites. Israel did it for the first time in 1996 with the Amos 1 satellite. 

Like many others, Inbar cannot comprehend why there is such a gap between government decisions and their execution. 

“Israel decided that it wants independence in the field of communications satellites. As the state comptroller said, it’s very nice they made that decision, but the decision has economic significance. Just as the Ofek satellite had a mother and father in the Defense Ministry, someone has to take on the responsibility of managing the project and obtaining the right budget. An odd situation has become the rule when it comes to satellite communications, for some reason; the government says that it’s vital and strategic, but then it doesn’t allocate the money for it.”

Anger at IAI

So what exactly happened with the Amos 8 and why isn’t this project underway yet? Here is the somewhat odd sequence of events. 

IAI competed in early 2018 to build the satellite, but Spacecom awarded a $122 million contract to Loral Space & Communications, a U.S. company. Spacecom rejected IAI’s bid because it was more expensive and would take longer to execute

This was the second time in a row that Spacecom chose a company other than IAI, which had built the Amos 2, Amos 3, Amos 4 and Amos 6 satellites. The previous time was when it chose the American company Boeing to build the Amos 17, which is due to be launched in the second quarter of 2019, for $160 million. 

The choice of Loral infuriated IAI officials, who warned that if they did not build the next satellite for Spacecom, all the knowledge that had been built up would go down the drain and the harmful repercussions would be felt for years to come. Although they had a clear interest in making such an assertion, there is some truth to it, according to the state comptroller.

IAI did its utmost to prevent Spacecom from purchasing the satellite from another company. About a month after Spacecom’s announcement that it was going with the American company, IAI told the government that it would manufacture, launch and independently operate a communications satellite that would meet Israel’s needs and deprive Spacecom of its biggest customer. 

This offer was widely considered unrealistic, but IAI was nevertheless able to exert its influence on the policy makers. As defense minister Avigdor Lieberman, citing security needs, ultimately decided that IAI would produce the satellite.

Spacecom was informed that if the satellite were not built in Israel, it would lose the government as a client. The company had no choice. Launching another satellite was supposed to be the move that would rescue the unlucky company that had lost two satellites in recent years (in addition to Amos 6, contact with Amos 5 was lost in late 2015). Spacecom aimed to launch two satellites by 2020 (Amos 17, which is due to be launched in a few months, and Amos 8, to be launched a year later). 

The Science Ministry announced last April that it was working to acquire a communications satellite via IAI rather than Spacecom. 

A week later, Yair Katz, chairman of the IAI union, congratulated those who helped to keep the satellite production in Israel during a Channel 10 interview. 

“It’s thanks to our ability to reach the decision makers. If they would have disappointed us – they probably wouldn’t receive the workers’ trust again in the Likud primary,” he said, not bothering to hide the way in which IAI exerts the pressure. 

How did they overcome the cost difference between the foreign company’s proposal and IAI’s proposal, given that Spacecom wasn’t ready to pay the extra money for the sake of national interests? 

The cabinet decided to bridge the difference between the cost of the foreign satellite and the Israeli satellite. For reasons that are unclear, the government and IAI refuse to reveal the amount of the financing. It is estimated at $90 million, but there is no information as to how much each ministry will chip in.

No money, no specs

The government’s decision to cover the cost differential could have been the end of the story. But anyone who thought that work on the blue-and-white satellite would start right away was sadly mistaken. More than six months have passed since the government said it would use taxpayer money to cover the extra cost, but construction has not yet begun. 

“The government hasn’t put the money it was supposed to put,” says someone involved in the matter. “There were supposed to be several budget sources. Some were utilized and some just never arrived.” 

IAI responded: “IAI has not yet received an order from the client to build Amos 8. IAI is maintaining the technical ability for satellite communications in Israel and eagerly awaits the arrival of the order to commence building the satellite.”

The Finance Ministry commented: “The Finance Ministry gave the funding to the Science Ministry in accordance with its commitments on the matter. To the best of our knowledge, there are no delays here.” The Science Ministry stated: “The Science Ministry signed a contract with IAI for the funding of satellite technology development and is upholding its commitment.”

Surprisingly, even the specifications for the satellite are not yet complete. Spacecom doesn’t yet know if the Yes satellite company will be its customer for Amos 8. Yes’ parent company, Bezeq, does not plan to use Spacecom’s services after 2026, because it plans to shift to broadcasting via internet by then. Therefore, Spacecom will need different specifications for a business plan that does not include Yes, which has been a major client responsible for about a third of the company’s revenue in recent years (the Israeli government was responsible for another third). 

Spacecom is trying to put together a business plan that will ensure it economic feasibility at least equivalent to the initial agreement with Loral, and is letting the government understand that it will not agree to pay more in order to subsidize IAI. 

“They won’t move ahead with the Amos-8 plan until they are able to fix the sums from all the relevant parties – Yes, the government, IAI – in order to finalize the business outline making the project feasible,” says a source familiar with the situation who asked not to be identified.

Even when Spacecom has specifications for the Amos 8 ready, financing won’t be easy. The company has lost more than 65% of its market cap in the past year and is currently valued at just 125 million shekels ($34.5 million). It bonds trade at junk yields, indicating market uncertainty as to whether it can repay its debt. A bond issue to purchase a satellite would be particularly costly for it. 

It’s hard to understand why the government, especially the Science Ministry, is dragging its feet. “I admit I haven’t held a discussion on the matter lately. Add to that the fact that we have an election coming up, and we have the potential for some very serious damage here,” Likud MK Yoav Kish, chairman of the Knesset subcommittee on space, says candidly.  

“The first thing that needs to be done is to take care of Amos 8, but unfortunately we’re not sufficiently ready for that. The government decision was completed, but the ministries have not released all of the designated funds.”