With Starshield, SpaceX readies for battle

Now that SpaceX has established itself as a leading provider of U.S. national security launches, it is seeking a bigger share of the defense market with a new product line called Starshield. SpaceX quietly unveiled Starshield last month offering defense and intelligence agencies custom-built spacecraft, sensors, and secure communications services leveraging SpaceX’s investment in its Starlink network of broadband satellites.

Like other commercial players, SpaceX is eyeing opportunities fueled by the United States’ “great-power competition” with China and Russia. A U.S. national defense strategy document the Pentagon released in October calls China a “pacing challenge” that threatens to surpass the United States in defense and space technologies. To win this race, DoD intends to tap commercial innovation.

“We have in the United States by far the most resilient commercial space enterprise anywhere in the world. The Chinese know that, and we’re going to lean into that,” Deputy Secretary of Defense Kathleen Hicks said Dec. 8 at an Aspen Security Forum in Washington. “We’re going to make sure we’re working closely with the commercial sector and leveraging all that commercial space capability.”

Russia’s war in Ukraine cast a powerful spotlight on the space industry, notably on the value of imaging satellites and on SpaceX’s satellite broadband service Starlink. The system — with well over 3,000 satellites in orbit and thousands more to come — demonstrated resilience against jamming and showed the strength of this kind of proliferated architecture.

“This wasn’t available before,” John Plumb, assistant secretary of defense for space policy, said Dec. 14 at the Center for Strategic and International Studies. Ukraine is the first major conflict, he noted, where commercial space technology has come into play in a significant way.

The integration of commercial space into military operations is “the way of the future,” Plumb said. “It’s pretty clear now that the department doesn’t have to build its own constellation for every mission set to introduce resilience.”

Heidi Shyu, undersecretary of defense for research and engineering, in a Nov. 21 memo said the Pentagon anticipates greater dependence on the space industry and directed the Defense Science Board to recommend steps DoD should take to ensure it has access to commercial sources.

“Because of the rapidly improving commercial space capabilities, a comprehensive plan for using commercial space systems in the context of classified U.S. space capabilities is needed,” said the memo.

OPPORTUNITIES FOR COMMERCIAL SPACE

SpaceX has not shared many details about its Starshield product line and the company did not respond to questions from SpaceNews about the initiative. SpaceX’s website describes Starshield as a “secured satellite network for government entities” with an “initial focus” on direct delivery of processed Earth observation data, secure global communications enabled by inter-satellite laser links, and satellite buses for hosting “the most demanding customer payload missions.”

The company also highlights its existing relationships with the U.S. military and the intelligence community, as well as know-how gained in commercial Starlink operations. Starlink’s ability to operate in Ukraine with little to no disruptions did not go unnoticed by the Pentagon.

Bloomberg reported Dec. 20 that SpaceX sent 22,000 Starlink terminals to Ukraine since the war began in February, including replacements for units destroyed in combat. A Ukrainian government official told Bloomberg the country will request 10,000 more.

Starshield presumably would offer customized Starlink satellites and terminals that DoD could own or lease, said Todd Harrison, defense budget analyst and managing director of Metrea Strategic Insights.

“I think SpaceX is prepared to use the expertise and manufacturing prowess it has developed from its Starlink business, mass producing pretty sophisticated satellites,” Harrison said.

National security space is now one of the fastest growing areas of the DoD budget, and commercial players like SpaceX “have been preparing for some time to fill a demand in the defense market,” he noted. The 2023 spending bill Congress passed Dec. 23 to fund the government through Sept. 30 added $69.3 billion for DoD above what the Pentagon requested. The defense increase includes $1.7 billion for Space Force programs.

SpaceX’s original approach was to sell Starlink communications as a commercial service to DoD, Harrison said, “but think they’re finding that that’s harder than they thought” and there are also lucrative opportunities in selling customized satellites leveraging their existing production lines.

Starshield is drawing from SpaceX’s experience as a satellite supplier for the Space Force’s Space Development Agency. SDA is procuring satellites to build a Transport Layer in low Earth orbit, a mesh network that will move data collected by a Tracking Layer of missile-detection satellites.

Under a 2020 contract, SpaceX teamed with Leidos Corp. to build four Tracking Layer satellites that are projected to launch in March. With a hot production line pumping out an estimated 120 Starlink satellites per month, said Harrison, “why not just double down on that and build government-unique satellites if that’s what they want?”

Combining its manufacturing might and expertise building military satellites, he said, “SpaceX can use that to break into this market and probably out-compete a lot of the traditional primes.”

Andrew Penn, space industry analyst and principal at the consulting firm Oliver Wyman, sees Starshield as a “logical next step for SpaceX to leverage its mass manufacturing of satellites and terminals — one you could argue it has already taken through its SDA and related national security work.”

SpaceX is essentially telling government buyers it is prepared to establish a separate business unit to handle built-to-order satellites for defense and intelligence customers, Penn noted. “The company will be better positioned to serve the military with its second-generation Starlink satellite buses, which promise to be larger and capable of hosting payloads with higher power requirements.”

Considering how fast the company builds satellites, Penn said, “there is an opportunity for DoD to take advantage of a hot manufacturing line to realize meaningful cost savings compared to more traditional bespoke acquisitions.”

DoD UNDER PRESSURE TO INNOVATE

The head of Space Force acquisitions Frank Calvelli said DoD has to move quickly to take advantage of commercially available technologies, and pivot away from traditional development programs that are perennially behind schedule and over budget.

“There’s a lot of pressure on the Department to go faster in space acquisition,” Calvelli, assistant secretary of the Air Force for space acquisitions and integration, said Dec. 15 at a Washington Space Business Roundtable event.

“Speed in space acquisition is a very simple formula,” Calvelli said. “You build smaller satellites, you use existing technology and reduce non-recurring engineering. You take advantage of commercial capabilities and you execute.”

These comments are an acknowledgment that the U.S. military “is going to have to embrace a new model” for procuring space systems, said Even Rogers, a former U.S. Air Force space operations officer and currently the CEO of True Anomaly, a new venture-backed space startup.

“The Space Force needs to partner with companies like SpaceX and whoever can provide fully integrated mission solutions, not just an algorithm or a singular spacecraft,” said Rogers.

DoD prime contractors, he said, are “really good at big and expensive programs that are sort of the backbone to security infrastructure and deterrence. What they’re not good at is very quick iteration to adapt to a rapidly changing environment.”

At the same time, commercial space companies face a tough financial environment and need national security customers, he said. “Defense is where the big growth is going to be because of the strategic competition with Russia and China. What the DoD wants is defense technologies at the innovation rate of commercial technologies. That’s the Holy Grail.”

Trae Stephens, a principal at Founders Fund, whose investments include SpaceX, said venture capitalists “are thinking about fundraising very differently than they were in 2020 and 2021.”

“Before, we kind of were complacent because we thought the world was this perfectly safe place … and all the real money to be made was in consumer and internet products. And I think Ukraine has woken people up,” Stephens said Dec. 3 on The Burn Bag national security and foreign policy podcast.

“With everything that we’re seeing internationally, not only with Ukraine, but also what’s going on in Iran, what’s going on in North Korea, the potential threat to Taiwan,” he said, “I think everyone’s kind of coming back to the drawing board and saying, if we’re going to invest in things that matter, that are strategic, that are mission-oriented, there’s a real opportunity here.”

PURSUIT OF DEFENSE DOLLARS

What SpaceX has done with Starlink is to visibly demonstrate how commercial space technology serves national security applications, said Peter Arment, aerospace and defense industry analyst at Baird investment bank.

“This helps SpaceX obviously but also helps the entire industry attract investment,” he said. “The defense spending space is sort of a rising tide at the moment.”

Before anyone had ever heard of Starshield, other companies in the space industry started making moves to be better positioned to compete in the national security arena.

Commercial launch provider and satellite manufacturer Rocket Lab on Dec. 1 announced it is establishing a U.S.-based subsidiary for defense and intelligence work, including classified programs.

The new business, called Rocket Lab National Security, will have “close engagement with U.S. government customers to understand their mission requirements, which may be dedicated rapid call-up launch, satellite design, build and integration, spacecraft operations or all of the above,” Rocket Lab spokesperson Murielle Baker said in a statement.

Tess Hatch, vice president of Bessemer Venture Partners, a Rocket Lab investor, said the mood has shifted from a year ago “when investors in boardrooms were pounding our fists on the table saying ‘growth at all cost.’” Defense customers can be “a little lumpy and unpredictable. However, there are massive potential contracts,” Hatch said Dec. 6 at the TechCrunch Space conference.

“With markets down and maybe commercial needing to push a little more throttle, the diversity of the customer base is so important,” Hatch said. “The government is extra helpful for space companies right now when the commercial side isn’t as efficient.”

Satellite manufacturer Terran Orbital shifted gears in late 2022 to better address military customers, canceling plans to build a commercial remote-sensing constellation and instead focus on producing space hardware for NASA, DoD and for Terran Orbital’s strategic investor Lockheed Martin.

HawkEye 360, a commercial firm that uses satellites to monitor radio-frequency emissions, decided to focus almost entirely on the national security market for signals intelligence. This sector “has always been the purview of the big defense industrial base entities like Lockheed, Northrop and Raytheon that build very expensive spacecraft to do exquisite things,” HawkEye 360 CEO John Serafini said Nov. 17 at the Baird defense investment conference.

To compete against traditional defense contractors, Serafini said the company moved to hire more workers with security clearances, and invested in security-cleared infrastructure and accounting systems.

Like other remote sensing industry players, HawkEye 360 gained attention during the Ukraine war. “We’ve performed over 1,000 individual missions over Ukraine, and it’s given us bona fides that we can then go take to other places where we’re required, in particular Asia Pacific with the rise of China,” Serafini said in September at a Gabelli Funds investors conference.

DoD’s attitude toward commercial firms and startups “has definitely shifted,” said Serafini. “Has it shifted all the way where everyone’s totally embracing commercial capabilities that are unclassified? No. But you have to find a middle ground.”

The market’s emphasis on profitability will drive companies to tailor products to government needs, he said. “For too long startup companies were run by 20-something-year-old people spending money like drunken sailors, and we know that doesn’t work out in the long term. What you need is discipline to develop products that customers truly care about.”

In the satellite communications sector, commercial operator SES in March acquired Leonardo DRS Global Enterprise Solutions, a network integrator and manager of satcom services for DoD and other government agencies.

With the $450 million acquisition, SES will have a stronger presence in the national security sector. The combination of the satellite operator’s U.S. subsidiary and DRS GES was recently rebranded as SES Space & Defense to “reflect the organization’s new positioning and expanded offering serving the needs of the U.S. government customers,” the company said.

COMMERCIAL SPACE IN ‘GRAY AREA’

The value of commercial satellites, meanwhile, have put private-sector assets directly in the line of fire. Russian officials made that clear as they saw the essential role of Starlink communications services in support of Ukraine. These threats have compelled the Pentagon to consider options to compensate commercial companies if their satellites are damaged while supporting the U.S. military in a conflict.

This is a striking reminder of how far private players have moved into domains that previously only belonged to governments, said Casey Dreier, chief policy adviser for the Planetary Society, a nonprofit that promotes space exploration.

Starlink is the poster child of this trend, he said Dec. 13. A private company being seen as a valid target in warfare “crystallizes how all-encompassing and integrated space is to all sorts of things that we take for granted in the current world order.”

This is raising tough questions for dual-use companies “that are being cross-pressured by different needs,” said Dreier. “When the U.S. government is just one customer of many, do you make a full commitment to the U.S. government to serve exactly their needs in ways that we may not have fully considered?”

SpaceX, for example, could find itself in a sticky geopolitical situation if China invaded Taiwan, said Dreier, given Elon Musk’s dual role as head of SpaceX and CEO of electric car manufacturer Tesla, which has significant operations in China.

The United States, which is committed to the defense of Taiwan, would rely on DoD contractors, including SpaceX, to support those efforts.

This article originally appeared in the January 2023 issue of SpaceNews magazine.

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