Case study newsletter
January 11, 2012


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Case study:

Loral Space Focuses on Customer Signals

Profit skyrockets for satellite producer on heightened customer awareness and continuous-improvement strategies.

There's a growing need for fixed communications satellites that orbit 22,000 miles above the equator at a speed of approximately 7,000 miles per hour. New York-based Loral Space & Communication Systems Inc. is one of the major satellite companies satisfying this increased demand driven by consumers' thirst for high-definition television, Internet access and satellite radio.

The company's reported revenues come from its manufacturing unit Space Systems/Loral based in Palo Alto, Calif. Located in the heart of Silicon Valley, Space Systems/Loral isn't as widely known as other high-tech producers in the region. But its ability to bring innovative products to market and meet customer demand is no less remarkable. That's because these geosynchronous orbit satellites face years of testing to ensure they're rugged enough to withstand harsh environments. They also must provide reliable service for multiple decades without maintenance. "We could never come up with a product, like Apple does, in six or eight months," says John Celli, president of Space Systems/Loral.

The long lead times and capital-intensive manufacturing process mean Space Systems/Loral must pay close attention to future market trends and plant-floor efficiency. The company has built its product-development process around continuous collaboration with customers, Celli says. "Over the years we have stayed close to our customers to understand what their vision is for future applications that would support their business," Celli says. "That's how we generate our ideas, either for product development or existing product modification."

Space Systems/Loral builds a satellite for communications to small mobile devices.

Space Systems/Loral also has adopted lean manufacturing principles at its Palo Alto facility, including a management operating system that focuses on reducing waste, Celli says. For instance, the plant transitioned to a cellular manufacturing layout that helped reduce travel distances. "We found one important unit that goes into a satellite was traveling in our relatively small facility over two miles before the delivery," Celli says. "That was reduced to a fraction of that number." Productivity improved by 30% because of the continuous-improvement initiatives, Celli estimates.

The manufacturing segment's steady growth over the years helped boost the parent company's profit 110% in 2010 to $486.8 million. The parent company achieved a 42% profit margin in 2010, up 19 percentage points from the previous year, including $85.6 million of equity income from its satellite services segment and $308.6 million of income tax benefit.

Loral announced earlier in the year that it would explore the spin-off of Space Systems/Loral into an independent company during the first half of 2012. Canada-based Telesat and another joint venture called XTAR comprise Loral’s satellite services segment and are reported as unconsolidated equity investments because Loral does not control significant operating decisions in the businesses.

The rise of high-definition television has been one of the company's primary growth drivers as high-powered satellites can maximize the amount of high-definition programming that can be broadcast, Celli says. But a lack of high-speed Internet access in rural areas presents another opportunity that the company plans to capitalize on with recent and planned satellite launches.

On Oct. 20, the company launched its ViaSat-1 satellite for ViaSat Corp. to provide broadband satellite service for consumers in the United States. It's the highest-capacity satellite that has ever been launched, Celli says. In 2012 the company also plans to introduce the Hughes Jupiter satellite, which will provide broadband satellite services to consumers throughout North America.




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