With the U.S. leading the pack, militaries are being forced to balance increased demand for satellite services with austere budgets.

The majority of the 161 unclassified milsats forecast for production in the next decade will go into service in the near term with production tapering in the outyears. The primary aim of military planners is to boost capacity while stabilizing costs.

After a decade of multi-billion- dollar satellite cost overruns, the Pentagon finally began space-based testing on the first Advanced Extremely High Frequency (AEHF) and Space-Based Infrared System (Sbirs) satellites made by Lockheed Martin. The U.S. Air Force is using these programs as pathfinders for a new way of buying constellations, ordering in bulk in order to stabilize the industry. It remains to be seen, however, whether Congress will approve this approach.

Also uncertain is whether the next big development, Lockheed Martin's work on the GPS III system, will survive major budget cuts anticipated by the Pentagon.

Military satcoms represent the largest potential opportunity for manufacturers. Despite growing concern about jamming, the military's dependence on commercial satellites is expected to continue.

An emerging trend is the creation of military-commercial partnerships for hosted payloads. Under this arrangement, commercial operators host government payloads on their satellites. Hosted payloads are much cheaper than designing a new satellite and allow governments to reduce launch costs. Payloads can be controlled by the government while the commercial operator receives cash to defray satellite costs.

Although Russia, China and Israel are assuming a greater share of the military satellite market, Europe will remain second only to the U.S. in terms of sales.

The major players in Europe, including France, Germany, Italy, Spain and the U.K., are all pursuing their own national space programs, though with some shared activities. For example, France, Germany and Italy have data-sharing agreements in place for their reconnaissance satellites. Similar agreements could expand with the deployment of next-generation satellites.

However, bolstered by demand from the Pentagon, Boeing and Lockheed Martin will remain major players in this market, with Boeing benefiting from its contracts for GPS Block IIFs, the Wideband Global Satcom (WGS) network and Tactical Data Relay satellites. Lockheed Martin, meanwhile, has contracts for GPS III as well as the Mobile User Objective System (MUOS), AEHF and Sbirs birds. Other major global manufacturers of military satellites include Mitsubishi, EADS Astrium and Russia's ISS Reshetnev.

With William N. Ostrove/

Forecast International/

www.forecastinternational.com