The Implications of the COVID-19 Outbreak in the Space Sector: Impact Overview and Lessons Learned
By Miraslava Kazlouskaya as published in Aviation Space Journal in November/December 2021. She has an LL.M degree in Air and Space Law from Leiden University in The Netherlands, has been active for 2 years within the Space Generation Advisory Council and works as Junior Consultant for Groundstation.Space, which is part of NL Space Campus.
Operations around the world, in both developed and developing countries, have been slowed down or even halted due to restrictions imposed by governments to stop the spread of the Coronavirus Disease 2019 (COVID-19). During an economic downturn, innovation and research and development are always at risk, as they are the first industries to fall behind. This means that small and medium-sized enter- prises and start-ups, frail motors of innovation, are becoming particularly vulnera- ble.1 The space sector is feeling the impact of the crisis as well, with launches being cancelled,2 operational missions are being cut,3 and private companies shutting down.4 At the same time, the coronavirus has given a new perspective on space ap- plications in our daily life, allowing us to maintain both family and professional ties remotely, and also monitoring coronavirus measures using space data. However, the pandemic raised the concern not only of the interaction of the private and public sectors, but also brought the legal issues of mitigating contract liability in case of default, which has become a frequent occurrence during COVID-19.
The first chapter of this article will consider the impact of the coronavirus outbreak on the financing of space activities, changes in supply and demand in this area, as well as those cases when companies had to rely on force majeure or eventually faced bankruptcy. The second chapter focuses on the ways that have helped the space in- dustry find its second wind in this challenging period, such as new technological and investment initiatives, as well as governmental support. The third chapter reviews aspects to consider in order to avoid potential disruptions in the space sector in post- covid times. Finally, the author comes to a conclusion on the pandemic's effects on the space sector.
Changes in supply and demand
Prior to the coronavirus outbreak, the space technology supply chain was in relative- ly good shape. At the beginning of 2019, young space companies received an impetus for development by participating in investment rounds. At the agency level, this mo- mentum was also noticeable in governmental donations and contracts awarded.6 However, the coronavirus has brought significant changes to all traditional processes in space companies. The direct impact on the workforce and operations was re- flected in the use of teleworking and reduction of the number of employees to the number strictly necessary for that period, closing the premises as quarantine measures, which resulted in delays and disruptions in technical and business processes.
Consequently, the business faced delayed payments and even cancelled orders. The broader impact was on a change in investment capacity in the space sector: in a situ- ation of uncertainty about the future outcome of events and how this would affect a particular company, venture capital firms paused their investments in order to pre- serve their own capital.7 Thus, the main problem for startups was the uncertainty in future contracts, as clients and private investors delayed their decisions. Telecom- muting, international travel restrictions, and cancellations of conferences also have made new business deals much more difficult.8
The described effects of the pandemic have influenced both government agencies and private companies. At the beginning of 2019, Roskosmos announced 45 planned launches,9 but only 25 were carried out.10 In 2020, only 17 launches were performed out of 33 planned.11 Thus, Roscosmos estimates the loss at about 6 billion rubles. The reported losses are associated with the stoppage of production of satellites in Eu- rope amid the coronavirus, as well as the obligation of Roscosmos to pay for non- working days of employees on the one hand,12 and on the other hand, to take pre- ventive measures to combat the pandemic. To cover the financial damages, Ros- cosmos' further plan is to lower the launch price to attract contracting demand.13 National Aeronautics and Space Administration (NASA) currently estimates the cost of the pandemic impact at about $3 billion. However, the full amount is still needed to be calculated, as it is worth considering that the launches of several NASA missions have been postponed by 1-10 months.14 Due to COVID-19, European Space Agency (ESA) has also suspended some missions such as Cluster, Trace Gas Orbiter, Mars Express, and Solar Orbiter. However, other missions, such as the BepiColombo spacecraft, which enters orbit around Mercury and requires signifi- cant support personnel involvement, will continue to operate.15
Private sector examples
Private companies have also suffered significant losses in their operations. A prime example is Bigelow Aerospace, which had to lay off all of its employees due to an order from the Governor of Nevada to close all non-essential businesses. If Bigelow Aerospace continued to operate, it would face heavy fines and revocation of the business license.16
Large manufacturers have done their utmost not to interrupt the supply chain. Airbus Defence and Space compared it to a string of pearls, which must be kept together permanently to fulfil its function. Accordingly, the company's policy was that the supply chain could not be interrupted for a long period of time, so that important suppliers did not lose experience and competence in the production of unique high- tech systems.17
Interestingly, the media criticism was caused by the uninterrupted continuation of the work of SpaceX after Musk's statements, in which he downplayed the danger of the pandemic.18 With regard to SpaceX, it should be noted that in COVID-19 times government contracts remained a lifeline for private space companies.19 Moreover, despite supply chain disruptions and launch delays, other areas of space applications have seen tremendous growth in demand. Governments and industries have request- ed data from companies that provide high-resolution imagery of the Earth and geo- spatial intelligence.20 These peculiarities will be discussed in Chapter 2.
Thus, according to Euroconsult estimates, the consolidated space economy, including public investment in space, as well as commercial contributions, amounted to $385 billion in 2020, which is a record amount. However, commercial revenue of $315 bil- lion in 2020 is down 2% from an estimate of $319 billion in 2019, in part due to the COVID-19 pandemic.21
Reliance on force majeure
Several space programs alluded to force majeure as a circumstance permitting the suspension of contractual obligations in connection with the pandemic impacts indi- cated in the preceding paragraph. For instance, though Maxar Technologies contin- ued to work, it declared the coronavirus a force majeure to safeguard its legal rights in the case of a delay in the delivery of satellites.22 Furthermore, the Interna- tional Telecommunications Union (ITU) Radio Regulations Board has issued several decisions to prolong the term for states (Iran, Indonesia, and India) to launch their governmental satellites declaring COVID-19 a force majeure.23
Hence, the coronavirus outbreak has generated a fresh round of talks among experts concerning force majeure clauses in contracts. Lawyers agree that the pandemic should not be treated as a force majeure.24 However, when referring to this clause in respect to the coronavirus, the side effects of the outbreak are considered, which are independent of the parties' will. As a result, the measures put in place by governments to counteract COVID-19 might be considered as a case of force majeure.25 Indeed, the space sector was impacted by global isolation and border closures. In keeping with this, a recent note from the International Institute for the Unification of Private Law (UNIDROIT) secretariat recognizes that government acts do result in force majeure and that employers' and employees' health condition con- stitute a serious risk to contract performance.26
Pandemic - related bankruptcies
Despite the possibility of using the contractual provision of force majeure, this did not protect certain firms. The damage to the space industry caused in the first few months of the pandemic, forced some companies to face bankruptcy since investors withheld funds and companies could not attract new funds at that time. That was the reason for the bankruptcy filing of OneWeb when the company failed to find alternative investments after the termination of funding from Softbank.27 OneWeb blames the pandemic for the collapse. However, analysts are of the opinion that the company's losses are the result of problems that existed even before the pandemic, and the economic downturn only exacerbated them.28
Other space firms such as Speedcast,29 Phasor Solutions,30 and Intelsat31 also went bankrupt after not receiving planned funding. They did, however, manage to get out of such a bind, although by changing owners. Thus, OneWeb signed a sale agree- ment with a consortium of the UK government and Bharti, having received several new investments since then and resumed launches. Speedcast was acquired by Cen- terbridge following a bankruptcy auction, raising an equity investment of $500 mil- lion.32 Phasor Solutions also changed ownership and was acquired by the South Kore- an defence company Hanwha Systems.33 Intelsat emerges from bankruptcy by cover- ing a significant portion of its debt.34 Thus, space programs are continued, and the conversion of debt into equity has made private companies even stronger financial- ly.
The first wave of the COVID-19 crisis had a significant influence on the space sector. The restriction of enterprises' and people's activities, combined with a significant fall in investment due to investors' great uncertainty, resulted in a decrease in de- mand for specific space services. As a consequence, it increased the possibility of contract non-fulfilment, company bankruptcies, and significant losses for even mar- ket giants. However, with the passage of time and improving global economic pro- spects, the space sector has resurrected. The next chapter will take a closer look at the innovative efforts that are assisting the space sector's procurement at this troubling time.
New technological impetus
Although several processes were affected during the coronavirus, specialists were able to envision new uses of space to a better life on Earth. Hence, space technolo- gies took on the incredible value these days. The uncertainty and anxiety it gener- ated have prompted a thirst for observational information, which is exactly the type of data that space companies provide.35 For example, Maxar and Planet, the compa- nies that operate a fleet of Earth observation satellites, have seen an increase in demand for the space data they collect. They are helping to track global and re- gional trends in human activity through the development of layered landscape sys- tems that help simulate the spread of disease by combining satellite imagery with thousands of open-source data.36 Telecommunications companies such as Intelsat and Hughes have issued statements saying that they are working to expand the ca- pabilities of their satellite networks to support remote education and provide re- mote access to hospitals and clinics services, thereby opening up opportunities for telemedicine.37 Satellite imagery is also helping to identify and track the construc- tion of healthcare facilities around the world in response to COVID-19.38 In China, BeiDou satellites are used to track the location of infected patients and track the transport of goods to large disinfection sites.39 Air pollution is also monitored using remote sensing data. For instance, data from the European Commission's Copernicus Earth observation satellite Sentinel-5P show that air pollution declined rapidly dur- ing this pandemic. Comparing air quality before and after an outbreak can help to discover a greener future with cleaner air. Besides this, satellite communications help us keep in touch with family, friends and work through popular video confer- encing applications.40
Now, with the development of COVID-19 vaccines, the world needs logistics special- ists to distribute vaccines accurately, fairly and quickly. For these experts, satellite data has proven to be an important tool. The US National Geospatial Intelligence Agency noted that the use of geospatial data has increased by more than 100%, and since the advent of COVID-19, the world has seen an influx of new users. Thus, sat- ellite data is well suited as a tool to meet specific vaccination needs based on loca- tion, allow to adjust vaccination efforts from region to region.41 Thus, Inpixon Map- ping has been selected by one of the world's leading pharmaceutical companies to provide the imaging needed to track its critical COVID-19 vaccine assets.42
It is important to note that the deployment of space technology to battle corona- virus fulfils the duties of Article I of the Outer Space Treaty43 on the conduct of space activities while benefiting all states by assisting less developed countries.44 A wide interpretation of the resolution 41/65, which includes the “Principles Re- lating to Remote Sensing of the Earth from Outer Space,”45 can also be utilized to demonstrate the relevance of remote sensing principles to global health goals and the fighting of pandemics such as COVID-19.46 Thus, new technology intro- duced not only by governments but also by the private sector, contribute to the achievement of goals established decades ago.
Role of governmental support The United States of America
In the US, governmental contracts with NASA and the Department of Defense have significantly supported the development of the space industry during COVID-19. Even in the midst of the pandemic, such contracts did not end: in June 2020, NASA provided Astrobotic Technology from Pittsburgh, Pennsylvania, with $199.5 million to launch VIPER to the moon's south pole;47 in April this year, NASA selected SpaceX to land a human mission on the Moon.48 That being said, the competition began back in 2020, with SpaceX competing with aerospace giant Blue Origin, as well as Ala- bama-based Dynetics.49 And these are only a few examples. With similar govern- mental contracts, many US space companies have been classified as ‘essential’.50 This allowed them to continue to attract employees to work on all their projects, both governmental and commercial, without suspending activities under the pres- sure of the pandemic and having a reliable source of funding.51 However, only 57% of enterprises received ‘essential’ status.52 At the same time, many of the space startups supported by venture capital companies are denied the right to receive funds under the CARES Act,53 which, among other things, is also designed to help small businesses stay afloat during the pandemic. Because venture capital startups are affiliated with the venture capital companies from which they receive financ- ing, the total number of employees exceeds the 500-person limit, which does not qualify as a small business and so does not give a chance to acquire loans under the CARES Act.54
The Russian Federation
In Russia, a list of backbone enterprises was introduced to aid particularly impacted sectors during the pandemic by giving them more favorable conditions for govern- mental aid. This category equals essential business, i.e. companies that have a con- siderable effect on the growth of the country's economy, offer the greatest employ- ment in their industries, and are the largest taxpayers.55 In the Russian rocket and space industry, 20 enterprises were recognized as a backbone, while 18 of them are institutions of the state corporation Roskomos,56 and 2 are state-owned companies established by the Ministry of Communications of Russia.57 As a form of assistance, such companies can rely on a moratorium on bankruptcy without a penalty and con- sequences for late payments. They may also be eligible for subsidies to cover the expenses of manufacturing and service supply. The backbone enterprises are also given the option of obtaining a public loan, which will be reimbursed in full by the state, provided that at least 90% of employees are retained.58
The European Union
The approved EU space budget for 2021-2027 is €14.8 billion,59 which is slightly less than the initial target of €16 billion. The necessity to mitigate the effects of the COVID-19 pandemic has primarily prompted the reductions in the space budget.60 In doing so, most of the funding will be allocated to Galileo and European Geostation- ary Navigation Overlay Service (EGNOS), the navigation systems, and Copernicus, the EU's Earth observation program. These EU programs are critical to the imple- mentation of European measures of virus-control.61 Given the importance of space infrastructure, some members of the European Parliament have expressed worry about the reductions in previously projected spending, as this results in budget cuts for projects under the Horizon Europe program,62 which invites small and medium- sized businesses with an innovative attitude to new space technology applications.63However, compared to the previous package for 2014-2020, the EU space budget has been increased by €3.8 billion, and two new initiatives, space situational aware- ness and European Union Governmental Satellite Communications (GOVSATCOM), have been added.64
Legislation, in addition to competent budget planning, plays a significant role in preserving such European critical infrastructures as Galileo and Copernicus.65 The present EU Directive on Critical Infrastructure Protection from 2008 does not address space,66 although the services offered by this sector can indeed be consid- ered “essential for the maintenance of vital societal functions, health, safety, security, economic or social well-being of people, and the disruption or destruc- tion of which would have a significant impact in a Member State as a result of the failure to maintain those functions”.67 The Directive is now being reviewed, and a proposal for a new Directive of the European Parliament and the Council on the Re- silience of Critical Entities was announced in December 2020. The suggestion under- lines the significance of broadening the list of critical sectors, especially in light of the consequences of COVID-19. Thus, it is proposed to include space in the list to ensure that the European Commission's best practices would aid the space sector's ability to react and recover from crises that might cause substantial, possibly cross- sectoral and cross-border disruptions.68
The United Kingdom
Companies in the UK and their supply chains have been able to respond to the con- straints on doing business with little damage to supply chains. However, 44% of en- terprises indicated that their output was below full capacity for a substantial length of time in 2020. Hence, the British government has produced a Space Sector COVID Support Plan69 to assist the ultimate post-covid recovery. It aims to reach five main objectives: first, the development of underrepresented regions across the country through local growth initiatives to achieve an agenda for raising the level and strengthening the position of the country; second, the establishment of the so- called Export Academy for the Space Sector to lay the groundwork for international trade, investment skills, and knowledge among small and medium-sized space busi- nesses; third, the development of new promotional materials to better represent the UK space sector to a global audience and attract domestic investment; fourth, the establishment of government bodies that are consistent with the UK's objectives in the space sector, as well as the representation of interests for the successful co- ordination of international interaction strategies; fifth, developing an effective consultation process with industry representatives to advise the government of the need for regulatory modernization.70 Thus, for COVID-19 recovery, the UK govern- ment is relying on collaboration with local partners to develop new economic possi- bilities, compensating for pandemic losses while boosting exports and encouraging new investment to domestic enterprises.71 Besides presenting a new strategy to sup- port the space sector, UK Space Agency’s National Space Innovation Program allo- cated more than £7 million to British companies in December 2020. In March 2021, five space technology innovation projects got another £1 million of governmental funding.72
Throughout the pandemic, the demand for downstream space technology has sky- rocketed, allowing many projects to stay afloat and offering up new opportunities for the utilization of space. At the same time, governments did not overlook the space industry but implemented varying ways for assistance.
The US and Russia mainly supported big companies, which, in the case of the Rus- sian Federation, are also wholly state-owned. Due to the preservation of more em- ployment and projects, this method is unquestionably well suited for market stabil- ity in the short and medium-term. However, it may have long-term negative impli- cations owing to the closure of medium-sized businesses and start-ups, which may have difficulty attracting investment.
In turn, the EU and the UK have chosen the direction of equal support for all types of businesses, both through equal financial distribution and the creation of state multifunctional policies. As a result, they will be able to retain the space industry's current stability and mitigate the harmful implications of the pandemic in the long term perspective. Based on the pandemic's experience, the next chapter will highlight approaches to be considered for future actions to strengthen the space indus- try.
Considerations for governmental space policies
It follows from the discussion above that national space agencies and governments should consider small and new businesses as vital sources of innovation, productivi- ty, and growth in the economy while responding to the coronavirus crisis and pre- venting its recurrence together with the interruption in supply chains. Therefore, a more tailored effort for the most vulnerable players may be necessary in order to sustain a diversified and innovative space ecosystem.73
Thus, the state's primary responsibility in the short term should be to assure the continuity of corporate plans. This can be aided by the optimization of industrial supply chains in collaboration with stakeholders, taking into account the suggestions of smaller enterprises rather than only those on a government contract.74 Long term, states should address small actors' fragility in their overall response to a crisis by streamlining procedures and adjusting selection criteria for assistance and pro- curement programs to promote access to public and private finance.75 Furthermore, it is critical to maintaining investment in space both during and after the COVID-19 crisis. By accelerating progress, space adds value to both the economy and society. Thus, government support programs not only encourage innovation but also private funding by drawing investors to the space sector, assuring its continued develop- ment.76
Pandemic - sensitive contracts
A well-drafted contract with flexible provisions in the event of unanticipated occur- rences can rescue many small businesses from liability for contract non-fulfilment and, as a result, bankruptcy. The ultimate objective of the contract's two parties should thus is to create a solution that would prevent either party from incurring losses in the case of a coronavirus-like upheaval while still allowing the project to be finished. Hence, contract law, with its well-developed force majeure concept, will enable continued development in the space sector by intelligently managing supply, notwithstanding delays or hurdles caused by the crisis.77 Accordingly, in the light of COVID-19, when concluding new contracts, the words ‘pandemic’, ‘epidemic’, ‘action by state authorities’ and/or ‘state of emergency’ should be in- cluded as circumstances of force majeure. Using such concrete examples should effectively cover the present public health issue and the government orders that have resulted from it.78
Thus, while examining the impact of COVID-19 on contracts linked to space that cannot be performed in a timely or complete way, it is critical to recognize that activities connected to space are directly tied to the notion of such services, with- out which modern society cannot live. Therefore, the ability to use force majeure while eventually completing the obligation and preserving the business should be safeguarded in such instances.79
To reach its full potential in the realm of space technology, the country must act as a solid partner. Today, we are witnessing the beginning of a new era in the global
space economy, in which space is no longer just the domain of governments, and a large number of initiatives are being driven by private firms. Taking this into consideration, it is vital to financially and legally support the activities of such compa- nies.
While combating the epidemic on Earth, companies have made efforts to keep their initiatives in space alive. State limitations established in response to the pandemic have impacted all operations, including those in the space industry. Despite finan- cial and legal constraints, there has been a surge in demand for space technology, particularly in the fields of Earth observation, space communications, and satellite navigation. The private space sector was able to sustain as a result of this, as well as the preservation of at least governmental contracts. In the interim, it has be- come clear how vital state support is for developing commercial space enterprises, particularly small ones that rely heavily on their governments as investors in new initiatives and regulators of their operations. Therefore, prudent government action is vital to weathering crises and recouping lost profits due to the pandemic. While the space industry has encountered significant obstacles, with well-designed nation- al regulations and pandemic-sensitive contracts, the sector stands a good chance of the post-coronavirus thriving.