Out Of The Black, Into The Red: The NRO Has to Go Commercial

Sometime late next year, a powerful rocket will arch into space carrying a low-cost satellite capable of photographing objects as small as three meters - about the size of a standard pick-up truck.

But unlike all previous spy satellites, it will be launched by WorldView Imaging Corp. in search of profits, not by the secretive National Reconnaissance Office in search of enemy missiles.

The launch of WorldView's spy-bird - euphemistically called a "remote-sensing satellite" - will end the 35-year monopoly held by the National Reconnaissance Office, the technology powerhouse that has pioneered spy-satellite technology since 1960 when it was established behind a wall of secrecy.

The WorldView satellite - and two U.S. commercial rivals to be launched in 1997 - symbolizes the end of an era for the Pentagon-based NRO. With the Cold War over and the Soviet Union no more, the NRO - now headed by Jeffrey Harris, the assistant secretary of the U.S. Air Force for space - is exposed to technological rivals, knife-wielding budget-cutters and critics who argue the agency is too large and too expensive for an information-soaked, free-trade world.

A history of successes

The NRO has been enormously successful at its mission: building a variety of highly sophisticated spy satellites reputedly capable of seeing objects as small as a floppy disk, or of intercepting the faintest microwave whispers between hand-held telephones.

The NRO's satellites debunked the "missile-gap" assertions of the 1960s. They monitor nuclear-arms control treaties, track Iraqi military movements and watch the North Korean nuclear-bomb program. They have spotted illegal Soviet radars. And they have generated warehouses of intelligence that has reassured or alarmed policy-makers, justified or undermined expensive weapons programs.

Naturally, the agency was considered so secret that its existence was not formally acknowledged until 1992.

Among the NRO-built satellites now in space:

• Two to three Keyhole satellites that continuously broadcast detailed pictures back to earth, from orbits 120 miles above the earth.

• Two Lacrosse radar-equipped satellites designed to track enemy tanks night or day, fair weather or foul.

• Three to four electronic eavesdropping satellites dubbed Magnum, Vortex and Jereboam, parked in geosynchronous orbits 22,000 miles above the equator.

• Two polar-orbiting Jumpseat satellites that eavesdrop on Russian military activities in the far North.

• Two four-satellite White Cloud networks that track the movement of enemy transmitters and ships.

The NRO designed and built these satellites and operates them for the nation's intelligence agencies. Using a network of communications satellites and ground sites, the NRO pumps the pictures, radar images and electronic intercepts collected by the satellites back to waiting analysts at the National Photographic Interpretation Center in Washington's Naval Yard, across the Potomac River from Alexandria, Va.; the CIA; the National Security Agency and the Defense Intelligence Agency.

And despite the post-Cold War landscape, the NRO is not sitting on its laurels. NRO officials plan to launch a series of new satellites during the next decade, sparking competitive battles between the major companies in the business; TRW Inc., Cleveland, Ohio; GM Hughes Electronics Corp., Los Angeles, Calif., and the merging pair of Lockheed Corp. and Martin Marietta Corp., based in Bethesda, Md.

Those new satellites reputedly include a more sensitive electronic-intercept satellite dubbed Intruder, and a wide field-of-view photograph satellite dubbed the 8X. The 8X will grant a highly-detailed, broad view of future battlefields, making up for a flaw in the current generation of satellites, whose narrow field-of-view cameras provide only a "soda-straw" view of large battlefields, such as Kuwait, say soldiers.

The winners of the 8X contract, reportedly in the works, are not known. But a bitter legal battle that began late last year revealed that Martin Marietta wrested from TRW a new multibillion dollar contract to develop a new set of multi-role successors to White Cloud.

More projects are in the pipeline: In close cooperation with the NRO, the Air Force will ask industry next year to develop a new generation of satellites that will warn troops of enemy rocket launches. The new satellites will be launched in 2002 and will carry the secret heat-detecting Heritage sensor developed by the NRO. They will replace the current TRW-built Defense Support Program satellites, used to detect and track the launch of Scud missiles during the Persian Gulf war.

But all such programs cost money - lots of it. According to figures inadvertently released by Congress, the NRO gets 40 percent of the nation's foreign spying budget, or $7 billion in 1995. The funding level is twice the inflation-adjusted funding the agency received when the Soviet Union invaded Afghanistan in 1980, but significantly less than the mid-1980s peak of more than $8 billion. With spy satellites costing between $1 billion and $2 billion to design, launch and operate, the NRO's budget is more than enough to procure several satellites a year.

This high level of funding has drawn plenty of fire. Congress restructured the NRO's game-plan during contentious closed-door hearing last year, forcing the agency to scale back its plans. The NRO's budget request for 1996 will follow the plan laid down this year by Congress, agency chief Harris said in a Nov. 22 interview with Washington Technology. "We are essentially submitting the [budget] program Congress asked us to submit," ensuring that the agency will only have half the number of satellites in orbit in 2000 as it had in 1990, he said.

But further cuts are needed, says John Pike, a long-time critic of the NRO. With Russia in chaos, and the United States facing weak enemies such as the low-tech Bosnian-Serbs, North Koreans and Somali guerrillas, the nation should keep most of its electronic-eavesdropping satellites, but should scale back to one Keyhole and one Lacrosse satellite, he said. This cutback would allow the NRO to coast for the next decade on its stock of stored and in-production satellites, saving billions of dollars, said Pike, the director of the space policy project at the Washington-based Federation of American Scientists.

The NRO also faces rivals within the Pentagon.

In 1993, airborne reconnaissance programs - including some NRO efforts - were consolidated under the new Defense Airborne Reconnaissance Office, which is now developing a new generation of unmanned spy aircraft designed to loiter over enemy territory for 40 hours at a stretch.

The DARO is considering plans to buy as many as 100 of these unmanned aircraft - some of which will be stealthy - to provide continuous battlefield coverage, much as camera-carrying blimps are used to cover action on a football field.

Under top-level direction, the DARO and the NRO are now conducting a study of how their programs could be traded-off against each other to save money. The DARO's unmanned aircraft can provide continuous surveillance, but only satellites can rapidly provide intelligence on targets or crises no matter where they are located, said Harris.

Other rivals may yet emerge from the Arlington, Va.-based Advanced Research Projects Agency, which is developing a new low-weight, low-cost Tactical Surveillance Satellite, using money earmarked by Congress.

But the NRO has used many small satellites and recently established its own small-satellite office, said Harris. Although small satellites are relatively cheap, they generate correspondingly little intelligence data except in special "niche" tasks, he said.

The commercial strategy

The emergence of commercial spy-satellites will give intelligence agencies and combat units an alternative source of militarily-useful images. Currently, agencies and combat units buy low-grade images from the European SPOT satellite, capable of seeing objects no smaller than 10 meters.

Much of the NRO's work could be performed by commercial spy-satellites, said Robert Steele, a former Marine Corps and CIA intelligence official who now operates Open Sources Solutions Inc., based in Oakton, Va.

The three main players in the commercial spy-satellite industry are: WorldView Imaging Corp., Livermore, Calif., which is building a three-meter resolution satellite; a three-company consortium called Eyeglass Intl., Dulles, Va., receiving much of its funding for its one-meter resolution satellite from a Saudi Arabian company, Eirad Intl.; and Lockheed Corp.'s Space Imaging Inc., Sunnyvale, Calif.

Foreign players including Russian military satellite programs, some of which are offering images through American distribution companies, as well as the French-led SPOT program.

Because of the U.S. commercial rivals, the NRO should be cut back and merged with the Defense Mapping Agency, which struggles to use the NRO's narrowly-focused satellites to create highly detailed military maps, Steele said.

"The NRO is seriously bloated...[with] a cast of thousands," and has resisted the growth of a private-sector satellite-imagery, he said.

Harris disagreed: "Commercial imaging systems...are an important answer to meet our needs," but cannot replace the NRO's high-performance, continuous coverage, he said.

To head off its strategic, budgetary and technological challenges, the NRO is trying to boost its intelligence output while reducing its costs, said Harris.

The satellite network has been reworked by James Woolsey, the Director of Central Intelligence, and by Congress, resulting in a revamped NRO plan for late 1990s. As a result, the NRO will improve its flow of intelligence data over the next few years, despite a steady reduction in the number of satellites, said Harris.

Among cost savings cited by Harris are more than $200 million saved from the use of the Heritage sensor on the next generation of missile-warning satellites, $200 million saved by the merger of two unclassified weather-satellite programs managed by the Air Force and the National Oceanographic and Atmospheric Administration, and additional millions of dollars in savings from an overhaul of Cold War secrecy procedures.

The NRO is also saving money as improved technology slashes the cost and weight of its spy technology, said Harris. Savings are being produced as the agency reduces the use of expensive custom production methods, and as the spy-satellite industry shrinks to half its 1985 size, said Harris.

Internal reorganization of the NRO - and its consolidation in a new $300 million headquarters in Herndon, Va. - will cut duplicative research efforts, increase coordination and cut costs, he said. "People [will] work better together [and] subsystems now being built can be shared" with other programs, he said.

One promising sign for the NRO is the creation of a new Joint Space Management Board, which would coordinate all Pentagon space programs.

Although top officials have yet to give their final approval, the new board may be run by NRO chief Harris, Adm. Bill Owens, the vice chairman of the Joint Chiefs of Staff, plus the Pentagon's acquisition chief.

Meanwhile, the November election brought good news for the NRO; it ousted Democrats determined to further cut intelligence budgets, and marked the retirement of Arizona Democratic Sen. Dennis DeConcini, the chairman of the Senate Select Committee on Intelligence and a vociferous public critic of the NRO.

Spy satellite market breeds gritty competition among a chosen Few companies

The spy-satellite industry has learned well the meaning of Malthus' grim calculus: the funding famine is killing some companies off, forcing others to emigrate to new markets, and sharpening competition for the few remaining contracts.

The number of companies in the business will soon decline to 50 percent of the number working the in the 1980s, said to Jeffrey Harris, director of the Pentagon-based National Reconnaissance Office. The office is responsible for the design, manufacture and operation of the nation's highly classified spy-satellites. Other estimates say the number of workers in the secrecy-shrouded industry has fallen by between 35 percent and 65 percent.

"The industry needs to resize itself," said Harris. The Pentagon will not try to pick winners and losers with contacts awards, he said.

The market's contraction has sparked two of the bitterest contract battles in memory. The first was for the next-generation ocean-surveillance satellite, a program so secret officials will not acknowledge its name or existence. TRW Inc. won the multibillion-dollar contract last year, but lost it this summer to Bethesda, Md.-based Martin Marietta in the GAO's contract-appeals court.

The other contract battle has yet to be resolved, but TRW has already lost out. The prize was for replacement of the Pentagon's unclassified Defense Support Program satellites, built by TRW to detect Iraqi Scud missile launches during the 1991 Gulf War. Lockheed Corp. seized an early lead over TRW, but budget cuts forced the Pentagon to cancel the contract - and a TRW contract worth roughly $500 million for the last two DSP satellites.

Pentagon officials then started and quickly aborted a replacement program, before scraping up the funds to launch a new low-cost DSP-replacement competition next year.

Technology and the NRO are making life more difficult for the companies. The next generation of spy satellites will consolidate over 20 types of satellites into as few as five types, ensuring fewer major contracts for Lockheed Martin, TRW, GM Hughes Electronics Corp. or other rivals. The most significant industry response to the drawdown is the proposed merger of Lockheed and Martin, two giants in the spy-satellite business. The marriage will likely go ahead, despite some antitrust fears over the merger of the two companies' spy-satellite units, said Martin Faga, who served until early 1993 as the director of the NRO. However, there may be some difficulty merging the two companies' existing contracts, he said.

TRW's fate is uncertain, but a merger with Hughes or with New York-based Loral Corp. are possible, say analysts. Such a merger could create a company capable of competing nose-to-nose with Lockheed Martin.

Other companies' military space sectors have shriveled. One example is Seattle, Wash.-based Boeing Co., which saw the first of three long-delayed Advanced Jumpseat electronic eavesdropping satellites launched into space this year. Also, the space unit of Bethpage, N.Y.-based Grumman Corp. has followed the rest of Grumman into Northrop Corp. after a failed dalliance with TRW.

Many spy-satellite companies are desperately seeking commercial business. Hughes already turns out commercial satellites like Model T Fords, setting an example for Lockheed, which has a contract worth more than $800 million for the manufacture of as many as 125 satellites for Motorola Inc.'s Iridium satellite-based phone network. TRW, which is spearheading the rival Odyssey satellite-based phone network, is building a compact observation satellite called Lewis for NASA.

Also, Lockheed, TRW and Litton Industries Inc.'s Itek Optical Systems of Lexington, Mass., a leading maker of spy-satellite telescopes, are building rival spy-satellites for the civilian remote-sensing market, estimated to grow to $2 billion a year by 2000.

- Neil Munro