Another stay extension for Starliner.

[SOUND] I'm a bit weird, you all know this by now. Cuz I'm one of those people who actually enjoys packing for a trip. I've got a whole process and I take pride in doing a multi-week international trip with just a carry on, yes I know, thank you, thank you. But as the saying goes, we make plans and the universe laughs at them. Inevitably, I always, always forget something, no matter how many times I check and double check my list, like a toothbrush or my headphones. But I always have a gazillion pairs of underwear, oddly enough. Yeah, still, this is why my heart sinks. Every time I hear that Sunny and Butch are staying longer on the ISS. A week long mission is now going on two months and longer? Come on, NASA, where is the update on their underwear situation? [MUSIC] >> Team, minus. >> 20 seconds to alloy, we need rest, open aboard. [MUSIC] >> Today is July 25th, 2024. I'm Maria Varmazos and this is T-minus. [MUSIC] Boeing and NASA extend the Starliner's day on the ISS. Sierra Space passes another test of its expandable space station technology, or some major to open an R&D facility in Ohio. And our guest today is James Parker, co-founder of the Leonid Capital Partners. We'll be discussing financing aerospace operations, specifically the economics of private lending to space companies and challenges in space lending. It's really great information, so stick around for the second part of the show. [MUSIC] >> Happy Thursday, everybody. Let's take a look at the headlines today in the space industry. NASA and Boeing held a media conference this morning Eastern Time to provide updates on the Boeing Starliner crewed flight test. Firstly, most importantly, I know you're all asking, there is no return date yet. In fact, the capsule may remain on the ISS until early September. Yes, it seems they've doubled the battery waiver time to 90 days from 45. The teams wanted to be open and transparent about the testing that's been held over the last two weeks, kudos to them. The focus of the testing has been on the capsule's thrusters. Testing at NASA's White Sands Test Facility simulated the conditions that the thrusters experienced heading to the ISS to figure out what caused the issues with the systems. It sounds like they are close, hopefully fingers crossed, to finding the root cause and can remediate it with a possible return date to be announced next week. Again, fingers crossed. Until then, the show must go on. And by the show, we mean the stay on the ISS. More answers to come. Please hold. Nothing gets the team minus team more pumped up than the idea of space lasers. So our head of sound and vision was excited to hear that a team at NASA's Glenn Research Center streamed 4K video footage from an aircraft to the International Space Station and back for the first time using optical or laser communications. The feat was part of a series of tests on new technology that could provide live video coverage of the astronauts on the moon during the Artemis missions. We've come a long way from the Apollo days. Amazing. So let me explain how this worked. Glenn engineers installed a portable laser terminal on the belly of a Pilatus PC-12 aircraft. They then flew over Lake Erie, sending data from the aircraft to an optical ground station in Cleveland. And from there, it was sent over an Earth-based network to NASA's White Sands Test Facility in Las Cruces, New Mexico, where scientists used infrared light signals to send the data. Of course, it didn't stop there. The signals traveled then 22,000 miles away from Earth to NASA's laser communications relay demonstration known as LCRD, which is an orbiting experimental platform. The LCRD then relayed the signals to the Aluma-T, which stands for the integrated LCRD, LEO, user modem and amplifier terminal, which is a payload mounted on the ISS, which then sent the data back to Earth. That is pretty cool stuff. NASA's Office of Technology, Policy, and Strategy is funding space sustainability research proposals from five university-based teams to analyze critical economics, social, and policy issues related to Earth's orbit and CIS lunar space. Three of the five awards will fund research that addresses the growing problem of orbital debris, human-made objects in Earth's orbit that no longer serve a purpose. Three of the five awards will fund research that addresses the growing problem of what else but orbital debris, which are human-made objects in Earth's orbit that no longer serve a purpose, but you already knew that. The remaining two awards focus on lunar surface sustainability and will address key policy questions such as the protection of valuable locations and human heritage sites, as well as other technical, economic, or cultural considerations that may factor into mission planning. Each proposal will receive $550,000 to fund the research. CIS is a Sierra Space for passing a seventh key validation test and second full-scale structural test of its expandable space station technology. The test was held at NASA's Marshall Space Flight Center in Huntsville, Alabama. Sierra Space held the ultimate burst pressure test in collaboration with ILC Dover and NASA. The system is planned for an initial standalone Pathfinder mission before the end of the decade. The technology will also feature as a key element of the orbital reef commercial space station. The rocket engine manufacturing company, Ursa Major, has announced that it is establishing a new research and development center in Youngstown, Ohio. Ursa Major plans to invest $10.5 million to the center, which aims to advance additive manufacturing and materials development technology for liquid rocket engines and solid rocket motors. Job's Ohio plans to contribute $4 million to this development. Ursa Major is expecting to hire 15 new employees in the region. AST Space Mobile has completed the development of five commercial satellites. The company says the spacecraft are now ready for shipment to Cape Canaveral during the first week of August. The vehicles will be the first Bluebird satellites to launch for AST, and they are scheduled ahead to orbit in September. The Luxembourg-based subsidiary of iSpace, iSpace Europe, has completed the flight model of its lunar micro rover. The vehicle is being prepared for delivery to Japan for integration into the Hakuto R mission to Resilience Lunar Lander. The lunar micro rover was designed, manufactured and assembled in Europe with co-funding from the Luxembourg Space Agency through a European space agency contract with the Luxembourg National Space Program called Lux Impulse. The lunar micro rover, named Tenacious, will be lowered to the lunar surface from the Resilience Lunar Lander to conduct exploration of the area around the landing site. Aerospace giant Honeywell reported second quarter financial results that met or exceeded the company's guidance. Honeywell reported sales of $9.6 billion for the quarter, with year over year sales growth of 5% and organic sales growth of 4%, led by double-digit organic sales growth in defense and space, commercial aviation, and building solutions. Brace yourself for yet another amazing mission name, Rocket Labs, 51st electron mission named, here it is, Owl for One, One for Owl, is scheduled to launch from New Zealand during a 14-day launch window that opens on July 31st. I know we've said it before, but Rocket Lab hands down half the best mission names. The mission will be deploying a single Strix satellite to low-Earth orbit. Rocket Lab plans to perform an advanced mid-mission maneuver with Electron's kick stage to shield the satellite from the sun and reduce radiation exposure. That concludes today's Intel briefing. Head to the selected reading section of our show notes to find links to further reading on all the stories that we've mentioned. Today we've included a few partnership announcements coming out of the FarmBurough International Air Show and a press release from UPSpace Technology in Hong Kong. Hey T-minus crew, if your business is looking to grow your voice in the industry, expand the reach of your thought leadership or recruit talent, so that your T-minus can help. We'd love to hear from you. Send us an email at space@entuk.com or send us a note through our website so we can connect about building a program to meet your goals. Our guest today is James Parker, co-founder of Leonid Capital Partners. And I asked James to tell us about Leonid's area of interest when it comes to investment in space. We provide a very special credit investing philosophy into the national security intelligence community and space industry. It's a unique angle because it's largely based around people's government contracts. And there's a weird gap in the market where government contracts, U.S. government contracts, because they can be canceled at any time, technically have a hard time qualifying for financing. Your average run of the mo Bank will look at a federal contract and say, well, this looks great, but technically can be canceled tomorrow. So I can't loan five-year money to a company whose future cash flow streams might disappear effectively overnight. We figured out that in our particular subset of the world, and that's SBIRs and programs of record that are focused on highly technical and mission critical work, the cancellation rates, just because the government has the right to cancel the contracts, doesn't mean they actually do so with meaningful frequency. An easy way to think about this is, yes, an aircraft carrier can get canceled because two congressional staffers can horse trade $9 billion with the stroke of a pen and a late night budget negotiation. Whereas how often does the government take the time to cancel a $3 million contract that's written to a woman owned small business that's working on hypersonic missile research for the Navy? Yeah, that lens is fascinating to me because I speak to a lot of those businesses like what you mentioned, like a small woman owned business who's doing this incredibly niche, but extremely important work and organizations appetite for risk to lens organizations like that is a factor. How do you navigate all that as a lender? The trick with us is that this kind of goes back to my partner and I's background because this thing also, like anything that is kind of durable, it actually came together fairly organically if sporadically. So I came out of school with an undergraduate degree in astrophysics from Rice down in Houston. My first job out of college was at Mish Control. I worked on the robotics desk on the International Space Station robotic arm. Ultimately, I ended up shifting to unmanned satellite work and then picked up a security clearance and did a lot of intelligence community, space-based assets, support work before ending up in business school and having a moving into my finance career. My partner Christopher Crisley, very similarly, he was a DARPA and NIH funded neuroscientist. He got his PhD in neurobiology, specifically working on traumatic brain injury treatment protocols. And we coalesced around sort of a very analytical, rigorous mindset as it comes to business school, which MBAs can be very squishy environments, right? Like it was very, it was nice having sort of North stars we could each kind of hang our heads on. That's a long way of saying we sort of came up in this weird government world when we decided, and here we are a decade and a half later after having met and coming together around this idea of a gap in the market. Some of that's just because our familiarity along the way as we had our finance careers, we saw this weird gap perpetuate in a variety of different ways. We saw impact deals we were working on and we just recognized that there was an issue, right? So we decided to start this business, but like the real difference when it came to attracting our first sets of clients was just really the hardest part of any situation is like, we actually kind of spoke their language. I mean, neither one of us are going to jump in the lab anytime soon, right? But we can certainly appreciate the complexity of the work people are doing. We can appreciate how hard it is to get some of this stuff done. We appreciate how important it is. We speak their government contracting languages. I can talk about CLINs and FAR regulations and assignment of claims and like all of a sudden people are like, oh, this is not like talking to a bank. You get what I'm dealing with because you're contracting officer on TEY. He's probably not coming back for three weeks and they're like, oh, thank God. Like, you know, there's just sort of that like relief, but probably best encapsulated into one of our first clients came to us and was like, I don't understand what my problem is. I'm like, well, what's going on, Bob? Like, let me know. I mean, he's like, I got a $2 million contract for the Air Force and I took it to my bank and the guy looked at me like I had just grown a third arm. Like he had no idea what I was doing, like why this was important. And I was like, well, what is it that you do? And he's like, I'm trying to solve quantum key encryption by a proton untanglement on CubeSats. Cool. I was like, no offense, Bob, but like your average banker, your guy at Bank of America didn't understand five of the six words you just said, let alone in a sentence. Right? You lost them after like with quantum, probably. Yeah, effectively. Right? At the same time, again, I can't do your job, but I certainly understand what you're doing and I certainly appreciate why it's important. And that was really key for us. What an incredible differentiator because I think, especially when we hear these numbers about the space economy and you know, trillions of dollars, there are a lot of people kind of getting in on that gold rush. And I think some of them don't understand those complexities and time scales involved. Just look at the SPAC market. I know why all the space companies went and did SPAC deals. I get the ready access to capital. You know, in a world where venture capital is intensely focused on things like software that have enormous margins that don't have hardware development risk, like space is the exact opposite of that. Right? It's almost nothing but hardware development risk. But also, space is harder. Like, things go wrong. They have to go wrong. You don't learn anything if they don't go wrong. Like Elon's, you know, his real big trick that he did is he managed to set himself up in his position where he could blow up 40 rockets and nobody took it out on him. Right? The SPAC market is entirely the opposite. You've put, you know, retail dollars into an investment that failure is not just likely but is expected. And then you've got a quarterly earnings call. And if your rocket blows up on the pad, you can go back all day long and say, well, it was an anomaly or look how much we learned. It doesn't matter. Your stock price is going to get torched. And that's a death spiral in that financial construct. Yeah. And we saw the repercussions of that. We've been seeing it lately in the last, especially in the last year or so. I mean, we, those chickens, whatever the metaphor is, chickens keep home in the rooms. We saw, we saw that happen. Yeah. 100%. So we've talked a bit about, you know, your knowledge and familiarity with, you know, the complexities of the industry. What kind of companies are you interested in? I mean, there is a lot to choose from. So who are you looking to back? We love people that are pursuing innovation and it can be early stage. It could be mid stage growth. Even people, frankly, that have been around 20, 30, 40 years and are just cranking out great government work. If you're on a government contract, you're in our wheelhouse. In the space world, like I've obviously got a very soft spot in my background, in my history for space. I think what we do is particularly because of the sensitivities that you can see in the equity markets when it comes to space projects. So when you find that group that understand, like, like picks it up and says, well, you know, either they've gotten to a certain level of their equity financing and they just don't want to take any more dilution because those games are constant influx of capital requirements. Which means as an entrepreneur, you're taking a beating 20, 30, maybe 40% every round every time that new equity check comes in. Here we've got an opportunity to at the very least post the work you're doing for Air Force or Space Force or whomever to us as part of your flack of a term, your underwriting or collateral package. We can get you some additional capital in, make some growth investments in your business and hopefully drive your valuation up to such a degree where you do have to take that equity check later. It's at least at less pain to you directly. With folks like yourself especially, you're dealing with risk all the time. I mean, what is your, I mean, do you have like a philosophy around risk or how do you, how do you deal? I mean, I'm kind of just like, what do you think about risk? It's interesting, right? If you really just know what my business is, I'm an asset manager. I have investors. I get paid to take risk, right? I have to take a risk. I mean, they're looking for risk or else they would just be in the SAP 500, right? And so I've got to find a way and, you know, a technical term they call it alpha. What is it that you do that creates excess return over what I could get from anybody for basically free? So I have to go take risk. Now my trick is boxing out as much of that risk as I can of the excess risk, right? So some of that we do with our deal selection. We avoid certain areas. I don't like IDIQs because I don't know how much is actually going to come across it, right? I don't like construction contracts. I don't like procurement contracts. So we very specifically focused on particular zip codes of the world that we like on that side. And on the back end, it's about underwriting the business and understanding it as much as we can, but also doing that in a meaningful way because you could talk yourself out of any deal. And with us, what we have decided to do is look at our companies not on a going concern. I'm not trying to sit here and figure out if you're going to be here 20 years from now or even 10 years or even five years from now. My focus is can you get to the end of this contract? So I underwrite a business on the period of performance of the contracts they want financed, right? And what that does is it allows me to work with companies that have burn rates on, that are in growth mode, that are still actively raising capital because I'm not taking a perspective on, you know, by siloing my work on people with dual executed live government contracts, I don't have to take a view on what the commercialization opportunity is on that. I don't have to do technology validation. The government's ordered it. They're the ones that have decided they want it. Yeah, like, so I'm not in there trying to get into your source code or trying to figure out if you're the best group at this particular thing. Like, I've had groups where you've announced a deal we've done and I've been hit on LinkedIn direct by people that said, why are you investing in them? My technology is way better. And I'm like, look, I'm eating. Like I'm agnostic. Like, let's go. I want all of you like to come. So I don't have to take a view on technology. I'm not even taking a view on if you can get another contract. 70% of our borrowers come back and get new contracts and then come back and work with us again. But I'm not taking that view actively at any given one time, which really silos are underwriting perspective, which actually opens up what's called a credit box a lot wider to companies that quite frankly would look unfinancable and rightfully so to other groups. We'll be right back. Welcome back. It keeps getting more and more crowded in low earth orbit and a lot of what's going on up there belongs to SpaceX's Starlink. In fact, in the past six months, SpaceX says their Starlink satellites executed nearly 50,000 collision avoidance maneuvers, which is literally double the number of avoidance maneuvers compared to the previous six month period. This spike in maneuvers was reported in SpaceX's latest semi-annual constellation status report, and it means that each satellite performed an average of 14 collision avoidance maneuvers between December 1st, 2023 and May 31st, 2024. And if you want to figure out the manner of correlation here, Starlink again literally doubled the amount of avoidance maneuvers in the last six months compared to the six month period prior. But also in the same period, the Starlink constellation grew from approximately 5,100 to 6,200 operational satellites. It's not a linear correlation, so maybe looking a little bit more exponential? No bueno. So why the surge in maneuvers? SpaceX says it's because of their decision to lower the threshold for collision avoidance, with satellites now acting at a one in a million chance of a collision, which the company reports is 100 times more cautious than the industry standard. Add into the mix space weather, particularly solar activity, especially as we approach a solar maximum. Just think of that G5 geomagnetic storm that we experienced in May. The sun's goings on can literally push satellites lower into their orbits. So understandably, that plays a role, making space traffic management even more tricky than it already was. So what does all this mean for the space industry at large? Collision avoidance maneuvers are not going to be a rarity, so our mental paradigms need to shift. Those avoidance maneuvers are quickly becoming a daily necessity. That means satellites in low Earth orbit will need more onboard propellant for these maneuvers, potentially shortening their lifespans. More satellites would be needed more quickly to fill any gaps left by an adrift satellite, and certainly not all satellites successfully deorbit either, so potentially more space debris to contend with there. And while our ability to track space debris and traffic in LEO is improving, as well as our ability to predict a satellite's path, it all gets a lot more complicated when you throw in many more satellite maneuvers into the mix. It's fun times in LEO. Let's hope, despite all this, that we can keep the concept of the Kessler effect purely theoretical. That's it for T-Minus for July 25, 2024, brought to you by N2K CyberWire. For additional resources from today's report, check out our show notes at space.n2k.com. We're privileged that N2K and podcasts like T-Minus are part of the daily routine of many of the most influential leaders and operators in the public and private sector. From the Fortune 500 to many of the world's preeminent intelligence and law enforcement agencies. This episode was produced by Alice Carruth, our associate producer is Liz Stokes. We are mixed by Elliot Peltzman and Trey Hester, with original music by Elliot Peltzman. Our executive producer is Jennifer Iben, our executive editor is Brandon Karp. Simone Petrella is our president, Peter Kielpe is our publisher, and I am your host, Maria Varmazes. Thank you for listening. We'll see you tomorrow. T-Minus. . T-Minus. (leaves rustling) (water splashing) [BLANK_AUDIO]