It's not Hughes' satellites, exactly, that Boeing was after

EL SEGUNDO, Calif. - What remains of the Howard Hughes aerospace empire is concentrated mostly in a sea of midrise buildings just south of Los Angeles International Airport.

It is one legacy of the rich, pioneering aviator: his name in lights atop more than half a dozen nondescript office towers.

Were he alive today, it might or might not distress Hughes to know that much of the office space is devoted not to aviation but to entertainment and communications. That is the future of General Motors-owned Hughes Electronics: the delivery of content like DirecTV and the Internet via satellite.

But tucked between a couple of the glass towers is a yellow, sprawling, windowless building that Seattle's aerospace conglomerate regards as the crown jewel of Hughes.

It is the former Nash Rambler auto factory where almost half of the world's communications satellites, some of them the size of a garage, are painstakingly assembled by workers in white gowns.

Costing tens of millions of dollars each, the satellites made by Hughes Space and Communications are delicate instruments with fragile solar arrays that must deploy flawlessly in orbit if they are to be worth a penny.

After assembly, the satellites are shaken like paint cans, baked like brownies and tested in giant, steel vessels that have the air sucked out of them. All of that is about as close to replicating a rocket ride and the vacuum of space as one can get on Earth.

If everything checks out, the satellites are crated and loaded on airplanes across the street or loaded on trucks for shipment to far-off launch pads. It takes one to two years to make one.

The building doesn't look, from the outside, like the cradle of space high-tech.

But Boeing is betting a lot on its purchase, from Hughes Electronics, of the factory and the 9,000 brains of Hughes Space and Communications.

In announcing the acquisition a few weeks ago, Boeing Chairman Phil Condit was especially enthused about the expertise of the employees Boeing was acquiring. At a price of $3.75 billion - if you were to forget, for a moment, the capital assets and the $5 billion satellite order book - the Hughes purchase works out to about $416,666 per brain.

The man who leads these minds, Hughes Space President Tig Krekel, will become the Boeing executive in charge of a new division called Boeing Satellite Systems.

Krekel knows Boeing and Seattle intimately, having sold the company hundreds of thousands of airplane parts and components while an executive with AlliedSignal. And from his office atop one of the towers, Krekel can watch Boeing-made airplanes land at LAX.

Krekel and his new boss, Boeing Space and Communications President Jim Albaugh, can't say enough good things about the deal or the other guy's operation.

"The nature of our businesses requires significant investments that usually carry with them both large operational and market risks," Krekel said.

"This is a philosophy and situation that Boeing is used to handling," he said. "It's routine for them, and quite frankly it's one that Hughes Electronics was not as interested in doing anymore as they shifted to exclusively a services business," concentrating on conveying content by satellites - not building them.

Boeing, too, is looking to services as its future, but it has no intention of abandoning its hardware.

It is a leading launcher of satellites with the Delta family of rockets and the unique Sea Launch program, and it is NASA's top contractor. But until now, Boeing has had only a token satellite-building capability.

With Hughes, Boeing will have all the hardware it needs to offer a whole array of ready-made space and communications systems.

Twenty-five miles away, at Boeing's space headquarters in Seal Beach, Calif., Albaugh agrees the fit with Hughes is ideal.

"Hughes didn't have platform knowledge or large-scale systems capability that we had," Albaugh said. "We really lacked what I call that glue to put them together, which is the communications aspect, which they understand very well.

"While we're going to continue to build satellites for many, many years to come, I think we can get into a lot more systems work," Albaugh said.

Broadband communications for commercial aircraft, along with battlefield management systems that integrate intelligence, communications and weapons, are expected to be areas of enormous growth in the space sector.

There already is more to Hughes than building satellites in the Rambler factory. If a customer wishes, Hughes will sell a satellite "on orbit," arranging for launch, and will even track and monitor it long-term.

That's the kind of "after-market" service Boeing is trying to develop in all its businesses. In the commercial and military airplane divisions, that service consists of selling parts and doing maintenance and modification work. In the commercial and military space businesses, it's integrating hardware - creating a sum greater than the parts.

The two companies already are doing that together. Boeing tapped Hughes as a subcontractor in its successful bid for the Future Imaging Architecture contract let by the National Reconnaissance Office (NRO) - the nation's next-generation spy-satellite system.

The 10-year contract, details of which are secret, is worth unspecified billions of dollars.

"There are additional large government programs that are coming up on the horizon in the 2002, 2003 time period, in which the Boeing-Hughes team, once merged, will be a very formidable competitor," Krekel said. One of those programs, of the same magnitude as the spy-satellite contract, is the Future Communications Architecture contract for the NRO.

Said Albaugh: "We think the whole intelligence marketplace is one where we can be a significant player for years to come."

Krekel and Albaugh also foresee opportunities in the next generation of air-traffic management systems as the U.S., Europe and developing nations move from radar-based control to systems that coordinate air navigation with global positioning system satellites (GPS).

"We know a lot about airplanes," Albaugh said. "We invented GPS, although others say they helped, but GPS was built right here" in Seal Beach. "So we understand location. And certainly Hughes understands communications very, very well."

In touting the Hughes purchase to Wall Street analysts 10 days ago, Condit cited expectations that space-communications revenue will grow exponentially in the coming decade. Sales are estimated to triple or quadruple, and Condit said Boeing, with Hughes, intends to be a major player.

"I enjoyed reading Phil Condit's comments that Hughes Space and Communications was coming in as a catalyst to drive that high growth," Krekel said. "That's the vision we had here. Unfortunately, we couldn't get the investments to execute it."

Boeing had had its eye on Hughes Space for a long time. But it wasn't until Hughes Electronics decided to focus on the high-growth satellite services business - one that's losing money in the short run - that Boeing was able to buy the satellite-making division. As it turns out, the division Boeing bought is the only profitable one Hughes had.

Chuck Taylor's phone-message number is 206-464-2465. His e-mail address is: chucktaylor@seattletimes.com.

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Hughes Space and Communications

El Segundo, Calif.

Profile: Built first geosynchronous communications satellite, Syncom, launched in 1963. Built 40 percent of satellites in orbit today. Sales about 75 percent commercial, 25 percent government.

Parent: Hughes Electronics, owned by General Motors. Sale to Boeing for $3.75 billion expected to close second quarter.

1999 sales: $2.3 billion.

Employees: 9,000

Main products: Four models of commercial communications satellites and various military and weather satellites. Top of the line HS 702 communications satellite weighs more than a ton and has a solar-power array 150 feet wide.

Source: Hughes Space

and Communications