Khrunichev State Research and Production Space Center (KhSC), headquartered in Moscow, a Federal State Unitary Enterprise (FSUE), has been a longstanding leader in the advancement of space programs. Its varied product lines include launch vehicles and launch vehicle upper stages, communication and earth observation satellites, rocket engines and Space Station modules. Over time, KhSC has emerged as one of world’s largest space production centers, serving the international satellite telecommunication industry as well as Russian Federal and international space programs, working with 45 different companies in 22 countries across the globe.  Since Vladimir Nesterov was appointed Director General of KhSC on November 25, 2005 by Russian Federation presidential decree, there have been dramatic improvements in quality, consolidation of resources and production efficiencies with volume increasing by more than double in two and a half years.  In 2008 alone, KhSC was responsible for orbiting more than 39% of the total world space cargo.  For KhSC’s Proton vehicle,  the venerable launcher marked two notable celebrations within the past seven months—the 350th launch which took place in December 2009 and the 45th anniversary of Proton this past June.

A Pioneer in the Space Industry Makes History in Commercial Launch
As of July of this year, KhSC’s Proton vehicle completed the 24th consecutive successful mission in 24 months demonstrating a launch pace that is unmatched by any other single launch system in the industry today. Of those 24 launched, 16 were commercial missions contracted through International Launch Services (ILS), a company based in the United States of which KhSC is the majority owner.

KhSC’s involvement in commercial launch dates back to 1993 when it joined with what was then Lockheed Corp. of the United States and Energia to offer Proton launch services to commercial customer worldwide. The joint venture, called Lockheed Khrunichev Energia International (LKEI), signed its first commercial launch customer that same year.  KhSC had the foresight to purchase the company, which is now ILS, under an agreement that was initiated in December 2007 and finalized in May 2008.

This strategic acquisition of the company responsible for commercial Proton sales has further strengthened ILS, now majority-owned by KhSC,  as a global leader in commercial launch today, as well as providing an excellent return on investment to KhSC.  The ownership structure and decision making is streamlined and interests are perfectly aligned.

Today, the ILS commercial venture is considered one of the most successful of its kind with the merging of an American-based company with a Russian space industry giant.  This was a historical first for KhSC as well, as it was their first acquisition of a foreign entity.  The complexity of this type of sale was not met without intense scrutiny and oversight, however, as both the Russian Federal and United States Governments had to provide approval of the sale.

Since the purchase by KhSC of ILS, commercial launch rates have increased from an average of 4-5 launchers per year to 7-8, and that pace is expected to continue for the foreseeable future.  Additionally, ILS has maintained a running backlog  at or above 20 commercial missions for the past three years.   Current backlog stands at 23 missions valued at approximately $2 billion.

The marketing success of ILS in the last several years has led to a substantial increase in launch orders and backlog for the company.  This robust launch pace led to a significant increase in cash receipts for KhSC from commercial launches, from $198 million in 2005 to  almost $600 million in 2009.

Vertical Integration of Suppliers under KhSC Showing Measurable Results
A remarkable transformation is taking place at KhSC. Just as ILS has been integrated into the KhSC group, so too have former Proton suppliers.  After the formal announcement was made in the summer of 2006, President Vladimir Putin issued a decree in February 2007 that would merge some of the largest Russian space manufacturers under the umbrella of KhSC. The consolidation directly supported KhSC’s ongoing efforts for vertical integration of key Proton suppliers—which is KhSC’s most vital strategic asset—and the continued development of the next generation Angara launch vehicle. The consolidation of the Russian space infrastructure, coupled with the success of the commercial Proton venture, has taken a fragmented and financially strapped supply base and put it under the direct control of KhSC.   The results speak for themselves:  40,000 employees producing multiple products including the Proton launch system with an unparalleled track record of success.  The first phase of the integration, with six companies added to the KhSC group is complete.   As a result, Khrunichev now directly controls over 65% of the supply chain and manufacturing of Proton, up from 30% prior to consolidation. The integration has produced measureable results for the Proton vehicle, with production throughput for KhSC’s Federal and international commercial missions supporting 10 launches in 2008 and 2009 and up to 12 missions for 2010, launching at the rate of once per month. A second phase focused on incorporating additional companies is in process which will further increase the total employment of KhSC and result in more than 70% of Proton manufacturing directly under KhSC control.

Notable achievements under KhSC’s management during this first phase of the integration plan include Breeze M upper stage engine production at the Khimmash Design Bureau, which has more than doubled, with a 2.6 fold increase in two and a half years to support launches for the Fregat, Soyuz and Proton vehicles. The acquisition of Voronezh, the producer of the second and third stage engines for Proton, second stage engines for Soyuz, and the upper stage engine for the Zenit rocket was critical for the space industry as a whole. With the financial and managerial support of KhSC, Voronesh has been able to flourish and continues to produce at a rapid pace.  The resulting throughput for Proton production is now 14 launch systems each year and this robust factory output can be directly attributed to the consolidation of suppliers and investment in production and test facilities across the product line.  All of these combined efforts and improvements have been implemented under one common goal and one common management structure, positioning KhSC for continued growth and expansion.

The second phase of the integration plan will include the merging of additional companies under KhSC specializing in research and development, measurement systems and other factory components to be completed over the next several years.

Investment in New Production Capabilities and Quality Improvements
KhSC’s  strong financial performance has allowed investment in improvements across the board in infrastructure, quality and product development. Over the past four years alone, KhSC has invested 10.5  billion rubles, both in Moscow and its integrated branches, to ensure a sustainable production growth. The commercial Proton program has played a significant role in enabling this product investment.  From 1994 through 2009, KhSC realized over $4  billion US in cash receipts. In the two years since the purchase of ILS, KhSC has received over $1B in cash receipts from the venture, reflecting the success of the venture and the benefit of their increased shareholding.

As a Federal State Unitary Enterprise, one of four core space centers in the consolidation effort, KhSC also benefits from federal support. In 2009, KhSC received an 8 billion ruble (~$230M ) federal investment, specifically designated for the purpose of increasing charter capital.  This federal investment was state support to help KhSC weather the economic downturn from the global recession by allowing it to make significant investment in production and launch site infrastructure, reducing costs and increasing quality.

In addition to ongoing integration efforts, KhSC is currently adding a second satellite processing center to their commercial Proton facility at Baikonur.  Planned for completion in early 2011, the expanded capability will allow dual processing of commercial missions to allow overlapping campaigns and a more flexible manifest for commercial missions.

KhSC funds also have supported phased improvements of the Proton launch vehicle. Initially introduced in the commercial marketplace with capability to lift satellites under 5 metric tons, Proton’s phased improvements have increased performance to over 6 metric tons.  All upgrades made to the Proton in these phased improvements have been 100% successful in flight. The improved performance was demonstrated in early 2009 with the launch of Express AM-44 and Express MD-1 and earlier this year with the launch of the heaviest payload to date, the Echostar XIV satellite, weighing over 6. 3 metric tons at launch.  KhSC is currently implementing a Phase IV upgrade that will include another 150 kg of performance, bringing the total payload systems mass capability to 6.3 metric tons to a reference GTO orbit.

Quality has been improved following a top to bottom quality review that was conducted in 2008, which generated 46 separate quality initiatives, all fully funded and implemented across all KhSC subsidiaries. Investment by KhSC in this long-term program supports continual efforts to improve the Proton vehicle design and systems such as state of the art quality control equipment and processes and re-certification and accreditation to latest Quality Assurance standards.  The program has shown tremendous success with 24 consecutive successful flights since its introduction.

Developments with the Next Generation Launch Vehicle: Angara
The Angara launch system, the next generation family of vehicles, will serve both military and civilian missions under the Federal Space Program as well as various international space programs. There will be a light, medium and heavy lift variant to cover the entire satellite mass spectrum and the Angara engines will utilize an environmentally-friendly liquid oxygen-kerosene mixture. After successful introduction to the Russian Federal program, commercial missions, managed by ILS, will follow. The first Federal flight is anticipated in the 2012 – 2013 timeframe after completion of the ground infrastructure in Plesetsk.

Tests for the Angara system have been ongoing and to date, 97% percent of independent testing has been completed. The testing of the Universal Rocket Module URM-1 has been successfully completed ahead of the predetermined deadline provided by the Russian government.  The first stage engine for Angara, which included the rocket engine and the liquid fuel propulsion system has also been successfully tested in 2009. Most recently, cold firing tests for the third stage engine were completed in June,  July and August of this year and URM-2 bench tests are planned for the second half of 2010. In 2009, the Russian Federation, in addition to the 2.5  billion rubles invested by KhSC, allocated additional 9.4  billion rubles to support refurbishment and retooling  of Khrunichev production lines, primarily targeting Angara launch system. KhSC is fully committed to the successful development of the Angara family of launch vehicles and considers this endeavor of critical importance to the future of the space industry.

Poised for Growth to Serve the Global Space Industry
KhSC has long been a leader in the aerospace industry, but its accomplishments since its inception have allowed it to emerge as one of the most prominent space industry manufacturers in the world with a unified supply base and a diverse product portfolio.  With full support from the Russian Federation, and one of the core centers in the in the Russian space industry consolidation effort, there is one common production line allowing increased throughput and a launch rate that is unmatched in the industry.

Production volume in all KhSC product categories (rockets, upper stage engines and space vehicles) has increased overall with 11 different product types produced in 2005 compared to 25 in 2009, a more than 2-fold increase.

Continued investment by KhSC in improvements across all product lines and subsidiaries and an unwavering commitment to quality gives KhSC and its U.S. partner, ILS, the ability to provide real value to customers.  With a backlog of 23 commercial missions worth approximately $2 billion, along with a concurrent Russian Federal launch tempo, this provides the backdrop for a very healthy and sustainable future.



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