WSJ.com - Networking News October 16, 2000 Europe Main Networking Former Soviet Missile Factory Endures Post-Cold-War Blues By PAUL HOFHEINZ Staff Reporter of THE WALL STREET JOURNAL DNEPROPETROVSK, Ukraine -- On a rainy morning, Alexander Maschenko stands before a chalkboard in the conference room of the Yuzhnoye State Design Office. He gamely aims his pointer at a picture of an SS-24 rocket, one of 13 ballistic missiles painted vividly on a poster tacked to the wall. "These were all made here," he says proudly, gesturing at the rockets. One of them, he says, nodding toward the SS-4, nearly provoked World War III when U.S. spy satellites photographed one on Cuban soil in 1963. "We can still make 40 or more rockets a year," he adds. "This one," he says, pointing to the SS-18, "was capable of delivering 10 [nuclear] warheads at a time." But that was then, and this is now. Mr. Maschenko is director general of Yuzhnoye, the once top-secret design bureau of PO Yuzhmash, a missile factory that sat proudly atop the Soviet Union's military-industrial complex. For nearly two decades, he and his colleagues manned the front lines of the Cold War arms race. No resource was too scarce for them. No task too difficult. These days, Mr. Maschenko and his colleagues spend most of their time dismantling the deadly rockets they once cranked out like sausages. When they're not doing that, much of the time they're producing clunky tractors that no one wants to buy and looking for business partners from the countries their missiles once targeted. They want to stay in the aerospace business, but it's a struggle. "Of course, it's painful to the people who were involved in it," says Mr. Maschenko, referring to the company's work dismantling its own rockets. "But it doesn't matter how we feel about it. It's part of the times." A Crucial Venture By far the company's most ambitious and important post arms-race project is Sea Launch, a joint venture signed in 1994 between Yuzhmash, the U.S.'s Boeing Corp., Norway's Kvaerner Group and Russia's RSC Energia. Put together under the auspices of the World Bank, which provided a $200 million (234 million euro) loan guarantee to help arrange financing, the project was aimed at capturing part of the fast-growing $6.6 billion-a-year satellite launch industry. Drawing on the expertise of the individual companies, Sea Launch puts satellites into geosynchronous orbits from a platform in the Pacific Ocean near the equator. Experts say the decision to base the launch pad near the equator makes sense: From that vantage point, the Earth's gravity helps propel the satellites into near-perfect orbit, a fact that makes launching them easier and less expensive. Each of the partners in the project has a well-defined part to play. Yuzhnoye contributes its trademark Zenith 3SL, a two-stage launch vehicle, to get the spacecraft into the air; Energiya provides the booster rocket that propels the satellite into orbit; Kvaerner adds the launch platform and ships the assembled rocket to the launch pad; and Boeing supplies the satellite container at the top of the rocket as well as managing the project. Four launches have taken place, though the third resulted in a destroyed satellite, and a fifth is scheduled for Wednesday. Sea Launch is scheduled to blast a satellite into orbit for Thuraya Satellite Telecommunications Co., a mobile-phone service provider based in the Middle East. Sea Launch says it has 18 more contracts signed with companies including Loral Space & Communications Ltd., Hughes Electronics Corp. and PanAmSat Corp. "Our future is linked to this project," says Mr. Maschenko. "It means we can keep the assembly line working. It means we can retool when we have to." He notes that Yuzhnoye is paid for each launcher it builds for Sea Launch, but even with that it could take several years before Yuzhnoye's 15% stake in the business is worth much. The World Bank estimates the Sea Launch project could bring as much as $2 billion in revenue to Russia and Ukraine in the next few years. 'Terrific Rockets' But old habits are hard to break, and taking part in a complex, international joint venture has involved accepting sweeping and deep changes in the way Yuzhnoye does business. For starters, people know where the factory is. The location may no longer be a closely guarded secret, but factory managers still insist on security clearances for all would-be visitors. Once that hurdle is cleared, you're more likely to bump into a briefcase-toting satellite business executive than a figure reminiscent of a Communist general secretary come to admire the latest Cold War gadgetry. Mr. Maschenko says he and his colleagues have cobbled together enough contract work to sustain the factory. The company brought in around 100 million hryvnia (21.2 million euros or $18.1 million) last year, roughly two-thirds of which came from commercial ventures such as Sea Launch and a cooperation agreement with Fiat SpA, he says. The other third is part of a massive U.S. government-funded program to dismantle the 176 intercontinental ballistic missiles on Ukrainian soil. The company still employs 34,000 people, although the head count is well off the Cold War peak of more than 50,000. Space experts praise the company's technology. "They make terrific rockets," says Wilbur Trafton, a former administrator at the U.S. National Aeronautics and Space Administration, who now serves as general director of Sea Launch. "They have a terrific launch system, and the rockets are very reliable." Mr. Trafton, who ran NASA's space shuttle program for four years, says Yuzhnoye's role in the arms race has helped it prepare for its relaunch as a commercial company. The Zenith rocket, in particular, seems well suited to commercial launches, he says. Designed in the 1980s, the rocket was intended to serve as part of the Soviet Union's answer to then U.S. President Ronald Reagan's Strategic Defense Initiative, he says. Soviet military planners feared that, in the event of a nuclear war, the U.S. military would move quickly to destroy the Soviet Union's satellite telecommunications. In response, they built a rocket system capable of replacing the country's entire communications satellite system in a matter of days. Unlike most rockets, which are built from the bottom up, the Zenith is loaded on its side, making it easier to strap in or modify payloads on short notice. The entire rocket system can be rolled out and launched in five hours, including fueling. And yet, as innovative as Yuzhnoye's advanced rocketry is, the Sea Launch project hasn't been an unqualified success. In March, the company's third launch ended in disaster when a ground-based computer system malfunctioned, destroying the rocket and sending a Hughes-built HS-601 communications satellite belonging to ICO Global Communications to the bottom of the ocean. Sea Launch executives note that the malfunction occurred in part of the project that wasn't directly supervised by Yuzhnoye. The company launched an investigation into the mishap, and, in July, it successfully launched a satellite after making small modifications to the launch software. Empty Contracts In the meantime, Yuzhnoye, which is still 100% owned by the Ukrainian government, is looking for other lines of business, so far without much success. Last year, the company produced 500 tractors, but the combines found few buyers even though they were attractively priced. The company also has approached several municipal governments, offering to manufacture trolley buses. But while the cities may need better transport, few of them have the cash to pay for it, Mr. Maschenko says. "We've signed several contracts," he says. "But nothing ever comes of them." Despite these initiatives, it is evident Mr. Maschenko's enthusiasm still lies in the dormant military missile program. At a recent daylong presentation of the company's products and services, Mr. Maschenko spent more than an hour enthusiastically remembering the technical dilemmas his rocket designers faced over the years, as the Cold War's missile race tossed up increasingly complex challenges. He recalls the day Yuzhnoye shipped the last intercontinental ballistic missile to Moscow for testing. "It revolved as it flew," he says proudly; the SS-25, which was only ever developed as a prototype, was designed to twirl and bounce so it could sneak past the defense lasers being developed as part of the Strategic Defense Initiative. The twirling technique, he says, would have made the missiles virtually impossible to shoot down, but the method was never fully tested or put into production. "It turned out the first SS-25 was also the last one," he notes sadly. He then launches into a curt and unemotional description of the company's tractor-building program. Write to Paul Hofheinz at paul.hofheinz@wsj.com Article SearchSearch Help Enter words or phrases The Wall Street Journal Top Business Publications (headlines are free, articles $2.95) Company Research Company Symbol Name Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved. Copyright and reprint information. 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