The (Possible) End of an Era: Roscosmos Restructured

The Russian economy has been facing both internal and external pressure following the events in Crimea. While the Russian government has sought to reform the space and aeronautics sector for some time, current economic weakness has likely helped to speed up the process. In an environment of low oil prices in which economic sanctions have stymied investment, bolstering the Russian Space Agency seems less important than projecting an aggressive stance abroad or maintaining social programs. An initial budget released last year called for a $42.5 billion allocation over the next decade, which has since been reduced to only $17.5 billion likely due to a combination of decreased funding and rapid inflation.

Additionally, a changing competitive landscape has placed the agency in a difficult position, forcing it to jostle with smaller and nimbler competitors, as well as heavily funded foreign space programs. In what was once an uncompetitive industry defined by massive fixed costs and defended by huge technical moats, new players have challenged the incumbents at every stage of the value chain. SpaceX has achieved launch prices at a 13% discount to the famously thrifty Chinese Long March rockets and Roscosmos has taken a credibility hit with a number of recent Proton rocket launch failures. Even niche markets are being swarmed, with U.S./New Zealand-based company Rocket Lab entering the low-payload, low-orbit launch space, and countries such as Belarus, India and China plying the satellite services and launch industry.

According to Deputy Prime Minister Dmitry Rogozin, the ultimate goal is to reorganize the lumbering organization from a government agency to a SOE (State Owned Enterprise) where “there will no longer be so much bureaucracy.”

Meanwhile, corruption poses a substantial challenge to Russia’s aerospace industry; in 2014, an internal audit discovered approximately $1.8 billion of misused funds within Roscosmos, while another $126 million in funds intended for construction at the new Vostochny Cosmodrome in the Russian Far East has been “stolen or squandered” by various parties.