GO
Loading...

Why are space companies flocking to Colorado?

The annual National Space Symposium in Colorado Springs, Colorado
Matthew Staver | Bloomberg | Getty Images
The annual National Space Symposium in Colorado Springs, Colorado

The Aug. 13 launch of the WorldView-3 satellite-imaging space mission will mark a big milestone for a triad of Colorado giants: DigitalGlobe, United Launch Alliance and Ball Aerospace.

In a state that bills itself as a "mile closer to space," Colorado will celebrate the mid-August takeoff as further proof that it's a major U.S. aerospace industry player—a position that dates back seven lucrative decades.

Today some 400 companies count 70,000 employees in the military, civil and private sectors of the Colorado aerospace industry. Space-related enterprises accounted for almost a $9 billion contribution to the state economy in 2011, according to the Brookings Institution. That's 4 percent of Colorado's private-sector gross domestic product.

Indeed, the state generally identified more with buckaroos than rocket scientists is home to many of the industry's bigger names, including Sierra Nevada, Lockheed Martin, Boeing, Raytheon, the U.S. Air Force Space Command and the University of Colorado's Laboratory for Atmospheric and Space Physics.

Read MoreGuess this year's top state for business

To say that Colorado has a lot going for it in the aerospace sector is an understatement when one considers the state's wide range of companies; its well-respected university research programs; the military installations directly tied to NASA and U.S. Defense Department space efforts; and local, state and federal officials who have long lobbied to promote the business the state has, while pushing hard to attract more.

"Without a doubt, Colorado is one of the leading states in the U.S., if not the world, in attracting new space-age tenants," says Richard David, the CEO of NewSpace Global in New York.

But there are clouds on Colorado's space industry horizon.

NASA and the Defense Department are radically changing the way they do business. Major production shifts in the U.S. and international aerospace business are roiling the industry. And competition from several U.S. states that want a bigger piece of the aerospace action has slowed Colorado's go-go pace to some degree.

Sierra Nevada's Dream Chaser spacecraft in orbit
Source: Sierra Nevada Corporation
Sierra Nevada's Dream Chaser spacecraft in orbit

The state's long-running reliance on federal funding, its lack of access to venture capital and R&D funding sources, an aging workforce and little cross-talk among many sectors of the aerospace industry threaten to undermine Colorado's solid position.

"Colorado's world-class space sector finds itself standing at a point of tremendous opportunity and peril as it considers how to navigate massive uncertainties and capture further advantage in the years ahead," a recent report on the state's aerospace industry from the Brookings Institution flatly declares.

Read MoreState winners and losers in the jobs war

The Pentagon, for one, plans to slice 10 percent of its space division's annual budgets over the next 10 years. And President Barack Obama's FY2013 Defense Department budget called for a 20 percent cut in new satellite funding over 2012's level.

In turn, the federal government is seeking faster, leaner and cheaper ways to build defense-related low-orbit satellites; long-haul communications and Earth-imaging networks; and other services in the private, commercial sector rather than fund construction of its own billion-dollar technologies.

On the same token, rather than rely on NASA for the bulk of their orders, the savviest aerospace players are branching out. Vendors are spending more on research to find new ways to build flocks of telecom satellites; create new hardware and software applications; and develop breakthrough consumer- and business-facing services, like space tourism, high-end drones, satellite-based broadband Internet, cloud-based computer services and next-generation digital imaging.

Read MoreInnovation a big-time player in farming

"In short, all kinds of actors in the space economy need to be much more attentive and respond much more nimbly to the changing demands of existing and new customers," the Brookings report notes.

The global space economy generated some $300 billion in business in 2011, according to the Satellite Industry Association. The U.S.'s share: more than 66 percent of that total generated by the manufacture and operation of satellites, launch vehicles and space-based services for government and commercial customers.

Ball Aerospace designed and built the Operational Land Imager, an advancement in Landsat sensor technology.
Source: Ball Aerospace | Flickr
Ball Aerospace designed and built the Operational Land Imager, an advancement in Landsat sensor technology.

In 1996, satellite services accounted for 40 percent of aerospace industry revenue in this country—a figure that rose to 60 percent in 2011 due, in part, to demand for direct broadcast TV and cell phone services. According to the Brookings Institution, aerospace is one of the six major U.S. industries that together account for 75 percent of business's yearly R&D activities.

No wonder Colorado is looking over its shoulder at states that want a larger slice of that pie.

Florida's Space Florida project, for example, was created in 2006 as a one-stop shop for marketing the state to the aerospace industry. The Florida Opportunity Fund also backs venture capital funds that target players in space. In New Mexico, Virgin Galactic has signed a 20-year lease for the state's Spaceport America.

The Maryland Innovation Initiative funds the commercialization of technologies started on the college level. In Texas the Emerging Technology Fund grants multimillion-dollar awards to early-stage aerospace projects. And Virginia's Orbital Sciences recently landed a billion-dollar NASA contract to continue work on its Cygnus spacecraft, which has already made two unmanned trips to the International Space Station.

Hill Street Studios | Blend | Getty Images

"Aerospace is a very hot industry—and parts of it a growth industry—with a lot of cross-currents running through it,' said Mark Muro, a co-author of the Brookings report.

Judging from what it has done in the aerospace sector since World War II and more recently in the clean tech industry, Colorado is showing signs of doubling down on its pursuit-of-business efforts.

State and local governments continue to fine-tune ambitious business-tax structures, craft progressive tax incentives and create enterprise zones to draw new business and expand incumbents' efforts. There are burgeoning international air-transit links, the appointment of what the state's calling a "champion" to market Colorado worldwide and Gov. John Hickenlooper's recent signing of a new state law that exempts taxes on space hardware and application sales.

Some of the latest aerospace coups: Lockheed Martin consolidated its key Pennsylvania operations in Jefferson County, Colorado. After a merger, DigitalGlobe moved from Longmont to an expanded plant in suburban Boulder. And in Fort Collins, Woodward, which develops sophisticated fuel technologies, is building a new headquarters for 1,000 workers.

There's also no shortage of high-profile big-bucks projects:

  • Sierra Nevada's Space Systems division, which operates a 40,000-square-foot manufacturing facility in Louisville, Colorado, is building a 17-satellite cluster of telecom birds for ORBCOMM, whose data-tracking data is used by the maritime, trucking and cargo industries. Sierra Nevada'sDream Chaser craft is also one of three NASA finalists for the next generation of manned space flight.
  • The Spaceport Colorado project in Adams County has signed a memorandum of understanding with Swiss Space Systems (S3), which builds satellite-launch systems. S3 also has expressed interested in building a space tourist shuttle like Virgin Galactic's.
  • Ball Aerospace's and the University of Colorado's popular planet-hunting Kepler space telescope has been revived after an equipment breakdown.

On the international front, Congress—wary of the tense political situation in Crimea—may soon push to cut ties to Russia's space program, which makes motors that power some U.S. rockets, and pump up NASA's flat budgets.

Read MoreIn governor races, it is the economy, 'stupid'

"Critical reliance on foreign partners, particularly partners who may not seem like allies anymore—can alleviate that concern," Gen. William Shelton, the chief of the U.S. Air Force Space Command, said in May during an industry conference in Colorado Springs.

Noting that, Brookings writes of Colorado that "innovation [will be] an even more central determinant of business and industry success in the space economy as the industry faces what is perhaps the most demanding period in its history."

To that end, the Institution has suggested that Colorado create an innovation vouchers program for small and medium-sized companies to support R&D efforts; start to pull away from its heavy dependence on government space contracts; step up educational efforts to inject new blood into an aging technical workforce; push for more companies to share more brainpower to develop new programs, products and ambitious initiatives; and promote more private-sector involvement in the industry from the likes of supply-chain players and competitors.

Read MoreWhy location matters to your portfolio

Colorado also would be wise to more aggressively go after space-based services tied to communications, Earth-sensing and geolocation activities and products. That means moving into cybersecurity, geospatial activities, robotics, advanced materials, energy management, drones and even asteroid mining.

As Marco Caceres, a space industry analyst with the Teal Group in Fairfax, Virginia, said: "There's a lot of potential out there."

That assessment nicely ties in with one of the aerospace industry's oldest sayings: "It's always sunny in space."

—By Bob Diddlebock, special to CNBC.com

  • Scott Cohn develops in-depth features, special reports and documentaries for CNBC and CNBC.com.

From the Governors

Latest Special Reports

  • Alibaba Group headquarters in Hangzhou, China

    In-depth coverage on Alibaba's IPO, including roadshow coverage, expert analysis, and Alibaba's stock price.

  • The latest CNBC Fed Survey.

  • Unlock the keys to building a successful long-term financial plan: manage your money, grow your money, and protect it.