While a complex and challenging field in some ways, investing in space satellites is also an expanding and potentially lucrative area. The authors examine some of the features of this "high frontier." The global space industry is projected to grow from $350 billion to over $1 trillion by 2040.

In this article, Paolo Pinna (partner) and Constance Ollat (associate) at global law firm HFW write about the business of commercial spacefaring. Orbital satellites are an obvious and important feature of this, but the sector is about far more. As far as satellites are concerned, the sector is continuing to see rapid growth. In the past, this news service has interviewed investors in the sector, and we intend to keep track of developments. (More on the authors below.)

The editors are pleased to share these views and insights; the usual editorial disclaimers apply. To comment and enter the conversation, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

The space industry has experienced a remarkable growth in recent years, with projections indicating an even greater and rapid expansion ahead. According to Morgan Stanley’s Space team, the roughly $350 billion global space industry could surge to over $1 trillion by 2040 (1). The consulting firm Novaspace indicated that, between 2020 to 2024, 11,344 satellites were launched into space – against 1,842 satellites between 2015 and 2019 (2).

Once deemed excessively costly and unproductive, the satellite industry is attracting increased attention from banks and institutional lenders, who are now investing billions in new space ventures: there is a global and general awareness that space is no longer just a scientific pursuit but a rapidly growing industry with vast economic potential. As satellite technology becomes more modular, cost-effective, and commercially viable, banks are beginning to see the potential of space assets as part of a diversified investment and lending portfolio, capable of generating stable, long-term returns.

Satellite financing has traditionally been implemented through project finance rather than asset finance. 

Asset-based financing and project financing are both methods of securing capital, but they differ fundamentally in structure and risk allocation. Asset-based financing is secured directly by specific, identifiable assets (such as vessel, aircraft or locomotives). Lenders rely on the value of the asset itself as collateral, and in the event of default, they have rights to repossess or enforce against the asset. This approach is particularly useful for financing individual, high-value items that can be clearly defined and registered.

In contrast, project financing is typically used for large-scale infrastructure or development projects, where repayment depends on the future cash flows generated by the project rather than the value of underlying assets. It often involves complex contractual arrangements, multiple stakeholders, and limited or no recourse to the project sponsors.

While project financing spreads risk among participants and allows for the development of capital-intensive ventures, asset-based financing offers a more streamlined mechanism focused on asset-specific creditworthiness and enforceability.

For the many new startups entering the industry, traditional project finance presents clear inconveniences. First, startups typically lack the long-term, revenue-generating customer contracts that lenders rely on to assess a project’s financial viability and ensure predictable cash flows. Without these contractual assurances, it becomes difficult to structure project finance deals that meet lender requirements for risk mitigation.

Second, the legal, financial, and administrative complexity associated with traditional project finance (notably, the need for detailed risk allocation arrangements, multiple stakeholder agreements, and regulatory compliance, etc.) can be prohibitively expensive and burdensome for small, early-stage companies. These businesses often operate with limited capital, small teams, and tight development timelines, making it difficult to navigate the intricate structures and high transaction costs that traditional project finance entails.

Asset financing offers a compelling alternative. By focusing on the asset itself (instead of uncertain revenue streams), it provides a simpler and less expensive cost structure, well suited for startups and high-risk ventures. This model is already well established in other transport sectors, such as aviation and shipping, where physical assets such as aircraft and vessels serve as the main collateral to the financing, but it remains underdeveloped in the satellite sector: banks are generally hesitant to rely on satellites as primary security, and such hesitation is rooted in the inherent complexities and risks associated with space-based assets.

Consequently, lenders often perceive a security interest in a satellite as theoretical at best: an asset that is inaccessible, uncontrollable, and ultimately unreliable as a means of recourse.

Privately held space exploration firms have also been developing space technologies, with ambitions such as manned landings on the moon and airplane-borne rocket launchers that could launch small satellites to Low Earth Orbit at a far lower cost, and with far greater responsiveness, than ground-based systems. As these technologies mature, a secondary market for satellites will emerge, improving their liquidity and appeal to lenders.

As a result, asset-based financing has strong potential to expand within the satellite industry, if transactions are structured within a clear and predictable legal framework. It is essential that the creation, perfection, and enforcement of security interests over satellites are governed by well-defined rules. Such strong legal framework would give lenders more confidence and asset-based financing could become a practical and scalable alternative to traditional project finance – especially for NewSpace companies looking for more flexible funding.

Historically, the failure of satellite ventures launched by IBM Corp, Federal Express and Rupert Murdoch, discouraged financial investment in the satellite sector (3). 

Satellite financing (whether structured as project finance or asset-based lending) typically involves taking a security interest over the satellite itself, usually in the form of a mortgage or charge.

A major hurdle for space companies seeking asset-based financing is the difficulty for creditors to effectively perfect and enforce their security interests.

Financing transactions with a foreign nexus introduces significant legal uncertainty. When the financier, debtor, or collateral is connected to a foreign jurisdiction, questions arise regarding which law governs the creation, perfection, priority, and enforcement of a security interest. Even determining whether an interest qualifies as a “security interest” under foreign law can be complex and unclear (4).

While some obstacles are common across the sector, others are specific to emerging NewSpace ventures. These challenges span legal, regulatory, and practical domains. Though complex, these issues are not insurmountable, and a range of solutions exists.

States are starting to enact their own regimes, with the objective of reducing uncertainty and creating an environment in which both operators and financiers can engage with greater confidence. However, the proliferation of national laws risks creating a fragmented legal landscape, where operators and lenders face differing rules depending on jurisdiction.

As the space economy evolves, instruments like the Space Assets Protocol under the Cape Town Convention (which is designed to streamline and assist the facilitation of transactions involving space assets) may prove essential in supporting both conventional project finance and the growing demand for asset-based financing in satellite systems and beyond.

Footnotes:
1, Tech Helps Manufacturing Birth Its Digital Twin | Morgan Stanley
2. The Space Boom Is Here | Global Finance Magazine
3, Financing satellites: easier said than done – ScienceDirect
4, Asset-Based Financing For Space Activities

About the authors

Paolo Pinna 

Constance Ollat 

Pinna is a banking and finance partner specialising in shipping and export finance, project finance, restructuring, and acquisition finance. Ollat is a banking and finance associate at global law firm HFW. Her practice includes advising on English law, French law and international aspects of financing transactions, which encompasses notably asset finance, tax lease transactions (shipping) and export credit transactions.