An artist's rendering of how BridgeSat's "space terminals" will work. BridgeSat wants to launch scores of small terminals into space where they can form visual communications networks from one satellite to the next or from satellites to ground terminals. (Rendering courtesy of Boeing)

Major U.S. defense contractors are working to reinvent their satellite businesses to include satellites no larger than a microwave oven, as they try to keep pace with a new crop of commercial technology companies leading a wave of disruption in the space industry.

Their efforts are spearheading new investments in cube-sat technology, as the U.S. government looks for alternatives to the expensive, bus-size satellites it has relied on for decades.

Last week, Boeing and Raytheon announced partnerships with start-ups focusing on small satellites, investing in Colorado-based BridgeSat and Virginia-based HawkEye360, respectively. Those announcements come as Bethesda-based Lockheed Martin expands its business with an Irvine, Calif.-based “nano-satellite” company called Terran Orbital.

The companies are responding to changing priorities at U.S. defense and intelligence agencies.

“Companies like Boeing and Lockheed have an interest in getting into the small-satellite business because it feels like that’s where the industry is going,” said Marco Caceres, an analyst with the aerospace consultancy Teal Group. “They have decided that rather than develop their own in-house capabilities, they want to buy into it.”

The market for smaller satellites, which are designed to orbit close to Earth’s atmosphere, is growing quickly. According to a report by the Satellite Industry Association and Bryce Space and Technology, a total of 292 of the spacecrafts were launched into space last year, compared with 55 in 2016.

The shift is fueled by a wave of innovation that has made satellites cheaper to produce and the emergence of new commercial launch providers, such as Elon Musk’s SpaceX, which have made space more accessible. Recent advances in optics and communication technologies have improved the smaller spacecrafts' capabilities for remote sensing and imaging.

For U.S. military and intelligence agencies, the move toward smaller satellites is part of a broader effort to shore up their space-based assets against attack. It’s also the basis for President Trump’s Space Force proposal. If approved by Congress, the Space Force would be a sixth branch of the U.S. military focused on combating security threats in space, the first new military service since the Air Force was created in 1947. If Congress embraces the idea the Space Force could be created as soon as 2020.

The Air Force operates a fleet of 77 satellites that the service describes as vital to detecting nuclear detonations and missile launches. Officials are hoping masses of small spacecraft will be harder for enemies to take down than a handful of large ones. Smaller satellites are also cheaper to replace.

“I won’t support the development any further of large, big, fat, juicy targets,” Gen. John Hyten, Commander of the U.S. Strategic Command, said at an industry conference last year. “We are going to go down a different path.”

The Defense Department’s advanced research and development arm, known as DARPA, is working to develop smaller satellites that use lower-cost technology under a project called “BlackJack,” allocating $117.5 million for the effort.

Still, such research efforts pale in comparison to what the Pentagon is spending on older satellite systems. On Friday the Air Force announced it will pay Lockheed Martin as much as $7.2 billion for 22 satellites designed to support the Global Positioning System (GPS), which relies on one of the company’s larger satellite models.

For Raytheon, Boeing and Lockheed Martin, the new investments are a way to stay plugged into an increasingly vibrant commercial spaceflight industry, in which SpaceX and a SoftBank-backed company called OneWeb have pledged to launch masses of small satellites into space to bring Internet connectivity to remote areas.

For defense contractors, investing in start-ups offers access to cutting-edge intellectual property.

“We operate similar to a venture capital or private equity firm, but for us our focus is on the ‘solution’ side of things rather than on financial returns,” said David Wajsgras, president of Raytheon’s Intelligence, Information and Services business unit. “We partner with commercial companies that we see as having a better mousetrap.”

Wajsgras said the industry’s small-satellite work has rapidly picked up steam during the past few years as customer priorities have changed. “Today with the requirements that commercial and government customers have around the world, there is a need to take some of those mission capabilities and provide them at lower cost, and provide them in a different way,” he said.

Key to those efforts is Raytheon’s investment in a three-year-old satellite start-up called HawkEye360, which wants to launch fleets of microwave-sized satellites into orbit, where they will orbit the Earth in clusters of three. The company is planning its first launch by the end of 2018.

One of the company’s core features is the ability to track radio frequencies coming off ships. HawkEye360 chief executive John Serafini says the company’s early customers include U.S. agencies tracking maritime piracy, human trafficking and illegal fishing operations. “We’re focusing on vessels that don’t want to be found,” he said.

Serafini says the partnership with Raytheon has given his company an open door to the hard-to-reach corners of the U.S. national security establishment, where Raytheon has spent decades building connections and technical know-how. “These customers don’t usually want to buy capabilities from a three-year old start-up … they want to buy from a bigger, trusted company like Raytheon,” Serafini said.

In mid-August Boeing announced it would buy a small-satellite manufacturer called Millennium Space Systems for a sum that wasn’t disclosed, allowing it to produce satellites that weigh as little as 110 pounds. And last week it announced an investment in BridgeSat, a Colorado-based company that wants to launch fleets of small satellites that use lasers to beam information back to Earth, or to other satellites.

Brian Schettler, managing director of Boeing’s technology venture investment arm, said the company is planning more investments in small satellite technology. “This won’t be the last investment we make in this space,” he said. “It’s one of the key focus points we have pointed out for disruption.”

It’s closest competitor, Lockheed Martin, has been pursuing more of a dual-pronged strategy, building its own smaller satellites and also reaching out to start-ups.

One of the company’s newer satellites, called the LM400, is about the size of a washing machine. And Lockheed’s venture investment arm has invested an undisclosed amount of money in an Irvine, Calif.-based company called Terran Orbital that focuses on the design, manufacturing, testing and launch of small satellites. (Lockheed’s venture arm typically invests in chunks of $1 million to $5 million.)

In a June 6 press briefing, Lockheed ventures executive director Chris Moran described Terran Orbital as one of the crowning successes of the company’s tech investment arm, which has also invested in autonomous submarines and artificial intelligence, among other projects. What started as an exploratory investment in Terran Orbital has turned into a growing line of business with the U.S. government. Lockheed has won four government contracts in partnership with the start-up, as well as five pending contract proposals, a company spokesman said this week.

“Our focus there has been to explore areas that maybe we wouldn’t have done with our larger satellite buses that we manufacture ourselves,” Moran said. “That’s a big win for us on the venture space, to find that investment, create that partnership and see the business area really pick up the challenge and develop a whole business around that investment. I’d love to see the rest of our [investments] turn into that.”

Lockheed program manager Joel Thorson said he expects to see “exponential growth” in demand from the government for the small spacecraft. “Every single day we’re bringing new ways, new ideas for small satellites,” he said.