Qioptiq logo Raytheon Global MilSatCom

IS ROCKET DEAL JUST THE START?

09 May 05. MICHAEL FABEY of Defense News reported that bowing to the wishes of their biggest launch-services customer, Boeing and Lockheed Martin announced a plan last week to marry their space-rocket divisions. The move was pushed by the U.S. Air Force, which hopes to save money while preserving the U.S. ability to put heavy satellites in space aboard two kinds of launch vehicles. In the wake of the May 5 announcement, two questions stand out. Will the Pentagon and other federal regulatory bodies approve the deal? And will it become a template for defense sectors that lack meaningful domestic competition and commercial prospects?

Some analysts and observers believe the answers could be yes. “In shipbuilding, aircraft and some parts of the armored vehicles — in any areas like these, which are asset-intensive, have low volume and require lots of capital, this mechanism could be a strategy,” said Pierre Chao, a defense industry analyst at the Center for Strategic and International Studies, a Washington think tank. “This is just the industrial landscape catching up with realities.” But others say the Boeing-Lockheed deal is a special case.

“The government has been encouraging the companies to do this for years,” said Loren Thompson of the Lexington Institute, a defense think tank and consulting firm. “I don’t believe the government will approve similar ventures unless there are similar circumstances.” Chao said the nuclear-submarine industry might be one candidate. The two U.S. companies that build such subs — Northrop Grumman Newport

News and General Dynamics’ Electric Boat — already have a joint production agreement. But Northrop Grumman spokesman Randy Belote said it was unlikely the two would form a joint venture. “I don’t see how,” Belote said. “We would have to uncouple our current agreement and there would be costs involved.” With no other companies authorized to build nuclear subs, competitive pressure is absent. That’s not the case in the launch business.

“The Europeans and Russians are launching at competitive prices,” Thompson said.

John Edwards, an industry analyst for the Connecticut-based Forecast International, wonders whether the companies might also be worried about new rivals closer to home.

He cited Space Exploration Technologies (SpaceX), El Segundo, Calif., which soon will launch its first small payloads and eventually intends to offer medium- and heavy-lift services at a fraction of current Air Force costs. SpaceX already has an Air Force contract for the planned summertime launch of the Navy’s small TacSat-1 imaging satellite. Next year, the company is scheduled to loft a medium-sized commercial load for Bigelow Aerospace. SpaceX Chief Executive Elon Musk welcomed the Boeing-Lockheed move.

Instead of battling two domestic competitors, his company would face only one, Musk said. “We expect to be the main player,” he said. “We’re not going to oppose this.”

Venture Details

Dubbed United Launch Alliance, the proposed joint venture would combine Boeing Integrated Defense Systems’ Expendable Launch Systems division with Lockheed Martin’s Space Systems. Engineering and administrative work would be combined at Lockheed’s space systems headquarters in Denver. Most assembly and integration work would be done at Boeing’s manufacturing and assembly plant in Decatur, Ala.

United Launch would employ about 3,800 people in five states — about 1,500 from Lockheed and 2,300 from Boeing. Company officials anticipate cutting an unspecified number of jobs, but no facilities.

Boeing and Lockheed officials expect the joint venture to bring in annual revenues of $1.5 billion to $2 billion. Officials say the move would save the government between $100 million and $150 million a year, but declined to pinpoint where they believe the savings would come from.

The United Launch Alli

Back to article list