Thursday, September 10, 2015

Let's Make a Deal

Reuters reported September 8 that “Aerojet Rocketdyne Holdings Inc submitted a $2 cash billion offer to buy United Launch Alliance (ULA), a satellite launch provider jointly held by Lockheed Martin Corp and Boeing Co, sources familiar with the matter said Tuesday, a deal that would further consolidate the space business.”

The report was confirmed by Space News and The Wall Street Journal.

According to the Reuters article:

Aerojet, which acquired Pratt & Whitney Rocketdyne in June 2013, would likely operate ULA as a separate unit, said one of the sources, who said former NASA Administrator Michael Griffin could be tapped to lead the unit.

Asked on Twitter about the report, ULA CEO Tory Bruno responded:

Mr. Bruno has spent his year-plus in office trying to change ULA's corporate culture. The company was created in 2005 as a joint operation by Boeing and Lockheed Martin, which had complained to the federal government they could not remain in business if they had to compete. In 2006, the Federal Trade Commission granted ULA a legal monopoly to ensure the government had guaranteed access to space on expendable rockets.

ULA enjoyed a launch monopoly for nearly a decade. Its monopolistic pricing drive the commercial satellite launch business overseas. Until the arrival of SpaceX at Cape Canaveral, the last commercial satellite launch by ULA at the Cape was in 2009.

SpaceX founder Elon Musk demonstrated that it was possible to operate a launch company like any other competitive commercial enterprise. The commercial satellite industry returned to the Cape, launching on SpaceX Falcon 9 boosters. Some have estimated that SpaceX charges about one-third the price charged by ULA, although ULA CEOs have disputed that calculation.

The March 5, 2014 Senate Appropriations subcommittee hearing on national security space launch programs. Video source: SpaceKSCBlog YouTube channel.

Following Russia's invasion of Crimea, legislation passed by Congress required ULA to phase out its use of Russian RD-180 engines on the Atlas V booster for military payloads. The RD-180 is made by Russian company NPO Energomash, which had a joint partnership with Pratt & Whitney Rocketdyne to produce and sell the engine to ULA. The American company was acquired in 2013 by GenCorp, which recently changed its name to Aerojet Rocketdyne Holdings.

On March 5, 2014, Musk appeared with Bruno's predecessor, Michael Gass, before the Senate Appropriations Defense Subcommittee to discuss military launch access to space. Musk hammered the point that SpaceX engines are made in the United States, while Gass touted ULA's perfect launch record. Musk promoted SpaceX affordability, while Gass emphasized mission assurance.

It was shortly after this hearing that Mr. Gass was relieved at ULA by Mr. Bruno.

In April 2015, Bruno announced ULA would replace the Atlas with a new booster called Vulcan. The primary choice for engine would be the Blue Origin BE-4 under development, which would use liquid oxygen (LOX) and liquefied natural gas. To hedge its bets, ULA also commissioned Aerojet Rocketdyne to build the AR-1, which relies on the more traditional combination of LOX and RP-1 kerosene.

Should Aerojet Rocketdyne acquire ULA, it would suggest that the Blue Origin engine project might be cancelled. The Vulcan might be cancelled too; it is reviewed quarterly by Boeing and Lockheed Martin.

In April, Bruno ridiculed Aerojet Rocketdyne claims that the AR-1 could be ready by 2018. In an Aviation Week interview, Bruno said, “They believe that they can do some clever things with new materials in additive manufacturing and analytical models that shorten the development cycle from what we have traditionally experienced. I believe that they are overly optimistic. It is our assessment that they are 1-2 years behind Blue Origin at this time.”

SpaceX became vulnerable on June 28 when the Falcon 9 upper stage failed during a commercial cargo launch, bolstering ULA's argument that its boosters, while expensive, are more reliable. But the requirement to phase out the RD-180 engine without any immediate replacement available, along with aggressive SpaceX competitive pricing, have brought ULA's raison d'être into question.

ULA was created specifically so two OldSpace companies could enjoy a generous government contract with no competition. That time has gone.

So it may be that Boeing and Lockheed Martin are looking for an exit strategy rather than choosing to compete with SpaceX, Blue Origin and other emerging launch companies, not just in the U.S. but around the world.

The OldSpace companies spend tens of millions of dollars each year lobbying Congress to protect their interests.

Although Aerojet Rocketdyne has a lobbying presence on Capitol Hill, the money it spends chasing federal dollars pales in comparison to ULA's parent companies.

According to, in 2014 Boeing made $2.2 million in campaign contributions to federal candidates, and spent $16.8 million on lobbying. Lockheed Martin made $2.6 million in campaign contributions to federal candidates, and spent $14.6 million on lobbying.

GenCorp in 2014 made only $136,000 in 2014 campaign contributions to federal candidates, and spent $1.1 million on lobbying.

Contrast these with SpaceX, with $192,000 in campaign contributions and $1.5 million on lobbying.

If Boeing and Lockheed Martin sell ULA to Aerojet Rocketdyne, that's far less ULA muscle prowling the halls of Congressional office buildings trying to strongarm launch business for their client.

Aerojet's main shareholders are largely investment and trust companies, with GAMCO Investors owning the most shares at 12.7%. According to, GAMCO made $25,000 in campaign contributions in 2014, and has no lobbyists on the Hill.

So if Boeing and Lockheed Martin choose to sell ULA, expect a much more even playing field for NewSpace in competing for government contracts.

UPDATE September 11, 2015ULA Issued a press release yesterday announcing “ the signing of an agreement to expand production capabilities for the American-made BE-4 engine that will power the Vulcan next generation launch system.”

"This agreement gets us closer to having an affordable, domestic and innovative engine that will help the Vulcan rocket exceed the capability of the Atlas V on its first flight and open brand new opportunities for the nation’s use of space,” said Tory Bruno, president and chief executive officer of ULA. "This partnership enables each company to leverage its strengths, with ULA bringing production excellence and mission assurance, and Blue Origin bringing innovative engineering concepts and a commitment to lowering the cost of spaceflight."

"The BE-4 engine test program is well underway with more than 60 staged-combustion tests already on the books," said Jeff Bezos, founder of Blue Origin. "This new agreement is an important step toward building BE-4s at the production rate needed for the Vulcan launch vehicle."

Read into this what you will.

The Wall Street Journal reports that Boeing and Lockheed Martin “differ on whether to sell their equal stakes in the joint venture, according to people familiar with the details.”

UPDATE September 16, 2015Space News reports that two Boeing executives have dismissed Aerojet Rocketdyne's proposal to buy ULA.

“ULA is a huge part of our strategic portfolio going forward along with our satellites and manned space business. This bid we’ve really not spent much time on it at all because we’re focusing on a totally different direction,” Chris Chadwick, president and chief executive officer of Boeing Defense, Space & Security told reporters Sept. 16 at the Air Force Association’s annual technology expo in National Harbor, Maryland.

Craig Cooning, president of Boeing Network and Space Systems, speaking in Paris at Euroconsult’s World Satellite Business Week conference, made similar remarks Sept. 16, saying ULA’s parent companies aren’t taking the bid seriously. Cooning currently holds the chairmanship of ULA’s board of directors, a position that rotates between Boeing and Lockheed.

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