Bloomberg News

Lockheed-Boeing Launch Monopoly to Be Ended by Pentagon

December 04, 2012

The U.S. Defense Department plans to open more than a dozen rocket launches to competition, moving to end a monopoly held by a Lockheed Martin Corp.-Boeing (BA:US) Co. joint venture.

The Air Force is authorized to buy as many as 14 booster cores over the next five years from potential challengers such as Space Exploration Technologies Corp., known as SpaceX and headed by billionaire Elon Musk, and Orbital Sciences Corp., Frank Kendall, the Pentagon’s top weapons buyer, wrote in a Nov. 27 memo obtained by Bloomberg News. A booster core is the main component of a rocket.

The service may also buy as many as 36 cores from the Lockheed-Boeing venture over the same period, with an option to purchase the additional 14 from it, if competitors aren’t ready, Kendall wrote. The venture, United Launch Alliance LLC, is the sole supplier of medium- and heavy-lift rockets for military and spy satellites in a program estimated to cost $70 billion through 2030.

“I direct the Air Force to aggressively introduce a competitive procurement environment,” Kendall wrote.

The contracts for newcomers may be awarded as early as fiscal 2015 for missions that can be flown as early as fiscal 2017, Kendall wrote. The missions could still go to the alliance, though, “if competition is not viable at time of need,” he wrote.

Cost Increases

The Pentagon is trying to control rising launch costs. It estimates the program, known as Evolved Expendable Launch Vehicle, will cost $69.6 billion for 150 launches through fiscal 2030. The government’s fiscal year begins Oct. 1.

The average launch cost, including research and development, has more than doubled to $464 million from a previous figure of $230 million, according to the Pentagon.

Driving the increases are “unstable demand for launch services, turbulence in the international civil-commercial launch market and its associated supply base, and a business relationship with the supplier that has not been conducive to controlling costs,” Kendall wrote in a July 12 letter to congressional defense committees.

Also a factor was last year’s retirement of the National Aeronautics and Space Administration’s shuttle fleet, which forced engine suppliers to spread reduced demand over large fixed costs.

‘Good Step’

The joint venture between the government’s two largest contractors -- Bethesda, Maryland-based Lockheed and Chicago- based Boeing -- was created in 2006 to provide reliable and affordable launch services.

Jessica Rye, a spokeswoman for Centennial, Colorado-based United Launch Alliance, didn’t immediately return a phone call and e-mail seeking comment.

“This appears to be a good step as there has been uncertainty about opportunities for competition,” Cristina Chaplain, a Government Accountability Office official who follows military space programs, said in an e-mailed statement. “We will be assessing the implementation of the directive.”

Musk, chief executive officer of Hawthorne, California- based SpaceX, welcomed the Pentagon’s decision.

“This is a watershed moment for the US Government’s national security missions,” he said in a statement. “The United States Air Force should be commended for opening launches to new entrants and restoring competition to the EELV program.”

Resupply Missions

SpaceX in October completed its first of at least a dozen planned resupply missions to the International Space Station under a $1.6 billion contract with NASA. The company lists its Falcon 9 rocket for $54 million per liftoff.

Orbital (ORB:US), based in Dulles, Virginia, has a similar contract with NASA valued at $1.9 billion for at least eight cargo missions to the station. The company plans to offer its new Antares (ANT) rocket for less than $100 million per launch. The rocket is scheduled to make its first flight this month or next.

Barron Beneski, a spokesman for Orbital, didn’t immediately respond to a phone call and e-mail requesting comment.

Separately, SpaceX, Orbital and Lockheed yesterday won seats on a $900 million contract with the Air Force to launch smaller satellites. The deal is part of an effort by the service to set aside at least two missions to certify that the smaller companies are capable of carrying larger national-security payloads.

To contact the reporters on this story: Brendan McGarry in Washington at bmcgarry2@bloomberg.net; Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net


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Companies Mentioned

  • BA
    (Boeing Co/The)
    • $132.78 USD
    • 1.08
    • 0.81%
  • ORB
    (Orbital Sciences Corp)
    • $27.14 USD
    • 0.44
    • 1.62%
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