Bloomberg News

Musk Jab at Rival Shows U.S. Space Reliance on Russia

March 18, 2014

MUSK SENATE

Elon Musk, co-founder and chief executive officer of Tesla Motors Inc. and Space Exploration Technologies Corp. (SpaceX), left, speaks to members of the media following a Senate Appropriations subcommittee hearing in Washington, D.C., U.S., on Wednesday, March 5, 2014.

Chief executive officers ordinarily don’t trash talk their competitors in front of Congress. Elon Musk is no ordinary CEO.

The billionaire wants to break into a $70 billion Pentagon satellite launch market monopolized by a Lockheed Martin Corp (LMT:US).- Boeing Co. (BA:US) joint venture. Testifying before U.S. lawmakers on March 5, he warned that the team’s dependence on Russian rocket engines poses supply risks.

Musk’s remarks underlined concerns about U.S. reliance on Russia in space, which have been heightened by the crisis in Ukraine. More than four decades after landing the first man on the moon, the U.S. finds itself in a humble position: It pays Russia for rides to the International Space Station and uses its engines to launch military and spy satellites.

“We won the race and then didn’t know what the heck to do with ourselves,” said Chris Quilty, an analyst with Raymond James & Associates in St. Petersburg, Florida. “The U.S. space program has been floundering literally for the past 30 years without a discreet purpose.”

Musk, 42, owner of Hawthorne, California-based Space Exploration Technologies Corp. and co-founder of electric carmaker Tesla Motors Inc. (TSLA:US), has highlighted those lapses.

“It’s just kind of embarrassing that the United States has to thumb rides from the Russians,” he said in a Bloomberg Television interview earlier this month.

Ukraine Tensions

As the Ukraine conflict intensified, Musk told a Senate subcommittee that Pentagon satellite launches by United Launch Alliance LLC, the venture of Chicago-based Boeing (BA:US) and Bethesda, Maryland-based Lockheed (LMT:US), might be at risk under U.S. sanctions against Russia.

President Barack Obama yesterday imposed sanctions on 11 Russian and Ukrainian officials, selecting figures close to Russian President Vladimir Putin. He warned that Russia will face more penalties if it doesn’t pull back from Crimea.

Musk recommended that the U.S. phase out the alliance’s Atlas V Rocket, which uses the Russian engines, for the “long-term security interest of the country.” His rockets, he said, are completely made in the U.S.

Space Exploration Technologies, known as SpaceX, is one of several companies trying to fill the void created after the U.S. retired its shuttle fleet in 2011 and began depending on Russia and other countries to ferry astronauts and supplies to the space station.

Cargo Runs

In 2012, SpaceX became the first to dock a private supply ship at the space station, and it is now making regular cargo runs under a $1.6 billion contract with the National Aeronautics and Space Administration. Its ambitions include developing a vehicle capable of transporting astronauts and getting a piece of United Launch Alliance’s military work.

There’s little chance that tensions over Ukraine will affect the space station, because the U.S., Russia and other countries rely on each other to keep things running, argued one industry group spokesman.

“There’s an ongoing cooperation there that’s separate and apart from any other things that are going on in the world,” said Dan Stohr, a spokesman for the Aerospace Industries Association, an Arlington, Virginia-based trade group.

Last year, NASA agreed to pay Russia $424 million to ferry six crew members to the space station in 2016 and provide related services, according to an agency press release.

“NASA and its Russian counterpart, Roscosmos, have maintained a professional, beneficial and collegial working relationship through the various ups and downs of the broader U.S.-Russia relationship, and we expect that to continue,” Trent Perrotto, an agency spokesman, said in an e-mail.

Pentagon Review

NASA may award contracts this year to U.S. companies to transport crew to the station by 2017, “ending our sole reliance on Russia to get into space,” he said.

The dependence on Russian engines may be a bigger issue.

Defense Secretary Chuck Hagel told a congressional panel last week that Russia’s actions will lead the Pentagon to review the use of Russian-made engines on Atlas V rockets.

United Launch Alliance wound up using Russia’s engines because they were more advanced and cheaper than what was available in the U.S., Michael Gass, chief executive officer of the joint venture, told senators during the subcommittee hearing on March 5. Those engines are employed in one of two rockets used for military satellite launches.

“We have kind of fallen behind in advanced technology,” Gass said. “When we went to Russia, there were things that they were doing,” he added, that “our textbooks said was impossible.”

Engine Blueprints

Even if Russia stopped exporting the engines, the venture has enough of them for at least two years of launches and has blueprints to build more if necessary, he said.

It might not be possible to domestically produce the engines fast enough to “avoid a gap in the rocket’s availability,” analyst Quilty said.

The Boeing-Lockheed venture isn’t the only U.S. contractor turning to Russian rocket engines.

Orbital Sciences Corp. (ORB:US) uses them to power its Antares rocket for cargo runs to the space station. The company doesn’t expect disruptions, said Barron Beneski, a spokesman for the Dulles, Virginia-based company. He said there are enough of the engines in stock to handle all the missions into 2015.

‘Held Hostage’

Two companies vying with SpaceX for a NASA commercial crew program -- Boeing (BA:US) and Sparks, Nevada-based Sierra Nevada Corp. - - may also find themselves relying on Russian engines, because of their plans to use Atlas V rockets, said Marcia Smith, a former director of the space studies board at the National Research Council and now editor of Arlington, Virginia-based spacepolicyonline.com.

Even so, mutual dependencies in space may make this one area that’s immune to disagreements on the ground.

“The Russians are making money off these sales,” said Marco Caceres of the Fairfax, Virginia-based Teal Group. “It would make sense from a political standpoint to snub us, but from a financial standpoint, it’s not so good.”

To contact the reporters on this story: Kathleen Miller in Washington at kmiller01@bloomberg.net; Jonathan D. Salant in Washington at jsalant@bloomberg.net

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


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