Bloomberg News

Musk’s SpaceX Challenges Lockheed-Boeing Rocket Monopoly

April 29, 2014

SpaceX's Falcon 9 Rocket

SpaceX's Falcon 9 rocket blasts off from Cape Canaveral, Florida on October 7, 2012. Photographer: Bruce Weaver/AFP via Getty Images

Billionaire Elon Musk’s Space Exploration Technologies Corp. accused the U.S. Air Force of illegally shutting it out of the market for military satellite launches by giving a Boeing Co.-Lockheed (LMT:US) Martin Corp. joint venture a monopoly on the service.

The government’s contract with the Boeing-Lockheed venture, which uses Russian rocket engines, “funnels hundreds of millions of U.S. taxpayer dollars to Russia’s military industrial base, including monies that may flow to individuals on the U.S. sanctions list,” according to a complaint filed yesterday in the U.S. Court of Federal Claims in Washington.

Competition for military satellite launches, which have an estimated value of $70 billion through 2030, could save taxpayers more than $1 billion a year, Musk has said. Reliance on Boeing-Lockheed’s United Launch Alliance “defers meaningful competition for years to come,” according the SpaceX complaint.

Musk, who is also chairman and chief executive officer of carmaker Tesla Motors Inc. (TSLA:US), told U.S. lawmakers last month that the Boeing-Lockheed venture’s reliance on Atlas V rockets using engines from Russia poses supply risks following that country’s annexation of Crimea in Ukraine. The U.S. yesterday expanded sanctions against Russia in retaliation for the annexation, adding seven individuals and 17 companies linked to the inner circle of President Vladimir Putin.

SpaceX asked the court to order the Air Force to cancel an agreement with ULA for any launch service more than two years in the future. The Hawthorne, California-based company also seeks to have the Air Force conduct “a full and open competition” for new service and to explain any decisions to use ULA service on a sole-source basis.

“The Air Force’s continued use of sole-source orders to ULA violates well-established law,” SpaceX said.

Murky Pricing

The company claims that the service, called the Evolved Expendable Launch Vehicle Program, or EELV, has a murky pricing arrangement that “all but guarantees that no one -- not even the Air Force -- can say precisely how much ULA charges the American taxpayer” for each launch.

Matthew Stines, an Air Force spokesman, declined by e-mail to comment on the suit.

“ULA is the only government-certified launch provider that meets all of the unique EELV requirements that are critical to supporting our troops and keeping our country safe,” Jessica Rye, a spokeswoman for the Centennial, Colorado-based company, said in an e-mailed statement.

The contract with ULA allowed the government to negotiate a block of launches in advance that helped create efficiencies and a dependable supplier, Rye said.

Closely held SpaceX already provides launch services for U.S. agencies, including NASA.

Sole Sourced

“Notably, the Air Force itself has recognized SpaceX’s capabilities, having on two recent occasions opted to purchase launches from SpaceX, just never under the EELV program, which has been sole sourced to ULA since 2006,” according to the complaint.

SpaceX is seeking Air Force certification as a supplier of EELV launch service, a process that requires technical reviews and audits of rockets to be used, ground systems and manufacturing processes, according to the Air Force.

Pentagon officials have asked the Air Force to review whether the use of Russian engines poses a national security risk.

Engine Stockpile

ULA has a two-year stockpile of the Russian engines in the U.S. and “has always maintained contingency capabilities if the supply was interrupted,” Rye said.

Already on the sanctions list is Russian Deputy Prime Minister Dmitry Rogozin, whom the SpaceX suit identified as the head of the Russian space and defense industries.

“Under the ULA contract, the Air Force is sending millions of dollars directly to an entity controlled by Russia and to an industry led by an individual identified for sanctions,” SpaceX lawyers wrote in the complaint.

“These launches should be competed,” Musk told reporters April 25 at the National Press Club in Washington. “If we compete and lose, that is fine. But why would they not even compete it?”

The case is Space Exploration Technologies Corp. v. U.S., 14-cv-00354, U.S. Court of Federal Claims (Washington).

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Fred Strasser


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