Bloomberg News

Musk’s SpaceX Blocks Russia Rocket Sales to U.S. Air Force (2)

May 01, 2014

Billionaire Elon Musk’s Space Exploration Technologies Corp. won a court order temporarily blocking a Boeing Co (BA:US).-Lockheed Martin Corp. (LMT:US) venture from buying Russian-made rocket engines for the U.S. Air Force because they may violate sanctions imposed after the takeover of Crimea.

U.S. Court of Federal Claims Judge Susan Braden in Washington halted the engine sales until she receives opinions from the U.S. departments of Treasury, Commerce and State that they don’t violate President Barack Obama’s March 16 sanctions against Russian Deputy Prime Minister Dmitry Rogozin, who heads the country’s defense and space industries.

Braden’s ruling, from a court that normally deals with contract issues, is unusual because it provides relief that SpaceX didn’t explicitly request and because it calls for other branches of government to express opinions, said Dan Gordon, associate dean of government procurement law studies at the George Washington University Law School.

Braden “has in a number of cases said that she wants statements from other government agencies,” said Gordon, the former head of the contract bid-protest unit at the Government Accountability Office. “I don’t recall any other federal judge doing that.”

Psychological Boost

While the ruling probably gives SpaceX a psychological boost, it’s outside the core of the case, which is a protest of the Boeing-Lockheed alliance contract to provide launch services for military satellites, Gordon said.

SpaceX sued April 28, accusing the Air Force of illegally shutting it out of the military satellite launch business by giving a monopoly to the Boeing-Lockheed venture, known as United Launch Alliance LLC.

ULA has a contract for satellite launches through 2017. SpaceX asked Braden to cancel ULA launches that are scheduled after the next two years -- allowing for the time it takes to set up a launch.

The company, saying in its complaint it seeks “merely the opportunity to compete,” asked the judge to order the Air Force “to conduct full and open competition” for launch projects.

Competition for military satellite launches, which have an estimated value of $70 billion through 2030, could save taxpayers more than $1 billion a year, according to Musk.

Deeply Concerned

SpaceX’s objection to Russian involvement “ignores the potential implications to our national security and our nation’s ability to put Americans on board the International Space Station,” Kevin MacGary, ULA general counsel, said in a statement today.

“ULA is deeply concerned with this ruling and we will work closely with the Department of Justice to resolve the injunction expeditiously,” MacGary said.

Allison Price, a Justice Department spokeswoman, declined to comment on the ruling.

The National Aeronautics and Space Administration uses Russian Soyuz rockets to get astronauts to the space station after having ended its shuttle program in 2011.

That dependence was not lost on Rogozin, who responded to an expansion of U.S. sanctions on April 29 with this posting on Twitter:

“I suggest the U.S. delivers its astronauts to the ISS with a trampoline”

It’s not clear what, if any, impact Braden’s ruling will have on ULA operations. The alliance will continue “assuring the safe delivery of the missions we are honored to support,” MacGary said.

Two-Year Inventory

ULA has a two-year inventory of the Russian engines in the U.S., according to Jessica Rye, a spokeswoman for alliance.

Treasury and Commerce department representatives declined to comment on Braden’s request for an evaluation of transactions involving engine-maker NPO Energomash, a company owned by the Russian government. The State Department didn’t respond to a request for comment.

ULA unit United Launch Services, which holds the contracts being challenged, characterized SpaceX as a passive bystander since 2012 as the Air Force announced its need for launch service, decided on ULA as the sole provider and worked out contract details.

“While SpaceX sat on its hands, ULS incurred extraordinary bid and proposal costs, accepted substantial risk in ordering long-term lead items” and has been performing on contract for 10 months, according to a court filing. ULS yesterday asked for and received permission from Braden to participate in the lawsuit.

Purchase Orders

Braden’s temporary order doesn’t cover purchase orders placed or money paid before yesterday.

Musk, who is also chairman and chief executive officer of carmaker Tesla Motors Inc. and has an estimated net worth of $9.8 billion, according to the Bloomberg Billionaires Index, told U.S. lawmakers in March that the use of the Russian engines in ULA’s Atlas V rockets poses supply risks after that country’s invasion of Crimea. The U.S. has ratcheted up its sanctions against Russia in retaliation for the annexation.

In addition, reliance on ULA “defers meaningful competition for years to come,” according to SpaceX’s complaint. Closely held SpaceX, based in Hawthorne, California, already provides launch services for some U.S. agencies, including NASA.

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

To contact the reporters on this story: Andrew Zajac in Washington at azajac@bloomberg.net; Andrea Tan in Singapore at atan17@bloomberg.net

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


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Companies Mentioned

  • BA
    (Boeing Co/The)
    • $127.76 USD
    • 0.44
    • 0.34%
  • LMT
    (Lockheed Martin Corp)
    • $178.8 USD
    • 1.61
    • 0.9%
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