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Is This the End of Boeing and Lockheed (in Space)?

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On Thursday, July 21, 2011, at 5:57 a.m., America's last space shuttle landed safely at Kennedy Space Center, bringing to an end to America's manned odyssey in space. 542 million miles traveled, 355 astronauts served, 1,333 days spent in space -- over and out. But what comes next?

Over at Vandenberg Air Force Base in California, PayPal founder Elon Musk is working hard to answer that question. When not busy tinkering under the hood at his Tesla (Nasdaq: TSLA  ) "green" car venture, Musk spends his days working on a muscle car of truly cosmic proportions. His start-up Space Exploration Technologies company ("SpaceX") is taking on the big boys at Boeing (NYSE: BA  ) and Lockheed Martin (NYSE: LMT  ) , and beating their self-titled "United Launch Alliance" (ULA) at its own game.

What's better than "cheap?" Cheaper ... and better
For decades now, Boeing and Lockheed have dominated the race to space. They helped get the space shuttle airborne, and for missions not requiring "boots above the ground," developed heavy launch rockets to loft spacecraft into earth orbit and beyond. Delta IV, Atlas V -- United Launch Alliance's rockets are famed for their ability to lift multi-ton payloads into space.

Recognizing this, companies like Orbital Sciences (NYSE: ORB  ) think that their best chance of breaking into this industry is by targeting a gap in "medium launch" rockets. Indeed, Orbital's "Taurus II" rocket is targeted at just this market niche. Northrop Grumman (NYSE: NOC  ) , its eyes also on the cosmic prize, opted to take a route less traveled -- the "space tourism" market -- when it bought start-up Scaled Composites, maker of SpaceShipOne. SpaceX, however, is undaunted by the "Alliance." With NASA budgets due for a trim, Musk believes SpaceX can beat ULA at its own game by competing on both quality ... and cost.

Already, SpaceX has won contracts to service the International Space Station, and help Iridium Communications (Nasdaq: IRDM  ) put its sat-phone satellites in orbit. Now, SpaceX is preparing a new "22-story Falcon Heavy" rocket for liftoff, hoping to convince NASA that it can do ULA's job even better than the big boys, and at a fraction of the cost. According to the LA Times, Falcon Heavy's revolutionary design and strict cost controls will allow the rocket to carry twice the payload of ULA's biggest rocket, at half the cost -- a mere $100 million or so per launch.

IPO dreams
Of course, "it takes money to make money." In contrast to his Tesla venture, Musk is said to have built a truly profitable business at SpaceX. Still, he's going to need a whole lot of profit if SpaceX is to complete development on Falcon Heavy and get it ready for demo by the end-of-2012 target date. Just getting Vandenberg upgraded to support the liftoff blast will cost $30 million, according to SpaceX. To help with the financing, SpaceX is said to be mulling an IPO that could come as early as this year.

As I said earlier this year, I'm excited at the prospect of investing in an honest-to-goodness profitable IPO like SpaceX -- but I have to wonder whether Boeing and Lockheed will be as pleased at this development. I mean, if they're abandoning the medium lift market to Orbital, you have to figure that's because it's not as profitable for them as the businesses they're remaining in. And if ULA is picking up launch fees two to three times what SpaceX says it will charge for Falcon Heavy, you have to figure heavy satellite launches are profitable indeed.

Now, SpaceX is threatening to take that business away from them. Within less than two years, a business that just lost a major customer in the shuttle program could begin shrinking even further. You see, it doesn't really matter whether SpaceX wins contracts away from Boeing and Lockheed outright, or if it simply forces their prices down by offering lower-cost launches. Either way, ULA loses revenue, and Boeing and Lockheed see their profit margins shrink.

Foolish takeaway
It's no fun to be an incumbent in a profitable business when an upstart disruptor appears on the scene. If Musk and SpaceX are able to make a go of Falcon Heavy, it won't be much fun to be a Boeing or Lockheed shareholder, either. For early investors in the SpaceX IPO, however, it could be one heckuva wild -- and profitable -- ride.

Fool contributor Rich Smith holds no position in any company mentioned. Click here to see his holdings and a short bio.

The Motley Fool owns shares of Iridium Communications, Northrop Grumman, and Lockheed Martin. Motley Fool newsletter services have recommended buying shares of Orbital Sciences. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 04, 2011, at 3:37 PM, WylieH wrote:

    SpaceX doesn't know anything about building and launching vehicles that United Launch Alliance doesn't already know in spades.

    But they do have a younger (cheaper) workforce and zero retirees to pay pension & health benefits. So maybe....

    But if the demand for heavy-lift vehicles drops, no one will get rich.

  • Report this Comment On August 04, 2011, at 4:45 PM, tednugent121221 wrote:

    The Shuttle program was NOT a customer of ULA. Shuttle falls under United Space Alliance, which is a separate entity.

  • Report this Comment On August 05, 2011, at 10:01 AM, SJ00884 wrote:

    As previous poster stated, cost structure is not nearly as burdened, however, SpaceX and their peers are all late and way overrun. Sound familiar? And Orbital still struggles w/heritage hardware.

    Acceleration of Falcon/Dragon testing to dock early w/ISS is a monumental risk given lack of track record. Would be shocked if International partners support.

    In any case, best of luck to the newbies as the current state of USA space program is nothing short of abysmal. STEM indeed.

  • Report this Comment On August 12, 2011, at 3:08 PM, rhoyt wrote:

    I guess I just don't get it. They aren't meeting the safety requirements that are in place to be able to launch their vehicle to the ISS. In order to do that they are going to have to make massive changes to their systems, which are costlier and heavier. What is their business case that they can provide less costly transportation than any of the established launch providers? Also, given the fact that Musk is good at starting things but not necessarily great with ongoing sustainability, how can anyone have confidence that, after he moves on, the company will remain profitable. The analysis just has too many flaws.

  • Report this Comment On August 25, 2012, at 11:44 AM, jumbo2011 wrote:


    Go SpaceX - Go NASA

    Mars here we come!


  • Report this Comment On August 26, 2012, at 2:51 PM, NOTvuffett wrote:

    So far, SpaceX seems like the only serious player in this game.

    Scaled Composites is just a hybrid rocket suborbital launcher. I doubt that there are many people wanting to pay big money to see space for a couple of minutes.

    The effects of weightlessness and cosmic radiation are well known. The former can be mitigated to a large extent, but the latter cannot with our current available technologies. Furthermore, once on Mars, the atmosphere is very thin and there is no magnetosphere, so the cosmic radiation would be high there too. Then it is a long trip back to Earth.

    I sound like Debbie Downer, lol.

  • Report this Comment On August 26, 2012, at 3:18 PM, NOTvuffett wrote:

    Oh, I should say if Boeing and Lockheed Martin were to lose the heavy lift business to the upstarts, I could say 'Lost in Space' without referring to an ancient TV program, lol.

    The robot's designation was 'B9', I found that to be hilarious.

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