Why Elon Musk Is in Hot Water With the Head of Air Force Space Command

F9 lifting off from Cape Canaveral. Photo credit: SpaceX.  

If you own a business, and want it to be successful, I'm guessing a good policy to establish is: Don't infuriate your customer. Unfortunately for Elon Musk, and SpaceX, this advice may come a little too late, as at this year's National Space Symposium, the head of Air Force Space Command, Gen. William Shelton, pointedly told Breaking Defense, "Generally, the person you are doing business with you don't sue."  

On the flip side, Gen. Shelton's remarks could be seen as good news for Boeing (NYSE: BA  ) and Lockheed Martin's (NYSE: LMT  ) 50-50 joint venture, United Launch Alliance, or ULA.

Did Musk misstep?
As Breaking Defense reported, Gen. Shelton was "clearly frustrated -- at the least," with SpaceX's lawsuits.  More importantly, Gen. Shelton personally wants the U.S to develop a new rocket engine to replace the RD-180 currently imported from Russia, and used in the Atlas V -- obviously, not the best news for Musk or SpaceX. 

Further, Shelton went so far as to remind SpaceX that the Air Force is spending $60 million on certifying the Falcon 9 rocket, and said that the Russian government hasn't informed anyone in the U.S. of a sales embargo on RD-180 engines -- the hint of a Russian embargo is the result of a tweet from Dmitry Rogozin, and not of an official notification.  Plus, Shelton said members of Congress also support the building of a new rocket engine, and have pledged to find money to support the venture.

What this means

A United Launch Alliance Delta IV heavy rocket, the largest to ever launch from the West Coast of the United States. Photo: United States Air Force via Wikimedia Commons.

As I previously wrote, the launch of payloads into space is worth a significant amount for both Lockheed and Boeing -- in 2013, ULA accounted for 29% of Lockheed's $1.04 billion space systems' operating profits; and in 2013 Boeing reported $171 million in equity earnings from its ULA joint venture share. Obviously, SpaceX wants a piece of that pie.  

However, as of this writing, SpaceX isn't certified by the Air Force to launch military payloads under the block-buy contract; Boeing reports that ULA already has enough RD-180 engines for the bulk-buy; and, SpaceX might have missed the 90-day right-to-complain window.

More importantly, Musk and SpaceX seem to have thoroughly frustrated their would-be customer. Yes, Boeing successfully protested the Northrop Grumman-European Aeronautical Defense and Space's tanker win, but keep in mind that Boeing had a longstanding relationship with the Air Force before the protest -- SpaceX is a relative newcomer to the defense industry, and tarnishing its just-budding relationship with the Air Force might have long-term ripple effects.

What to watch
Right now, Musk and SpaceX's protest is in the Court of Federal Claims; ultimately, the court will decide on the merits of SpaceX's lawsuit. Regardless of what it decides, SpaceX has clearly upset a four-star general, and the current head of Air Force Space Command. Given how political, competitive, and frankly lobbyist-filled, defense contracts can be, lets hope Musk keeps this in mind. A rocket that could save taxpayers $300 million per launch sounds fantastic, but Musk might not have the chance to make good on his word if he pushes the Air Force too far. Of course, that'd be great news for Boeing, Lockheed Martin, and ULA. 

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Comments from our Foolish Readers

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  • Report this Comment On May 25, 2014, at 11:59 AM, tharris789 wrote:

    So the government would rather work with Russia who is threatening us with military action, rather than Elon Musk a resident genius of the United States who wants to discount the cost to the taxpayers and operate more efficiently? The 4-Star General should not piss off the taxpayers who cut his paycheck.

  • Report this Comment On May 25, 2014, at 12:33 PM, cobraman69 wrote:

    Well said @tharris789! To bad if General Shelton is 'clearly frustrated'. If you're not playing on a level playing field then a company like SpaceX has no choice but to sue. I for one am glad SpaceX sued. It has brought this issue of no-bid government contracts directly into the light and now everyone sees it for what it really is and the good ol boy network needs to change. This isn't just about SpaceX, there are a host of other rocket companies that will need this door to be more open for them to compete as well.

    Remember, General Shelton, you work for the people of the United States now, not for the potential of having some lucrative private sector job in the future when you retire!

  • Report this Comment On May 25, 2014, at 12:48 PM, Chishiki wrote:

    Why would the US government even pay ULA a penny to develop a new engine. With the profits they have been getting for years, they should have diverted some to improving their rocket. After all, all commercial travel vehicles use their own money to improve their vehicle further.

  • Report this Comment On May 25, 2014, at 1:19 PM, Stelios22 wrote:

    Basically your article states that the Air Force uses a buddy system for its procurement, and Elon Musk should've waited for some scraps, or perhaps bribed his way into more, rather than demanded fairness. It's funny because we often accuse other countries of "corruption," often meaning exactly what we are seeing here.

  • Report this Comment On May 25, 2014, at 3:38 PM, SaveNASA wrote:

    This Blog covers Mr. Musk's Pac money http://savenasablog.wordpress....

    It's a good read and should open some eyes!

  • Report this Comment On May 25, 2014, at 7:14 PM, phillipzx3 wrote:

    'The 4-Star General should not piss off the taxpayers who cut his paycheck."

    I concur.

  • Report this Comment On May 25, 2014, at 8:16 PM, Robsullivansux wrote:

    Tharriss, come on Tripp you work for SpaceX, as did I. You know that Elon is going to piss enough people off, to the point where people dont want to work with him regardless of savings. He needs to sit back and let the Air Force certify you guys, then go through the appropriate channels to get the payloads, not start threatening the Air Force, and the people he wants to work with. Elon is smart no doubt, but it seems he has become accustomed to telling people what to do, instead of listening to what he needs to do for the companies longevity.

  • Report this Comment On May 25, 2014, at 9:11 PM, BoogieBoo wrote:

    I can understand the General's frustration. The advice he quoted, to "not sue you customer" may indeed be true. It also may be true that he is spending $60 million of our tax dollars to certify Space X's Falcon 9 launch vehicle. But that does not refute any of Elon's arguments, such as:

    "This exclusive deal unnecessarily costs U.S. taxpayers billions of dollars and defers meaningful free competition for years to come. We are simply asking that SpaceX and any other qualified domestic launch providers be allowed to compete in the EELV program for any and all missions that they could launch.”

    Well said Elon. What does the General have to say about that?


  • Report this Comment On May 25, 2014, at 9:29 PM, OSXX wrote:

    Why are we buying from the Russians? this General should be fired!

  • Report this Comment On May 25, 2014, at 9:40 PM, MrrVlad wrote:

    There was a recent scandal in Russia when a company was awarded a government contract to repair a country road at more than 5X rate of building a new auto-bahn class highway.

    I really hope similar things are less frequent in this country...

  • Report this Comment On May 25, 2014, at 9:47 PM, Syzzleman wrote:

    Nonsense - this is exactly the kind of shake up the launch industry needs and especially the military. As for developing a new engine, SpaceX will make a mockery of anything Boeing / Lockheed or anyone else comes up with. They'll do it at a fraction of the cost in a quarter of the time on their own dime and put them all to shame. Lets face it, Musk is the best thing to happen to the aerospace industry in decades. Iron Man is here to stay - get use to it.

  • Report this Comment On May 25, 2014, at 10:26 PM, RetColonel1999 wrote:

    The lack of understanding of the government procurement system displayed here is probably not surprising, but it is unfortunate. The USAF procurement executive is the one responsible for major USG contracts, not General Shelton. He is the chief "operator" of the launch systems purchased by the Air Force. As such, he has a critical mission to execute -- launching critical National Security payloads from Vandenberg AFB and Cape Canaveral. Every significant impediment to meeting his mission is frustrating, not just the annoyance of Mr. Musk.

    Eighteen years ago, as the chief of current operations at Space Command, we were tasked with the review of contractor offerings for the EELV program. The men and women of both Lockheed and Boeing served the nation well in their Atlas IV and Boeing V vehicles. We owe them a debt of gratitude. We also owe the nation a careful look at launch vehicles for the future. That process is now ongoing for SpaceX. Now, as we in the USAF recognized in 1996, US national security demands a main rocket engine capable of delivering our heaviest payloads into space. It's taken years for the USAF and DOD space communities to convince the Hill to fund a new engine. We can now thank Mr. Putin for helping ensure that funding will now finally come.

    General Shelton is a dedicated guy doing his best to do his job. Critics should focus their criticism where it belongs. That place is not in Colorado Springs.

    For those who don't know the history of the RD-180 engine, I recommend Google. I hate to say that when the engine was first displayed in the halls of the Broadmore Hotel during the annual Space Symposium in the early 90s, most of us in uniform recognized we were headed toward a possible policy disaster. Frankly, I can't see any reason for Mr. Musk to make the task more difficult. (And I didn't accept the offer his company made to me yesterday to put his solar cells on my house, for free.)

  • Report this Comment On May 26, 2014, at 1:26 AM, Mcbeese wrote:

    Sorry, you've got it all wrong.

    The US Military is NOT the customer – they work for ME... an American taxpayer.

    Elon Musk understands this and I thank him for making this corruption visible. The Military Industrial Complex clearly doesn't think of me as a shareholder.

    Sounds like we need to elect government reps who will clean up this corruption.

  • Report this Comment On May 26, 2014, at 1:48 AM, wchiou wrote:

    Well, Mcbeese is absolutely right about the so-called "Military Industrial Complex" created, I believe, by General, sorry, "PRESIDENT" Dwight D. Eisenhower who told his generals to play golf with those big wegs from big corps at that time so that they could be more "familiar" with each other. Anyway, I do not know whether General Sheldon plays golf or not. If he does, perhaps some reporters can tell us who he normally plays with?

  • Report this Comment On May 26, 2014, at 2:12 AM, newguy98 wrote:

    @RetColonel1999 Why do we need to fund the development of a new engine when SpaceX already has a working rocket capable of going into High earth orbit and dock with ISS, satellites only need to hit low earth orbit, the falcon heavy can lift 2x the payload of any rocket in service .

    ULA just wants more $$$$$$ thrown at it so it can develop this engine at more cost to the taxpayers. Sick of this croynism. ULA never went through a certification process, they were grandfathered into the program through Boeing and Lockheed.

    Also General Shelton works for us, the American people. It is our money not his, we are the customer. He doesn't get to give out favors to insure a VP level job when he retires like his buddy Roger Correll

  • Report this Comment On May 26, 2014, at 6:04 AM, ncoros wrote:

    @RetColonel1999 Either you are padding your credentials or you are lowering your rank since a General of some fashion is given the position of Chief of Current Operations at Space Command.

    The points you make are still valid but seem to miss the point that General Shelton is misplacing his frustration by blaming Musk. Instead he should be frustrated with the Procurement officials for putting him in this position. Instead of leading Space Command and insuring it operates efficiently, as the General is tasked to do, he is instead using his position to deflect blame and cover up the flaws in his organization. The Air Force is in dire need of a house cleaning as this and the recent Nuclear Readiness tests have shown. Nowadays they seem more concerned with protecting themselves than they do the nation.

  • Report this Comment On May 26, 2014, at 8:20 AM, Public wrote:

    The government and defense contractors sue each other all the time. Costs are high with the changes to specifications. If an honest and transparent investigation were ever to be held (I highly doubt it), I'm confident that favors and egos are behind many of the decisions. The "people in charge" need to realize they work for us.

  • Report this Comment On May 26, 2014, at 12:52 PM, trebzak wrote:

    Every branch/agency of the US military has a love/hate relationship with their 1st-tier suppliers, and the 1st-tier suppliers have a love/hate relationship with their 2nd-tier suppliers, and so on. Before long the Air Force Space Command (AFSC) will have to admit that they NEED Elon Musk in the mix of their suppliers. The law suit will should guide AFSC to that recognition of need sooner rather than later. And we need it to be sooner.

  • Report this Comment On May 26, 2014, at 2:15 PM, jake1730 wrote:

    “Generally, the person you are doing business with you don’t sue.”

    Generally, you don't tell a potential supplier that they can do business with you and open up a certification process costing that company great expenditures and then just as they are about to cross the finish line completely close them out of any meaningful business for the foreseeable future!

    The timing of General Shelton's comments and his frustrations seeing that he is retiring in a few short months is beyond suspicious to say the least!

    For the Air Force to have signed a Cooperative Research and Development Agreement, or CRADA, on June 7, 2013 with SpaceX only to effectively shut SpaceX completely out of any meaningful business for the foreseeable future was certainly ambiguous and the Air Force opened themselves up to this...

    Their Frustration should solely be with themselves!

    Also, for the Air Force to be spending $60 Million in tax dollars to certify a company they don’t intend to use... in my mind Screams of more wastefulness of my hard earned tax dollars for nothing more then a façade!

    What the Air Force and ULA tried to do is make an End Run before SpaceX got certified! SpaceX scares ULA to Death because they simply can’t compete with SpaceX especially when the Falcon Heavy comes online!

    The Best Disinfectant is Letting the Sunlight Shine on this which has now been done!

    There was absolutely no loss to be had here for SpaceX and this article completely fails to see the Bigger Picture here!!!

  • Report this Comment On May 26, 2014, at 7:41 PM, NextStepsByKurt wrote:

    In life, timing is important.

    If memory serves me correctly, ULA and the Air Force closed their Billion$ contract in December 2013.

    In the planning time frame of March-May 2014 (known months in advance by the respective parties), SpaceX made the third required, successful launch.

    Why couldn't the respective parties have waited a couple of months to see if SpaceX would make the cut? What pressures were these parties under to make such a deal so quickly?

    In light of the recent F35 program (and other similar procurement programs of the past), this would have been a trivial time to wait, but would have had a potentially tremendous upside in many different ways to the taxpayer.

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Katie Spence

Katie Spence has been a financial journalist for The Fool since 2011. She specializes in defense companies, “green" technology, autos, and robots. Follow her on Twitter for breaking news in the defense, auto, and robot industry.

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