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

Will Musk’s lawsuit ruin SpaceX’s future with the United States Air Force?

May 25, 2014 at 11:33AM

F

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

Delta

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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Katie Spence owns shares of Northrop Grumman. The Motley Fool owns shares of Lockheed Martin and Northrop Grumman. 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.

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