Things are finally looking up for Tesla boss Elon Musk -- and for his privately held space exploration firm, SpaceX.
SpaceX has won lucrative contracts from NASA to keep the International Space Station well-supplied with Tang and toilet paper. Soon, it could be launching rockets for the U.S. Air Force as well. Photo: Wikimedia Commons
In an interview with Auto Express magazine this week, Musk announced that Tesla is definitely going to have its latest electric car model, the Model 3, out for sale by 2017, and at a $35,000 price tag that should make it a viable competitor to BMW's 3-series among entry-level luxury-car buyers. But the even bigger news for Musk is this: SpaceX may very soon be going to work for the United States Air Force.
They like you, Elon! They really like you!
In a brief, to-the-point announcement on its website last week, SpaceX confirmed that the U.S. Air Force has just "certified" that SpaceX's Falcon 9 rocket has completed three successful flights. (SpaceX has actually completed quite a few more than just "three" missions -- but not all of them bore the U.S. Air Force seal of approval). With this trophy finally in hand, SpaceX should soon be eligible to receive USAF contracts awarded under the Evolved Expendable Launch Vehicle (EELV) Program.
A few other I's remain to be dotted, and T's crossed, before the certification process is completed. But SpaceX says it's now likely to complete certification before the end of this year.
The SpaceX Falcon 9 rocket: Ready for liftoff. Photo: SpaceX
What it means to taxpayers
Launching U.S. government satellites is big business -- and it costs U.S. taxpayers big bucks. In testimony before Congress earlier this year, Musk pointed out that right now, the Air Force is paying the United Launch Alliance joint venture between Boeing (NYSE: BA ) and Lockheed Martin (NYSE: LMT ) a $1 billion-a-year retainer just to stand ready to loft satellites into space for it.
That's $1 billion -- whether ULA actually launches any satellites or not. And if it does happen to launch a satellite, ULA gets another $380 million per launch.
SpaceX thinks it can do the same work for as little as $100 million per launch -- a 74% discount to ULA's price. If it's right, then competitive bidding for EELV contracts, with SpaceX in the mix, could save U.S. taxpayers as much as $50 billion out of planned $70 billion in anticipated costs for the Pentagon's space launches over the next 15 years.
What it means to investors
Of course, that would be $50 billion coming out of ULA's pocket. Not good news for investors in Boeing and Lockheed Martin. And the news for Boeing and Lockheed shareholders might be even worse than that.
Earlier this week, Forbes published a column by aerospace analyst Loren Thompson (who counts Lockheed as a client, and Boeing as a contributor to his think tank). In it, Thompson warned that in certifying SpaceX to run EELV projects, the Air Force risks creating a new space launch monopoly -- one without ULA in it.
The reason: The U.S. Senate is currently considering legislation that Thompson says "would effectively bar ULA from the military launch market." It would do so by forbidding the award of Pentagon space launch contracts to ULA based on that firm's reliance on Russian engines to power its Atlas V rockets. (ULA's other primary launch vehicle, the Delta IV, also incorporates Russian technology, arguably disqualifying it, as well, from EELV launches under the pending legislation).
If this legislation passes, there's at least a chance that America's space launch monopoly could undergo a pendulum shift -- from ULA getting all launch contracts, to ULA getting none, and all work going to SpaceX.
ULA's Atlas V rocket. Ready for retirement? Photo: Wikimedia Commons
Foolish takeaway
Is this a realistic scenario, and would it necessarily be fatal to Boeing and Lockheed Martin? Personally, I think Thompson's theory sounds a bit far-fetched -- and even in the worst case, only temporary.
After all, the whole idea behind the Air Force working to get SpaceX certified to compete for EELV was to reintroduce competition into space launch bidding. It's unlikely that Congress would derail this plan by accident, as Thompson says might happen. But even if it did, Lockheed Martin has already accelerated its efforts to develop a new rocket engine that would not rely on Russian technology -- and expects to have it up and running by 2019.
Meanwhile, ULA says it's already well-stocked with sufficient Russian rocket engines to keep it in business through 2016. So the worst-case scenario for Boeing and Lockheed Martin investors is that -- even assuming a catastrophic failure of legislative judgment by Congress -- the companies would only lose a few years' worth of contracts, specifically, the years between when their supply of RD-180 rockets runs out, and when they have a replacement rocket engine ready to fill the gap.
SpaceX seems to have fared pretty well without Pentagon support these past few years. I suspect Boeing and Lockheed Martin would survive the blow as well.
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Ah, but can Boeing and Lockheed survive the onslaught from SpaceX's mighty "Grasshopper?" That's the real question. Photo: SpaceX
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Report this Comment On July 20, 2014, at 1:16 PM, SgtStedanko wrote:
There's a lot of room in space...
Report this Comment On July 20, 2014, at 5:00 PM, ricjensen wrote:
Elon Musk got here with his own money and vision.
He has already "Knocked Them Out".
The question is will they be capable of regaining their seat at the table because of performance and innovation. Or, will political connections and "other peoples money" win out.
Report this Comment On July 20, 2014, at 11:07 PM, Johnny04 wrote:
If he completely knocks them out, it would be a disservice to mankind. The goal should be to increase the competition and expand the industry.
Report this Comment On July 21, 2014, at 7:27 AM, ilsm50 wrote:
SpaceX has 3 launches on a NASA contract.
Competiton with LMT-BA is a good thing.
However, I do not see SpaceX as much different than any other cost plus vendor at the pentagon trough.
Report this Comment On July 21, 2014, at 2:58 PM, rocketguy wrote:
Boeing and Lockheed are aging dinosaurs too fat and senile to adapt to change. Where they use to lead they follow. SpaceX is part of the New Space movement that will see explosive growth, innovation and energy returning to the country as we finally venture out beyond our front door...
Also, SpaceX doesn't do cost plus contacts rather fixed price which is one way they are going to drive ULA out of business and save taxpayers tens of billions in the process or force them to get off their lazy butts and actually innovate rather than whine, lobby and pull every sleazy trick in the book to try and block real competition...
Report this Comment On July 22, 2014, at 7:30 PM, markmevans wrote:
@ism50 SpaceX has a lot more than 3 launches on a NASA contract. They have a $5 billion backlog of commercial launches and they're investing huge amounts of their own money in launch pads in CA, TX, and FL with the goal of grabbing 50% of the world's commercial launches. The are already the least expensive launch provider in their class, and they are investing their own money in developing reusable rockets and a "heavy" launch vehicle which will be able to compete with all existing launch providers.
They are also self-funding the development of rocket engines for rocket that will be bigger than the Saturn-V and capable of delivering cargo and humans to Mars. SpaceX thinks big, and they put their money where their mouth is.
As far as cost plus goes, they don't bid cost plus. They bid fixed price. For instance, they carry more cargo to the ISS than their commercial competitor, return cargo to Earth which no one else is capable of at the moment, and they do it for less money.
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