"History doesn't repeat itself, but it does rhyme." -- attributed to Mark Twain
And over at Boeing (NYSE:BA), "history" looks like it's about to rhyme with "misery" for the one-time space monopolist.
As you may recall, Boeing (in the form of United Launch Alliance, its joint venture with Lockheed Martin (NYSE:LMT)) was forced to bow out of an Air Force competition to launch a GPS III satellite into orbit last year. ULA's withdrawal was partly Congress' fault, inasmuch as Congress had briefly enacted a law forbidding the use of rockets utilizing Russian RD-180 engines for national security space launches. But it was also Boeing and Lockheed's fault for continuing to rely on Atlas V rockets built around the Russian RD-180 engines.
Ultimately, Boeing and Lockheed were able to convince Congress to lift the ban on RD-180s, but not before the GPS III contract -- and $82.7 million -- were awarded to SpaceX instead. And now it looks like something similar is about to happen to Boeing (and ULA) again.
CST-100... and still counting
You see, back in 2014, NASA awarded twin contracts to both Boeing and SpaceX to perform "Commercial Crew" missions, transporting astronauts from Earth to the International Space Station (ISS). Boeing, deemed the more reliable partner based on ULA's record of 106 uninterrupted successful space launches, was awarded $4.2 billion to design, build, and launch aboard a ULA rocket its CST-100 crewed space capsule. SpaceX, the new kid on the block, got $2.6 billion to send up "Crew Dragon" capsules aboard its own Falcon 9 rockets.
In exchange, both companies were asked to launch "at least one crewed flight test per company with at least one NASA astronaut aboard" sometime in 2017. Subsequently, after each company has demonstrated its ability to perform the mission, each contractor stands to be awarded anywhere from two to six additional Commercial Crew missions.
Trouble brewing for Boeing
The "subsequently" part of that deal is still fine. It's the initial launch date of 2017 that could prove problematic for Boeing. You see, last month, Boeing admitted that it won't have its CST-100 capsule ready to test-fly before February 2018 at the earliest. That's four months later than Boeing had previously promised NASA.
Boeing has already fixed one problem that was holding up its launch, removing extra weight from its CST-100 capsule. The company's still working on getting the aerodynamics of flying CST-100 atop an Atlas V rocket just right, however, and also struggling to incorporate additional software requirements imposed by NASA. Despite these issues, Boeing Executive VP Leanne Caret says she still expects that Boeing will beat SpaceX into orbit, and that "the CST-100 will be the first of the new American capsules to take astronauts to space."
SpaceX would beg to differ. While its schedule, too, appears to have slipped a bit, at last report, SpaceX is still planning to put an astronaut in space by Q3 2017 -- as originally contracted with NASA.
What this means for investors
Losing the GPS III contract to SpaceX last month was a double blow to Boeing. The company's ULA joint venture missed out on at least $82.7 million in revenue for the GPS III work -- and probably more. In awarding the contract to SpaceX instead of ULA, the Air Force noted that it had been expecting to pay something closer to $140 million for the contract.
Now, Boeing stands to lose even more revenue when SpaceX gets paid for one Commercial Crew launch next year -- or potentially for two, if two are needed and Boeing can't get its CST-100 ready in time.
More important than just the lost revenue, though, is that ULA's reputation for invincibility is eroding. Last year, ULA gave SpaceX a chance to surprise the Air Force with how much less it charges for work identical to what Boeing and Lockheed have been performing. Next time the Air Force gets a bid from Boeing, they're going to have to ask: "Do you think we could get this cheaper from SpaceX?" And now, with the CST-100 delay, the Air Force will have to ask: "Why is SpaceX so much faster than Boeing?" too. And maybe even: "Why are we paying Boeing more money for slower work?"
As one half of the former oligopoly provider of space launch services for the Air Force, Boeing is not used to being asked these sorts of questions. And now that they will be asked, I predict they will have a serious and ongoing effect on Boeing's prices -- and profits.
Danger: Beware falling profit margins ahead.