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SpaceX Challenge of Air Force Contract Dismissed by Judge

By Lou Whiteman – Updated Oct 5, 2020 at 10:40AM

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A court has ruled the government was within its rights when it deemed SpaceX's proposal to be too risky.

A federal judge has dismissed a SpaceX challenge to a U.S. Air Force contract award, ruling that the government did not act improperly when it denied the Elon Musk-backed rocket company a share in a massive rocket development contract.

In October 2018, the Air Force awarded $2.2 billion to three candidates developing the next generation of rockets designed to carry military payloads into space. The service awarded $967 million to United Launch Alliance, a joint venture between Boeing (BA 3.61%) and Lockheed Martin (LMT 2.36%); $792 million to Northrop Grumman (NOC 2.77%); and $500 million to Jeff Bezos' Blue Origin.

A rocket blasting off into space.

Image source: Getty Images.

The government at the time said it expected to eventually select two providers of national-security space launch services, with a lucrative potential stream of defense contracts to the eventual winners.

SpaceX was left off the list, and the company in May 2019 sued the government claiming the contracting process was "opaque." The challenge was initially filed in the Court of Federal Claims, but was transferred to the U.S. District Court for the Central District of California in August 2019.

In a ruling made public late Friday, Judge Otis D. Wright II of the District Court found the Air Force was not guilty of any wrongdoing in its assessment of the bidders, including its conclusion that the SpaceX Starship rocket was more risky, and too expensive, to merit consideration.

Even with the ruling, all is not lost for SpaceX. The company earlier this year was named along with United Launch Alliance as the vendors to launch military payloads into space between 2022 and 2027. The companies beat out Northrop and Blue Origin for those awards, which could be for as many as 34 missions for the Pentagon and spy agencies.

Musk decided to continue to pursue the litigation even after that award, arguing that the missed development deal would cause substantial harm to his company by denying it funds needed to continue work on its Starship system.

In addition to military payloads, Starship is also central to a plan by Musk and SpaceX to eventually transport humans to Mars.

Lou Whiteman owns shares of Lockheed Martin. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Boeing Stock Quote
Boeing
BA
$182.13 (3.61%) $6.35
Lockheed Martin Stock Quote
Lockheed Martin
LMT
$495.10 (2.36%) $11.40
Northrop Grumman Stock Quote
Northrop Grumman
NOC
$545.00 (2.77%) $14.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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