Space is hard -- as space investors are fond of pointing out -- and it can be particularly hard for space companies to earn a profit in a crowded market where customers are limited, and competition is plentiful.
In 2006, in an effort to minimize competition and price wars in the space sector, Boeing (BA -1.29%) tied up with rival Lockheed Martin (LMT -0.32%) to form a joint venture for launching rockets to space. By joining forces in a United Launch Alliance, or ULA, Boeing and Lockheed aimed to guarantee their space businesses would remain profitable -- because they would no longer be bidding against each other to win contracts.
That plan worked pretty well until SpaceX arrived on the scene and launched a price war against ULA itself. Now, it appears that Boeing has decided to form another big alliance in order to minimize competition in at least one sector of the space market: Deep space.
A mind-boggling number
Late last month, NASA announced a new contract opportunity for space companies, advising that it plans to invite bids for Exploration Production and Operations Contract (EPOC) work on at least five -- and perhaps as many as 20 -- upcoming launches of its new Space Launch System megarocket.
Initially, the contract will cover launch services on the five moon missions designated Artemis V through Artemis IX. Subsequently, NASA may need help with five more Artemis launches (X through XIV), which would extend the contract's duration through approximately 2036. There's even the possibility of adding 10 additional missions during the same time period contemplated for Artemis missions V through XIV.
Add them up, and that's potentially 20 Artemis launches. And when you consider that, in a recent report to Congress, NASA's own Inspector General Paul Martin estimated the production and launch cost of SLS at $4.1 billion per mission, the total potential value of these 20 anticipated launches boggles the mind:
$82 billion. With a capital B.
Keep your friends close and your rivals closer
That's a lot of money -- and a lot of incentive for a big defense contractor like Boeing to do everything in its power to win at least a piece of the pie. Perhaps that's why no sooner had NASA's EPOC solicitation come out than Boeing announced it would ally with a rival to bid on the contract: Northrop Grumman (NOC -0.28%).
Actually, "bid" may be too weak a word to describe what's happening here because, as SpaceNews reported last month, from the get-go, this contract will be basically in the bag for Boeing. This $82 billion dollar space contract is going to be "effectively be sole-sourced" to Deep Space Transport LLC -- the name of the new joint venture between Boeing and Northrop.
To an extent, this makes sense. After all, the rocket that will be used on EPOC -- the Space Launch System (SLS) -- is built primarily by Boeing, and the solid booster rockets that help get SLS off the ground are made by Northrop. Although, in theory, other companies could build these rockets for NASA, in practice, the space agency thinks that "to have [someone other than Boeing] manufacture the Core Stage and Exploration Upper Stage may take as long as 10 years and at a "duplicative cost" to taxpayers. NASA similarly argues that it would take a company other than Northrop up to nine years to learn the ropes of building SLS's solid rocket boosters.
So basically, NASA is arguing that sole-sourcing this potentially $82 billion contract is actually a cost-saving measure.
What it means for Boeing and Northrop
I suppose it could work out that way. After all, NASA says its objective here is to reduce the cost of SLS by 50% or more -- presumably by guaranteeing Deep Space Transport LLC economies of scale that will enable them to build up to 20 SLS rockets cheaper. NASA Associate Administrator for Space Operations Kathy Lueders even suggested that she'd like to get costs down to "between $1 billion and $1.5 billion" per mission, which would be something like $20 billion or $30 billion spread across 30 missions. (She admitted, by the way, that "we've got a little ways to go" before that happens).
In the meantime, it sure does look like Boeing and Northrop Grumman have put themselves in a good position to capture $82 billion of taxpayer dollars by teaming up and helping NASA to explore deep space. And even if that doesn't work out, and in the worst case, what if NASA succeeds in getting that cost down to only $20 billion or $30 billion?
That's still quite a lot of money for Boeing and Northrop -- and they won't even have to compete with anyone to win it.
