Six months ago, Northrop Grumman (NOC 0.79%) had a problem. Today, it has a solution.

When Russian tanks rolled into Ukraine on February 24, 2022, they provoked both an international humanitarian crisis, and on a smaller scale a crisis for Northrop Grumman's space program. Over the past decade, Northrop had developed a new medium-class launch vehicle called the "Antares" rocket, which it has used to -- among other things -- perform its share of a $14 billion, multi-party, multi-year NASA contract to resupply the International Space Station (ISS). 

The problem is that Antares depends on RD-181 main rocket engines that are produced in Russia, and a core stage that is manufactured in Ukraine. But with Russia under sanctions, and Ukraine in the middle of a shooting war, this has essentially shut down production of new Antares rockets for Northrop, imperiling the hundreds of millions of dollars the company was supposed to collect for its work on the Commercial Resupply Services-2 contract.

American rockets: Now made in the USA

So what's the solution? Back in June, I suggested that Northrop's Russo-Ukrainian problem could be best fixed by either developing a new rocket engine in-house, or switching to an American supplier such as Aerojet Rocketdyne (AJRD).

Well, at least I was close.

As it turns out, Northrop has elected to find an American source for its rocket engines, but it's not going to be Aerojet. Instead, Northrop is heading to Texas, and tapping once-bankrupt-but-now-alive-again space start-up Firefly Aerospace to solve its Russian engines problem. Together with Firefly, Northrop will "first develop a fully domestic version of our Antares rocket, the Antares 330, for Cygnus space station commercial resupply services," and then design and build "an entirely new medium class launch vehicle" (the less-than-imaginatively-named "Medium Launch Vehicle") as well. 

The companies' first project, Antares 330, will incorporate seven new Firefly "Miranda" engines to power its first stage, instead of the two Russian RD-181 engines previously used. (Miranda appears to be the name of the new engine Firefly is designing to power its upcoming "Beta" rocket. The company's "Alpha" rocket, currently in testing, uses a first stage engine dubbed "Reaver".) 

Firefly-designed composites will also be used to build the rocket's core and fuel tanks. And when combined with Northrop's own Castor 30XL second stage engine, the companies say the new Antares 330 will "significantly" increase the rocket's payload to orbit as compared to the current Antares 230. 

What happens next

Northrop targets a mid-to-late 2024 launch date for the first A330 rocket, according to CNBC. Of course, that's still two years away, and Northrop has existing contracts to fulfill between now and then -- so it's going to need an interim solution. 

According to the company, Northrop has two Antares rockets built and ready to launch for planned ISS resupply missions later this year and early next year. However, Northrop's NASA contract calls for the company to resupply ISS six times between now and 2024. To bridge the gap between now and then, Northrop says it has hired rival space company SpaceX -- which has an ISS resupply contract of its own -- to fly Northrop's Cygnus resupply capsules to ISS atop Falcon 9 reusable rockets three times through mid-2024.

By that time, if all goes as planned, Northrop's Antares 330 should be ready to fly, and to take over this work.

What it means for investors

Taken as a whole, all of the above is good news for Northrop Grumman and its shareholders. On the one hand, the company will probably take a hit on profit margins at its Space Systems division (currently generating 10.6% margins according to data from S&P Global Market Intelligence) by having to hire SpaceX to give it a lift to ISS in 2023 and 2024.

On the other hand, signing up SpaceX means Northrop gets to fulfill its contract with NASA, and won't have to forfeit the billions of dollars of revenue it gets from that contract. At the same time, tying up with Firefly eliminates a big Russian risk that's been part of Northrop's business model from the get-go. It secures Northrop's supply chain in the rocket engines department, and as a bonus, it will give Northrop's rockets greater payload capacity.

One caveat, though, does deserve mention: Firefly's Alpha rocket has only flown once, in September 2021, and that flight ended in failure when an anomaly occurred in the first stage of flight, forcing the Alpha rocket to self-destruct. One year later, a second attempt has been scheduled for Sept. 10, 2022 -- but even that one won't be using the new Miranda engines that are the main object of Northrop's partnership with Firefly. 

Northrop has a lot riding on this new venture. Fingers crossed that it works out.