By now you've heard the news: The United Launch Alliance (ULA) joint venture between Boeing (BA +4.26%) and Lockheed Martin (LMT +2.36%) is for sale. Indeed, it's reportedly going to be sold before the end of this very year. You've probably also heard by now that the most likely scenario has Lockheed Martin buying Boeing's 50% stake in the joint venture, and bringing ULA entirely in-house.
But here's something you may not have heard: The price Lockheed Martin will pay for ULA (if indeed it buys it) may have just gotten cheaper.
NYSE: LMT
Key Data Points
Houston? One of our rockets is missing
Late last month -- just weeks after rumors of the ULA sale began circulating -- ULA CEO Tory Bruno revealed on Twitter that a Centaur rocket appears to have exploded during testing. To be precise, he said it "experienced an anomaly" -- but as everyone in the space business understands, that generally means "it blew up." And it wasn't long before dramatic video emerged to illustrate the fact:
Outside of the test rig/ stand. Test article is inside (you can't see it). Hydrogen leak. H2 accumulated inside the rig. Found an ignition source. Burned fast. Over pressure caved in our forward dome and damaged the rig. pic.twitter.com/0d0KpI1ggj
-- Tory Bruno (@torybruno) April 13, 2023
Centaur, of course, comprises the second stage of ULA's new Vulcan Centaur rocket. And in order for Vulcan Centaur to become a viable, flyable space system, all parts of the rocket have to test out as safe. Now, however, the rocket's safety has come into question -- and with it, ULA's ability to begin Vulcan Centaur launches on schedule.
At last report, ULA was hoping to get Vulcan Centaur's maiden voyage off the ground on May 4, 2023. The anomaly with the Centaur, however, combined with other reported delays to the project, suggest that Vulcan Centaur might not actually fly before later in the summer.
"We will not know the impact to the launch date until we learn more information from the investigation," said a ULA spokesperson. But it's perhaps instructive that ULA has asked the primary customer on Vulcan Centaur's first flight, lunar exploration company Astrobotic, to hold off on delivering its Peregrine lunar lander for integration with the rocket for the time being.
Nor is this first mission -- dubbed "Cert-1" -- the only one that might be affected by last month's Centaur anomaly. According to published plans, ULA had been hoping to quickly knock out the two "certification" missions needed to get Vulcan Centaur approved by the government to fly "national security" missions (i.e. spy satellites and such) -- and then to actually fly one such national security mission before the end of this year.
That timeline, though, is now looking very tight indeed.
What it means for investors
All of that is interesting for space fans, but what does it mean for space investors?
Well, in a nutshell, the important part is this: Any delay in the start of Vulcan Centaur launches has the potential to cost ULA revenue, to reduce ULA's value to an acquirer (including an acquirer such as Lockheed Martin, which already owns half the company), and also to reduce the price such an acquirer would pay to acquire the rest of ULA.
Consider: At last report, ULA still had 19 Atlas V launch vehicles in its inventory, and two Delta IVs. That's probably enough rockets to keep ULA in the launch business for another couple years. However, all of these rockets are already spoken for, meaning sold to specific customers to perform specific missions over the next couple years. At some point, if ULA wants to bring in new business, it has to switch over to Vulcan Centaur for its launches -- and the sooner that happens, the more secure ULA's revenue stream will be.
Conversely, the longer it takes Vulcan Centaur to start flying, the more business ULA may lose, as customers buy their launches from SpaceX or Europe's Ariane instead.
Now recall: Last month I argued that ULA will probably sell for about four times sales, or $5.2 billion -- if and when it does sell. In the wake of the Centaur anomaly, however, Lockheed Martin (or another acquirer) should be able to argue that ULA is now worth less, and therefore should cost less. This implies that Lockheed Martin might be able to pick up the 50% of ULA that it doesn't yet own for perhaps a discount.
But here's the thing: As a longtime participant in the space industry, Lockheed knows that anomalies are part and parcel of the space business. Problems crop up, delays happen, the problems are fixed, and the launch cadence eventually makes up for lost time. For a longtime investor like Lockheed Martin, therefore, a brief delay in Vulcan Centaur's arrival isn't really that big of a deal.
To the contrary, the biggest effect of this anomaly might be to deliver ULA to Lockheed at a bargain price.
