National Security Space Launch Phase 2, or NSSL 2, is in full effect.
Remember back in 2020 when the U.S. Space Force budgeted billions of dollars' worth of rocket launch contracts under its NSSL 2 program...and handed them all to just two companies: SpaceX and United Launch Alliance (the joint venture between Boeing (BA 1.10%) and Lockheed Martin (LMT 1.63%))?
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Key Data Points
Well, while that 2020 contract may seem like old news here in 2023, it turns out that Space Force is still figuring out exactly how to divvy up the launch contracts -- and how many to launch. When first announced, NSSL 2 was expected to cover a total of 25 launches, but according to SpaceNews.com, the number may ultimately grow to as many as 40 missions.
Last week, Space Force announced the latest batch.
Image source: Getty Images.
You get a new contract, and YOU get a new contract, too!
In a 50-50 split, Space Force tapped upstart space company SpaceX to perform six more NSSL 2 missions -- five Space Development Agency missions, dubbed T1TL-B, T1TL-C, T1TL-D, T1TL-E, and T1TR-C; and one classified national security mission for Space Force, USSF-31. They gave six more to ULA: four military missions -- NROL-64, NROL-83, GPS-III-08, and USSF-114; and two for SDA -- T1TR-B and T1TR-D.
Aside from the alphabet soup of mission names, what's really interesting about these contract awards is the price.
Recall that when we first covered NSSL 2 three years ago, I pointed out that rocket launch contracts awarded by Space Force had been averaging about $218 million per mission in cost. That was already a huge savings over the $400 million that ULA was charging the Pentagon for some rocket launches as recently as 2015 -- and surmised that prices were falling primarily because SpaceX was selling rocket rides for much less than ULA, forcing the latter to cut prices and operate more efficiently.
Well, as it turns out, this trend is also still in effect. Aviation Week just reported that Space Force will pay a grand total of less than $1.2 billion for the 12 missions in question.
Re: @SpaceForceDoD assignment of 6 NSSL Phase 2 missions to @spacex and 6 to @ulalaunch valued at $541M and $633M respectively. "Missions will be launched to a variety of locations, several of which are to more challenging NSSL-unique orbits....Thus, the value of total Task...
-- Irene Klotz (@Free_Space) June 14, 2023
Under $1.2 billion for 12 launches -- that's less than $100 million per launch. That's also less than half the average per-launch price just three years ago!
The good news gets better
A couple few things are worth pointing out here. First, broken down by launch provider, Aviation Week notes that SpaceX will receive $541 million for its six launch missions, just a smidge over $90 million per launch. Space Force is still paying United Launch Alliance a premium for its launches -- $633 million total, or $105.5 million per rocket ride. This may seem a bit unfair to SpaceX. But according to Space Systems Command, it actually isn't unfair: "Several of [the ULA missions] are to more challenging NSSL-unique orbits," justifying a higher price.
Second, let's not miss the space forest for the space trees here. We're talking about a 50%-plus reduction in the price of space launches. Space Force deserves credit for perhaps temporarily overpaying ULA to keep it in business and maintain price competition between two launch providers, with the ultimate goal of lowering the cost of space launch for everyone.
Right now, that plan is going gangbusters.
Third and finally, wading even deeper into the woods, CNBC reports this week that, based on the numbers reported so far, it appears that ULA has successfully cut its launch costs to as little as $100 million to $120 million on its new Vulcan Centaur rocket. (Admittedly, Vulcan hasn't actually conducted a successful launch yet, but if and when it does, those are the prices it will be targeting).
What it means for taxpayers...and investors
It's hard to overemphasize just how good this news is for taxpayers. In the space of less than a decade, bringing in SpaceX to compete on price with ULA has succeeded in cutting the latter's launch prices by as much as 75%. It's easy to see this transformation saving billions of taxpayer dollars over time.
What remains to be seen is the effect this will have on profit margins for ULA's two owners, aerospace and defense giants Boeing and Lockheed Martin.
According to data from S&P Global Market Intelligence, Lockheed's Space division has seen its profit margins erode from 12.6% in 2015, when SpaceX was still lobbying for the right to launch national security missions, to 9.4% in 2020, when NSSL 2 was awarded, to just 8.8% last year.
That's about a 30% drop in profit per revenue dollar.
Boeing's space business is harder to parse, seeing as the company bundles it within a unit titled Defense, Space & Security (BDS) and doesn't ever break out the "Space" part. Nevertheless, from a 9.8% profit margin in 2015 to 5.9% in 2020 and an operating loss in 2022, it's not hard to guess how things might be going for Boeing's Space business.
Sad to say, what's good news for taxpayers in this story may not be such great news for an investor in Lockheed -- and even less so for an investor in Boeing. If you've been considering buying stock in either of these aerospace companies, my best advice is just: caveat investor.
