Amazon (AMZN +2.05%) and SpaceX are not friends.
This fact was made painfully obvious back in April 2022, when Amazon, the e-commerce giant founded by Jeff Bezos, signed satellite launch contracts with everyone who is anyone in space -- except with SpaceX.
This includes Blue Origin (the space company founded by Bezos), United Launch Alliance ("ULA," the joint venture between Boeing and Lockheed Martin), Arianespace (the Airbus subsidiary), and even the tiny space start-up ABL Space Systems (which had not then, and still has not today, ever flown a rocket to space).
And someone finally noticed this painfully obvious fact.
NASDAQ: AMZN
Key Data Points
First thing we do, let's [call] all the lawyers
It's been just under 18 months now since Amazon announced the list of space companies it has hired to launch its Project Kuiper satellites, designed to build a satellite broadband internet system to rival SpaceX's Starlink. And as SpaceNews reported on Aug. 31, 2023, a pension fund that owns shares of Amazon has filed a lawsuit against Amazon's board of directors, alleging it "acted in bad faith" in declining to hire SpaceX to work on Project Kuiper.
Amazon management informed its board of its intention to hire Blue Origin, ULA, Arianespace, and one other unnamed company (presumably ABL) in July 2020, alleges the Cleveland Bakers and Teamsters Pension Fund in its lawsuit. Yet the board "did not take any steps to oversee the negotiation process or to insulate the process from conflicts of interest" (emphasis in original).
A November 2020 expansion on the plans likewise failed to elicit guidelines or oversight from the board. And when, in January 2022, Amazon management presented proposed contracts for Blue Origin and ULA, the board spent "no more than a few minutes" discussing them. A final meeting in March 2022 received only 40 minutes of discussion before all three of the biggest contracts, with Blue Origin, ULA, and Arianespace, were approved.
So what's wrong with that? Shouldn't Amazon be able to hire whomever it wants to launch its satellites? And shouldn't Amazon's board be able to trust Amazon's management to choose the right companies for the work?
Perhaps. But the pension fund argues that the one space company Amazon chose not to hire for this work -- SpaceX -- was "the launch provider with the most proven track record and the lowest prices in the industry," and yet "seemingly not considered by Amazon" at all. This decision to not hire the low-cost provider may have caused Amazon (and by extension, shareholders including the Cleveland Bakers and Teamsters Pension Fund) to overpay by "hundreds of millions of dollars."
Bezos vs. Musk
Of course, the question naturally arises: If Amazon had the chance to save money on its satellite launches, why would it choose to overpay? According to the lawsuit, at least, the answer is simple:
Jeff Bezos has beef with Elon Musk.
The founder of both Amazon and one of the companies Amazon hired has a "bitter track record" of competition with SpaceX founder Elon Musk, argues the pension fund. The bad blood probably began back in 2015, when Blue Origin landed its New Shepard rocket back on Earth after a suborbital launch -- while SpaceX was still working on the much more difficult task of landing a faster orbital-class rocket on a boat at sea.
Twitter wars erupted as the two CEOs fired sporadic potshots at each other. And the competition continued to simmer up through this year, when after years of lawsuits trying to swipe a NASA contract to land astronauts on the moon, which SpaceX had won, Bezos' Blue Origin finally won a moon contract of its own. And given the personal animus between Bezos and Musk, it's perhaps understandable that an Amazon that was still under Bezos' influence might not want to award contracts to SpaceX.
But even so, the cost of this decision may have been enormous.
The cost of beef
Consider that the 92 space launches contracted for Project Kuiper may cost Amazon $10 billion or more. (Estimates range from $8.5 billion to $13.7 billion.) In contrast, at SpaceX's advertised $67 million price for a Falcon 9, 92 launches would have cost Amazon only $6.2 billion.
Specific details on the price Amazon is paying for its launches were scrubbed from the public version of the lawsuit. But assuming the above figures are accurate, refusing to consider SpaceX for its contracts may have caused Amazon to overpay by at least $2.3 billion, probably closer to $3.8 billion, and potentially as much as $7.5 billion based on the information we know.
That's money that by rights belongs to Amazon's shareholders. Money that Amazon instead plans to hand over to contractors -- including one contractor personally owned and run by Amazon's founder, Bezos.
What it means to investors
In light of the massive amounts of money in question, you might expect the plaintiff in this lawsuit to seek similarly massive compensation from Amazon in the event the pension fund wins its lawsuit. Curiously, however, the suit doesn't actually name any particular amount of compensation that the pension fund is demanding -- just unspecified "damages" and "disgorgement of profits" by the 11 Amazon board members named in the lawsuit. (Although Amazon itself is named as a "nominal defendant," the plaintiff doesn't actually seem to want any money from Amazon itself.)
So the good news for shareholders is that the effect of this lawsuit upon Amazon and its $1.5 trillion market capitalization should actually be pretty minimal. Indeed, if the company's directors are found to have breached their fiduciary duties, as the plaintiffs allege, the effect of this lawsuit could be good for Amazon shareholders.
"Good," that is, if this results in the satellite contracts being awarded to lower-cost providers such as SpaceX, resulting in billions of dollars saved for the company.
