Will they or won't they?
For most of 2023, this has been the question on space investors' minds: Will Boeing (BA 0.25%) and Lockheed Martin (LMT -0.75%) -- the two defense giants that own rocket company United Launch Alliance 50-50 -- sell ULA to an outside investor? Or will Boeing buy out Lockheed and take ULA entirely in-house? Or will Lockheed Martin buy out Boeing and claim ULA for itself?
Today, the answers seem to be: Yes, no, and also no.
A bit of space history
United Launch Alliance, the joint venture formed by Boeing and Lockheed in 2006, has historically earned profits. But as rival space launchers -- from Blue Origin to Firefly Aerospace to Rocket Lab to, most famously of all, SpaceX -- have begun competing with it, those profits have been dwindling.
According to data from S&P Global Market Intelligence, Lockheed Martin's space division -- the closest proxy for measuring profitability at privately held ULA because it shares in that business's profits -- has seen its operating profit margin erode from 12.6% in 2015 (the first year SpaceX received U.S. Air Force certification to launch national security missions) to just 8.8% last year. Meanwhile, Boeing's defense, space, and security division -- a somewhat worse proxy because it's not a "purely" space business -- earned a 9.8% operating profit margin in 2015, but suffered a $3.5 billion loss last year.
That seems like a good reason for Boeing and Lockheed to want to sell ULA.
Selling United Launch Alliance
In fact, in March 2023, tech website Ars Technica was able to confirm that Boeing and Lockheed Martin had decided to put United Launch Alliance up for auction.
Multiple theories soon emerged for who might end up buying the space company. Rival space firms Northrop Grumman and privately held Blue Origin were both named as potential buyers. So were Boeing and Lockheed Martin, themselves -- with one partner in the ULA JV buying out the other.
As of today, however, it appears that the long list of potential bidders has been whittled down to a short list of just three potential buyers. As Ars Technica (again) reports, the contenders today are: an unnamed private equity fund, an unnamed aerospace company, and Blue Origin.
One of these things is not like the others
It's difficult to speculate on the potential for either of the two "unnamed" buyers to acquire United Launch Alliance. Not knowing their identities, investors have no idea (1) whether they could afford a purchase price (which I've ballparked at $5.2 billion), (2) whether it would make sense for them to buy ULA, or (3) or whether such an acquisition would pass regulatory muster (i.e., would not squelch competition in the space launch sector).
On the first question, although Blue Origin is a private company and so does not disclose its finances, it is owned and financed by Amazon founder Jeff Bezos. With a net worth of nearly $170 billion, and a track record of funding Blue Origin through regular annual sales of $1 billion worth of his Amazon stock, Bezos single-handedly makes it possible for Blue Origin to buy ULA.
On the second question, it most definitely would make sense for Blue Origin to buy United Launch Alliance. Already, Blue manufactures BE-4 rocket engines for ULA's soon-to-debut Vulcan rocket. Buying ULA would create a vertically integrated rocket company running from engines to rockets, to launch services, almost all the way to customers. Amazon plans to launch satellites with both Blue Origin and ULA. And while Amazon is not officially affiliated with Blue Origin, it's factually connected to the space company via Jeff Bezos.
In buying ULA, Jeff Bezos would create one very big, happy space family to rival SpaceX.
The big question for Blue Origin and ULA
A bigger question for investors is whether the federal government -- in particular, the Federal Trade Commission -- would permit Blue Origin to acquire ULA. The fact that Blue Origin and United Launch Alliance are rivals currently, and thus bid against each other for launch work, means that combining the two companies would necessarily reduce competition in the space sector.
Granted, similar concerns didn't prevent the FTC from permitting Boeing and Lockheed Martin to combine their space launch operations to form United Launch Alliance in the first place. Still, if I were to peer into my crystal ball, here's my guess at how this all plays out:
Bankrolled by Jeff Bezos, Blue Origin places the winning bid for ULA sometime next month. Soon after, the FTC announces an antitrust investigation. The process drags on for months, ending, finally, in the FTC rejecting the merger and ULA continuing on, independent as before, but less profitable than before.
