Once upon a time -- oh, about eight years ago -- it cost as much as $400 million to launch a rocket to space. But then along came SpaceX.
Advertising launch prices as low as $67 million to put 22 tons of cargo in low Earth orbit with its Falcon 9 rocket, and developing a Starship vehicle that could launch 5 times more cargo for $2 million or less, SpaceX is making real progress toward its goal of lowering the cost of space travel by a factor of 100.
Granted, Starship still hasn't conducted a successful test flight to orbit. But it's getting close. And for rival launch company United Launch Alliance -- a joint venture between Boeing (BA 0.48%) and Lockheed Martin (LMT 0.06%) -- time is running out to field a rocket that can compete with SpaceX on cost.
But here's the good news for Boeing and Lockheed Martin shareholders: ULA may have done just that. It now appears to have a rocket that can compete with SpaceX on cost.
And its name is Vulcan Centaur.
Image source: Getty Images.
From $400 million to $100 million
If you recall, ULA's Delta IV Heavy was the "$400 million rocket" that SpaceX ridiculed in congressional hearings back in 2015. But the Delta IV family has since been shut down, and the rocket ULA chose to replace it, the Vulcan Centaur, costs quite a bit less.
In 2016, ULA CEO Tory Bruno set a goal of building and launching Vulcan Centaur for less than $100 million. On the face of it, that might not seem particularly aspirational. It fails to match, much less beat, the $67 million launch price that SpaceX advertises. On the other hand, getting costs down from $400 million to $100 million would still be a vast improvement. And in the context of the U.S. government national security launches -- which usually cost more than commercial launches -- that ULA specializes in, $100 million might be good enough to keep ULA competitive with SpaceX.
Case in point: Last month, the U.S. Space Force announced a series of 21 launch contracts awarded to both SpaceX and ULA. Totaling $2.5 billion in value, the contracts were split between the leading space companies, with ULA winning 11 launches for $1.3 billion, and SpaceX bagging 10 launches for $1.2 billion.
Do the math. That's $120 million per launch for SpaceX... and only $118 million per launch for ULA.
Abracadabra: ULA just matched SpaceX's prices.
Apples and jumbo-sized oranges
Well, sort of.
As CNBC pointed out last month, all 11 of ULA's launches will utilize the company's newer, cheaper Vulcan Centaur offering. SpaceX will launch seven Falcon 9s, and three Falcon Heavies -- jumbo-sized rockets equipped with two additional Falcon 9 boosters each, for which SpaceX charges an extra $30 million.
And, for those curious, here's the rundown of the 21 mission assignments: https://t.co/kuWSHzzr3q pic.twitter.com/0hLEknRGwf
-- Michael Sheetz (@thesheetztweetz) November 1, 2023
So the price of launches aren't 100% comparable. If all 10 SpaceX missions were slated to launch atop Falcon 9s, the cost would probably be closer to $1.1 billion total, or $110 million apiece. That means SpaceX launches still probably cost at least a little bit less than ULA.
But we're approaching the point where the difference in price is a mere rounding error.
Merry Christmas to Boeing and Lockheed Martin?
Now, it remains to be seen what a first-time-ever parity in pricing between SpaceX prices and ULA will mean for Boeing and Lockheed Martin stocks, not least because Boeing and Lockheed Martin might sell ULA to another company in the next few weeks.
Still, for the sake of argument, assume that Boeing and Lockheed don't sell ULA -- or at least don't sell it right away. In that case, you might assume that lower launch prices will mean less revenue and less profit for these two defense giants, which own ULA, to split in the future.
That's not necessarily the case, however. True, S&P Global Market Intelligence data show that Lockheed's space revenue has declined over the past couple of years as competition from SpaceX forced prices down. Also true, Lockheed's space profit margins have eroded, down from 12.6% in 2015, before SpaceX began competing on national security missions, to just 8.8% last year. The same is probably true for Boeing, but Boeing doesn't break out the numbers for its space business.
NYSE: LMT
Key Data Points
But if Vulcan Centaur costs less to build and operate than ULA's older Atlas and Delta rockets, then revenue might stop falling -- and profit margin might even rise once Vulcan starts launching.
That's the outcome Boeing and Lockheed investors should be hoping for, and thanks to Tory Bruno for delivering on his promise to cut launch prices, it's a realistic hope.
