You've got to hand it to Elon Musk -- he called it.
Musk testified before the Senate Appropriations Defense Subcommittee in March, you see, trying to convince the Senators to open up competition on contracts to launch military satellites into space. And he warned the Senate that the company that currently has a near monopoly on this business, the Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT) joint venture United Launch Alliance, has a fatal flaw:
By relying on Russia to supply the engines for its Atlas V rockets, ULA risks having its supply chain interrupted. This might happen if Russia should decide, for example, to embargo sale of these engines to America in retaliation for sanctions imposed over Russia's invasion of Crimea.
Red ire rising
Upset at America's imposition of travel restrictions on Russian government and industry officials -- himself included -- Russian Deputy Prime Minister Dmitry Rogozin lashed out at the U.S. this week. In public statements and in tweets, Rogozin promised to block the sale of NPO Energomash RD-180 rocket engines to ULA, objecting to their use in launching U.S. military satellites into space.
What's more, Rogozin advised that Russia "doesn't plan to continue cooperation" with the U.S. on the International Space Station after 2020. That could be a problem, given that right now, the only way we can get our astronauts to the ISS is by renting rides on Russian rockets -- at $70 million a pop -- and that the current contract securing astronauts' right to ride these rockets expires in 2017. After that, Rogozin quipped: "I propose that the United States delivers its astronauts to the ISS with the help of a trampoline."
Rogozin's threat may even raise implications for space firm Orbital Sciences (NYSE:OA), which uses Russian NK-33 rocket engines to power its Antares light-to-medium-lift launcher -- used to ferry supplies to the ISS. Orbital is currently in the process of tying the knot with peer space firm ATK (NYSE:ATK) to form a new firm, Orbital ATK, which could soon feel the brunt of Russia's ire.
Blame the whistleblower
How did we get to this point? The U.S. sanctions against Russia lie at the core of the matter, certainly. But according to Boeing and Lockheed Martin, the real culprit here is none other than Elon Musk himself.
Following up on his warning that ULA was overly dependent on Russia, Musk's firm, SpaceX, filed a protest against a recent Air Force decision to award a sole-source contract for 36 space launches to ULA -- cutting SpaceX out of the loop. This protest spurred a federal judge to order a temporary ban (since lifted) on purchases of RD-180 rocket engines from Russia, irking Rogozin. It also inspired ULA to complain "that SpaceX's irresponsible actions have created unnecessary distractions, threatened U.S. military satellite operations, and undermined our future relationship with the International Space Station."
So you see, the root cause of this problem isn't ULA outsourcing a key element of America's critical defense missions to a supplier from a hostile country. It's really all Elon Musk's fault, for pointing out what ULA did.
Well, here's another fine mess you've gotten me into, Elon...
Whoever's to blame for the mix-up with Moscow, this impasse cries out for resolution. Otherwise it could damage the space businesses of both Boeing and Lockheed Martin -- which generate in excess of $8 billion in revenues apiece, annually, for the two firms -- and imperil U.S. national security to boot.
I see three likely beneficiaries here, and two likely losers, as the situation shakes out. The losers, obviously, are Boeing and Lockheed Martin. Whether they lose access to key rocket parts entirely or are simply forced to switch suppliers to someone more expensive -- cutting into profits -- either way, things are not looking good for the members of the United Launch Alliance.
On the beneficiaries side, meanwhile, it seems certain that one of the key missions of the new Orbital ATK space firm, once ATK and Orbital finalize their merger, will be to develop an independently produced rocket engine capable of lifting ULA's space packages into orbit. The companies will have a guaranteed customer in ULA, and probably gain others around the globe, as Russia's one-time embargo on rocket engines creates uncertainty among the country's other customers.
Separately, ULA's declamations aside, Elon Musk makes an excellent point in noting that SpaceX builds its engines internally, and does not rely on Russian suppliers for its ability to support Air Force launch missions. That's going to be a big factor in SpaceX's favor when the Senate agrees -- as I believe it must -- to open up military space launch missions to price-based competition.
Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Orbital Sciences. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.